SEC to rescind Trump-era rule for proxy advisers

The Securities and Exchange Commission is expected on Wednesday to rescind a requirement that advisers ISS and Glass Lewis inform businesses of its voting recommendations when they are sent to shareholders, in a blow to companies that supported the Trump-era rule.

Adopted in 2020 but never enforced, the SEC rules said the advisers must also give companies an opportunity to respond before shareholders vote at their annual general meetings.

Asset managers and pension funds complained that the requirement limited the advisers’ independence and did little to protect investors. The 2020 rules were frozen shortly after Gary Gensler took over as head of the SEC last year. In November, the agency proposed fresh requirements that would override parts of the Trump-era initiative.

Now, sources have told the Financial Times that the SEC will probably adopt the new proposed rule without significant changes. With Democratic-leaning commissioners in the majority at the agency, the adoption is all but assured.

The SEC declined to comment before Wednesday’s vote by the five-member commission. Sources cautioned that the final rules could still be changed before they are unveiled.

The final rule marks the latest chapter in the years-long fight between ISS and Glass Lewis — the largest shareholder advisory firms — and companies such as ExxonMobil, which have argued the duo have too much influence.

ISS and Glass Lewis sell shareholder voting recommendations ahead of companies’ annual general meetings. Though they often side with corporate management, these firms also recommend investors vote against board directors, executive pay and controversial environmental or social shareholder proposals.

These recommendations can infuriate executives. JPMorgan chief executive Jamie Dimon blasted proxy advisers in 2015 after ISS and Glass Lewis recommended shareholders vote against his pay package. Earlier this year, Michael Moritz, a partner at venture fund Sequoia Capital, attacked proxy advisers for recommending against pay for Apple chief executive Tim Cook.

While these firms do influence shareholder votes, big asset managers have teams of employees who also evaluate companies and come up with their own voting decisions.

Separately, ISS sued the SEC to stop the 2020 rule and it is unlikely that the agency’s final version will end the saga as it would not completely wipe away the 2020 requirement.

Oral arguments are scheduled for July 29 in the district court of the District of Columbia.

“We continue to firmly believe that the [SEC 2020] rules exceed the agency’s statutory authority by regulating proxy advice as proxy solicitation,” an ISS spokesman said in a statement to the Financial Times.