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SEC Issues New Guidance Regarding Proxy Voting Responsibility of Investment Advisers and the Applicability of Proxy Rules to Proxy Voting Advice

Investment Advisers

On August 21, by a vote of 3 to 2, the Securities and Exchange Commission issued interpretive guidance on an investment adviser’s fiduciary duties with respect to voting of proxies for client accounts. The guidance makes clear that advisers may agree with their clients that the client, and not the adviser, will vote proxies, but such guidance is generally impractical for advisers to private funds and registered investment companies (because there is no practical way to assign voting power to the funds).

When the adviser retains the obligation to vote proxies, it must do so with care and loyalty to the clients. The SEC stated that this may involve individualized analysis of how to vote in certain cases. It also might be necessary for advisers to adopt different proxy voting procedures for different funds they manage. When an investment adviser has the authority to vote on behalf of its client, the investment adviser is required to have a reasonable understanding of the client’s objectives and must make voting determinations that are in the best interest of the client. Accordingly, the SEC noted, investment advisers must form a reasonable belief that its voting determinations are in the best interest of the client and should conduct an investigation reasonably designed to ensure that the voting determination is not based on inaccurate or incomplete information. The adviser must annually review its proxy voting practices and document this review.

If a proxy advisory service is used to help the adviser vote proxies, the adviser must conduct due diligence on the proxy advisory service and adopt policies and procedures relating to monitoring the quality of the proxy advisory service. This could include, for example, considering additional information beyond what the proxy voting service provides, including an issuer’s proxy material or other materials provided by stakeholders. An investment adviser also should consider whether a proxy advisory service has adequately disclosed its methodologies for formulating its recommendations. The SEC also observed that use of a third-party proxy advisory service may be beneficial to investment advisers in cases where a conflict of interest may exist. However, the SEC noted that such reliance does not relieve the investment adviser of its obligation to make voting determinations in the client’s best interest or its obligation to provide full and fair disclosure of any conflicts of interest.

Proxy Voting Advice

The SEC also issued new interpretative guidance regarding the applicability of the federal proxy rules to proxy voting advice. The SEC noted that the use of proxy advisory firms, which would include Institutional Shareholder Services (ISS) and Glass Lewis, has become more widespread and now includes a broadened array of services.

In particular, the SEC examined whether the proxy voting advice provided by the proxy advisory firms constitutes a “solicitation” within the meaning of the federal proxy rules (concluding that generally, yes, such advice does constitute a solicitation) and outlined the import of Rule 14a-9 (False or Misleading Statements) to such solicitations.

Further, the SEC noted that while such solicitations would generally be exempt from the informational and filing requirements of the proxy rules, the SEC staff is considering recommending that the SEC propose rule amendments that would address proxy advisory firms’ reliance on these exemptions contained in the Securities Exchange Act of 1934 Rule 14a-2(b), though nothing in the interpretative guidance challenges the ability of the advisory firms to continue relying on these exemptions.


In deciding that proxy voting advice constitutes a solicitation the SEC noted that the definition of solicitation is broad and includes communications to security holders “under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.” It observed that proxy advisory firms provide voting recommendations to their clients, touting their expertise in researching and analyzing the matters submitted for a shareholder vote. Even where a proxy advisory firm provides recommendations based on a client’s own tailored voting guidelines, the proxy adviser’s analysis and advice generally should be considered a solicitation. Similarly, in circumstances where clients may not follow the advice of the proxy adviser, the recommendations would still constitute a solicitation. The SEC rejected the view that proxy voting advice from advisory firms should be viewed as “unsolicited” voting advice, as the advisory firms invite client inquiries through the marketing of their expertise and the researching and analyzing of proxy issues.

Rule 14a-9 (False or Misleading Statements). 

While any solicitation by a proxy advisory firm may be exempt from the informational and filing requirements of the proxy rules, any such solicitation is still subject to the anti-fraud provisions of Rule 14a-9, which prohibits any solicitation from containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact. Any proxy voting adviser, must not make any materially false or misleading statements or omit material facts, such as information underlying the basis of the advice or which would affect the proxy adviser’s analysis and judgments. In particular, the SEC identified several specific items that may require disclosure in the context of proxy voting advice, including:

  • an explanation of the methodology used by the advisory firm to formulate its voting advice;

  • the extent that any advice is based on information other than what has been publicly disclosed by the subject company; and

  • any material conflicts of interest in connection with providing the advice.

The SEC’s full release is available here.

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume IX, Number 235


About this Author

Richard D. Marshall, Katten Muchin, SEC Representation Lawyer, Finance Attorney, New York,

Richard D. Marshall focuses his practice on the representation of financial institutions and employees subjected to investigations by the Securities and Exchange Commission, Department of Justice, Financial Industry Regulatory Authority and state securities regulators. Rick also counsels broker-dealers, investment companies and investment advisers on regulatory issues, particularly relating to SEC and FINRA regulations. He also frequently counsels clients on compliance and risk management issues and the handling of inspections.

Rick provides...

Mark Reyes Securities Lawyer Katten Muchin law firm Chicago office

Mark J. Reyes concentrates his practice in corporate and securities matters, including representing issuers and investors in public offerings and private placements of equity and debt securities and advising clients in complex corporate transactions such as mergers, acquisitions, private investments in public equity (PIPEs), private equity investments and joint ventures. He also counsels public companies on securities law compliance, disclosures and corporate governance matters.

Shown below is a selection of Mark’s engagements.

  • Representation of hospitality company in connection with its initial public offering and listing on NYSE, as well as ongoing counseling with respect to compliance with securities laws and NYSE rules, disclosure and corporate governance matters.
  • Representation of NASDAQ-listed public company in the banking industry in connection with strategic transactions, capital raising transactions, compliance with securities laws and NYSE rules, disclosure and corporate governance matters, including strategic acquisitions, notes offering and at-the-market offering.
  • Representation of clean tech manufacturer for industrial equipment in connection with alternative public offering and listing on NASDAQ, as well as ongoing counseling with respect to compliance with securities laws and NASDAQ rules, disclosure and corporate governance matters.
  • Representation of NASDAQ-listed issuer in connection with selling stockholder block trades.
  • Representation of NYSE-listed industrial manufacturer with respect to compliance with securities laws and NYSE rules, disclosure and corporate governance matters.
  • Representation of NASDAQ-listed medical device company with respect to compliance with securities laws and NASDAQ rules, disclosure and corporate governance matters.
Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and...

Brian Hecht Corporate Lawyer Katten

Brian Hecht is a Corporate partner in Katten's New York office. He offers broad transactional experience in capital markets transactions, mergers and acquisitions and corporate governance matters. Within capital markets, Brian's practice focuses on initial public offerings, high yield offerings, spin-offs, tender offers and investment grade debt offerings. Within mergers and acquisitions, he represents private equity funds and public companies in both public and private acquisitions and divestitures.

Prior to joining Katten, Brian was a...