As July turns to August and many of us think of extra time with family and perhaps even a covid-modified vacation, the SEC has continued what has become a regrettable late summer tradition during this administration – issuing guidance for investment advisers related to their proxy voting responsibilities. The latest salvo came on July 22, 2020 in conjunction with the SEC’s finalization of its proxy advisor rulemaking.

The July 2020 SEC Guidance supplements and expands on the lengthy policy statement the Commission issued in August 2019, with a special focus this time on considering company views and investment advisers’ use of automated vote management tools. While the new guidance promises another round of work for investment advisers’ compliance teams, Glass Lewis clients are well positioned to leverage existing Glass Lewis programs, as well as the tools and flexibility of the Viewpoint voting platform, to meet the SEC’s expectations.

For more background on the SEC’s Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, please refer to the end of this article.

Leveraging Glass Lewis Tools in Compliance.

The combination of Glass Lewis’ robust engagement practices and the functionality of the Viewpoint voting platform provide a strong foundation for investment advisers to meet the expectations set out in the new guidance.

Engagement between companies and research analysts

Glass Lewis engagement practices ensure that companies have an opportunity to engage directly with Glass Lewis analysts and confirm key facts as part of Glass Lewis’ research process. Glass Lewis has an open-door policy for engaging with companies outside of the solicitation period, conducting more than 1500 such meetings globally each year. Companies can request an engagement meeting to discuss their specific company or Glass Lewis’ policies and meet with the relevant analysts that cover research on the company and sector, rather than being directed to meet with consultants selling corporate consulting and adjacent services.

Accuracy of research and company access to reports

Moreover, Glass Lewis Issuer Data Report (IDR) service allows companies to obtain a free, data-only version of the report for their review and comment prior to Glass Lewis completing and publishing the final version of its analysis to investor clients. More than 1,000 companies currently participate in the IDR process every year. In addition, since 2019, companies and others can access Glass Lewis’ proprietary pay evaluation methodology, models, analytics, and underlying data via Glass Lewis’ independent partner, CGLytics.

Providing and including company feedback on proxy advice

In addition, the SEC’s new guidance focuses on considering company responses to proxy advice, something Glass Lewis clients can do today through Glass Lewis’ innovative Report Feedback Statement (RFS) service. Fully deployed in the 2020 proxy season, RFS provides a unique opportunity for the subjects of Glass Lewis’ research – public companies, shareholder proposal proponents, dissident shareholders and parties to an M&A transaction — to respond to proxy advice and have those unedited responses included with Glass Lewis’ research and delivered directly to Glass Lewis’ investor clients via Glass Lewis’ research and voting platforms.

When a public company chooses to submit an RFS, they have up to 7 calendar days to do so.

Glass Lewis analysts then review the company’s feedback and determine whether any change to its proxy research and advice is warranted.

Glass Lewis clients then receive the company’s unedited statement included with the re-issued Glass Lewis proxy research report along with a clear indication of whether the company’s feedback caused Glass Lewis to revise its report in any respect.

Versions of Glass Lewis research published prior to company feedback are simultaneously removed from our distribution platforms and client access. Furthermore, Glass Lewis Viewpoint clients can also access all of an issuer’s SEC filings, including any additional soliciting material filed by an issuer with the Commission.

Vote execution and investment adviser compliance management

Glass Lewis’ Viewpoint voting platform provides flexible, automated vote management and execution tools that Glass Lewis clients can leverage to fulfill their proxy voting responsibilities in a cost-effective, efficient manner. As the SEC has recognized, proxy advisors are able to capture economies of scale through the services they provide their institutional investor client base. The ability to automate certain ministerial tasks of the proxy voting process, such as filling in and submitting ballots in accordance with their preferences, allows investment advisers and other proxy advisor clients to find efficiencies and save their clients’ money.

Importantly, Glass Lewis Viewpoint clients can elect to pre-populate ballots with their voting preferences, often based on their custom voting policy, and to auto-submit their votes in accordance with their instructions at the time they specify. This functionality avoids having to fill in what can often be thousands of ballots each proxy season in accordance with the institutional shareholder’s chosen voting policy. Similarly, auto-submission avoids rote manual voting on each of these thousands of ballot items and minimizes the risk of missed votes.

The most important feature is that, at any point in time, Viewpoint allows Glass Lewis clients to override or manually change a pre-populated vote before it is submitted. What’s more, even in instances where a vote has already been manually cast or auto-submitted in accordance with the client’s instructions, Viewpoint allows Glass Lewis clients to change such a vote at any time before the meeting’s vote deadline.

