SEC No-Action Letters on Investment Adviser Responsibilities in Voting Client Proxies and Use of Proxy Voting Firms

Harvard Law School Forum on Corporate Governance and Financial Regulation
Steve Wolosky, Andrew Freedman and Ron Berenblat

As reported in our prior Client Alert, the Securities and Exchange Commission (“SEC”) issued a statement in July announcing that it will host a roundtable regarding the U.S. proxy process. The roundtable, expected to be held in November, will give the SEC an opportunity to discuss with market participants various topics, including the hotly debated role of proxy voting firms. On September 13, 2018, the Division of Investment Management of the SEC (the “Staff”) issued an Information Update stating that in developing the roundtable agenda, the Staff has been considering whether prior SEC guidance on the responsibilities of investment advisers with regard to voting client proxies and retaining proxy voting firms should be “modified, rescinded or supplemented.” As part of this process, the Staff announced that it has revisited no-action letters it issued in 2004 to Egan-Jones Proxy Services (“Egan-Jones”) and Institutional Shareholder Services (“ISS”) that provided guidance regarding the reliance of investment advisers on the recommendations of proxy voting firms and determined to withdraw these letters effective immediately.

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