US SEC Overhauls 2020 Proxy Rules

The US Securities and Exchange Commission (SEC) has amended rules which required proxy advisory firms to provide companies with the information that contributed to their voting recommendations to shareholders prior to the vote taking place. The rules were adopted in 2020 under the Trump administration and were subject to criticism from proxy advisory firms, such as the International Shareholder Services, as this limited investors’ ability to fairly hold companies to account. The SEC is rescinding two elements of the 2020 rules: the requirement that company management is allowed to respond to proxy advice before it has been issued to shareholders, and the rescission of 2020 changes which generated confusion around proxy rules’ liability provision. While SEC Commissioner Allison Herren Lee said these amendments are “bettered tailored” to balance the needs of investors, the ISS has argued that the 2020 rule “should have been rescinded in its entirety”. The SEC has also published amendments to Rule 14a-8 which are now open to consultation. The proposed amendments aim to clarify in what circumstances companies are allowed to exclude shareholder proposals from their proxy statements. SEC Chair Gary Gensler said: “I believe these proposed amendments would provide a clearer framework for the application of this rule, which market participants have sought. They also would help shareholders exercise their rights to submit proposals for consideration by their fellow shareholders.”

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