While investment advisers’ compliance teams may have hoped for a quieter end to their summer, Glass Lewis’ robust programs put our investment adviser clients in a strong position to meet the SEC’s increased expectations. For those looking for a deeper discussion of these issues, Glass Lewis has published a resource for investment advisers, with a detailed guide to Glass Lewis’ policies and procedures related to the topics addressed in the SEC’s 2019 and 2020 guidance documents. And, of course, Glass Lewis personnel are always available to meet with investment advisers’ compliance staff to walk them through Glass Lewis’ policies and procedures and answer any additional questions.

Get in touch to learn more about how Glass Lewis can help with compliance.


Background: The August 2019 SEC Guidance

The SEC’s two rounds of guidance are a byproduct of the decade-long campaign by some  companies and their trade associations to use the regulatory process to push back on what they feel are their shareholders’ (and those shareholders’ advisors’) excessive willingness to oppose management proposals. Foremost among the allegations hurled in this campaign was that proxy advisors’ work is rife with errors. While this charge was so thoroughly discredited during the course of the SEC’s rulemaking that it was dropped as a basis for the final rules, the August 2019 guidance focused on investment advisers’ responsibility to vet their proxy advisor, including understanding their capacity, practices for engagement with companies and clients, quality control, conflict avoidance and disclosure policies, and error correction processes.

The August 2019 policy statement did not change the law or create any new SEC rules. Rather, it gave additional guidance to investment advisers on how to fulfill their existing responsibilities under SEC rules to adopt and implement policies reasonably designed to ensure that the adviser votes proxies in the best interest of its clients. Glass Lewis has published a detailed resource for its clients to help them carry out the due diligence contemplated by the SEC and many of Glass Lewis’ investment adviser clients, some with the aid of this resource, reviewed their policies against the SEC guidance prior to this past proxy season.

The SEC’s New Guidance

As noted above, the SEC’s new guidance was issued in conjunction with the SEC’s adoption of new rules for proxy advisors. Unable to substantiate the allegations of proxy advisor inaccuracy that prompted its rule proposal, the SEC shifted its focus mid-rulemaking to so-called “robo-voting” – the notion that some shareholders are reflexively voting in line with their proxy advisor and against management without regard to the merits of the issue or management’s arguments. Rather than imposing the voting “speed bump” or one of the even more prescriptive measures urged by the same trade association backers of the rulemaking, however, the Commission issued a supplement to its August 2019 guidance focusing (again) on consideration of company views, as well as what the SEC called “automated voting.”

  • Company views. The guidance suggests that an investment adviser should consider “whether its policies and procedures address circumstances where the investment adviser has become aware that an issuer intends to file or has filed additional soliciting materials with the Commission after the investment adviser has received the proxy advisory firm’s voting recommendation but before the submission deadline.” According to the SEC, “if an issuer files such additional information sufficiently in advance of the submission deadline and such information would reasonably be expected to affect the investment adviser’s voting determination, the investment adviser would likely need to consider such information prior to exercising voting authority in order to demonstrate that it is voting in its client’s best interest.” The SEC did not explain what constituted “sufficiently in advance of the submission deadline.”
  • Automated voting. The new guidance also addresses two automated vote management practices: (i) clients asking their proxy advisor to pre-populate ballots on their behalf in line with their voting policy; and (ii) clients directing the proxy advisor to automatically submit their votes at a specified time if they have not directed otherwise. The SEC guidance suggests that an investment adviser “consider disclosing: (1) the extent of its use of automated voting and under what circumstances it uses automated voting; and (2) how its policies and procedures address the use of automated voting in cases where it becomes aware before the submission deadline for proxies to be voted at the shareholder meeting that an issuer intends to file or has filed additional soliciting materials with the Commission regarding a matter to be voted upon.”

The Commission explained that it was issuing the guidance “in light of our ongoing review of the proxy voting process and our related regulations, including the amendments to the proxy solicitation rules under the Exchange Act that we are issuing at this time.” In particular, the SEC indicated that its supplemental guidance was intended “to assist investment advisers in assessing how to consider the additional information that may become more readily available to them as a result of these amendments.” As the SEC explained, those rule amendments will effectively require proxy advisors to make their research available to companies  and to provide their clients with a mechanism by which they can reasonably be expected to become aware of company responses to proxy advice prior to making voting decisions. The compliance date for those rule amendments, however, is not until December 1, 2021.

While the SEC did not explain what, if any, application its supplemental guidance would have prior to the December 2021 compliance date, as explained in detail above, Glass Lewis clients are well positioned to leverage existing Glass Lewis programs and tools to satisfy regulatory expectations.