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SEC Takes on Dinosaur

by Michael W. Stocker
Eyes On Wall Street |

In a new Concept Paper, the Securities Exchange Commission has announced that it is investigating whether the U.S. proxy system needs to be drastically updated. It has been nearly 30 years since the Commission last conducted a comprehensive review of the proxy voting infrastructure, and there have been significant changes since then in shareholder demographics and technology.The SEC's inquiry focuses on, among other things, proxy voting by institutional securities lenders and the role of proxy advisory companies.

Institutional investors often lend their securities, and these lent shares lose their vote until recalled by the lender. Without sufficient advance notice of the issues to be voted on, lenders may not be able to recall shares in time to vote on key matters like executive compensation. Thus, the Commission is trying to find out whether shareholders would be helped by requiring the agenda items at shareholder meetings to be identified earlier, so that lenders can make a decision to recall their shares and vote on issues important to them.

The SEC is concerned that proxy advisory firms may be subject to conflicts of interest or may fail to conduct adequate research to support their recommendations. To remedy these problems, it is proposing improving disclosure of potential conflicts of interest, enhancing regulatory oversight over the formation of voting recommendations, and requiring eventual public disclosure by proxy advisory firms of their voting recommendations in SEC filings.

Interested investors should take the opportunity to send the SEC their comments.