The U.S. Securities and Exchange Commission (SEC) took aninitial step Wednesday to lay out the legal limitations of apowerful industry that’s known for questioning companies’ decisionson executive pay and business strategy.

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SEC commissioners voted 3-2 at a meeting in Washington to issueguidelines for fund managers’ responsibilities in dealing withso-called proxy-advisory firms and clarifying that those firms’interactions with shareholders are generally covered by the SEC’srules.

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The new guidance is expected to be the first of a series ofmoves the agency will take under Chairman Jay Clayton to rein infirms such as Institutional Shareholder Services Inc. (ISS) andGlass Lewis & Co., which are hired by mutual funds and othershareholders to give advice on voting in corporate elections.

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Key Details

  • “Today marks an important first step” in improving theproxy-voting process, Elad Roisman, the Republican commissionerleading the agency’s efforts on the issue, said at the meeting.“The investors that I believe today’s recommendations aim toprotect are the ultimate retail investors, who may have their lifesavings invested in our stock markets.”
  • Roisman said he hopes the agency will soon consider othermeasures related to proxy voting.
  • Robert Jackson Jr., one of two SEC commissioners in Democraticseats, said he was voting against the guidance out of concern thatit could cause smaller investors to vote less and make it harderfor new firms to enter the market.
  • The U.S. Chamber of Commerce welcomed the news. Tom Quaadman,the executive vice president of the group’s Center for CapitalMarkets Competitiveness, said the guidance was a “critical firststep in bringing much-needed oversight to proxy advisoryfirms.”

 


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