On November 5, the Securities and Exchange Commission proposed new rules on how proxy advisory firms can advise shareholders on how to vote. The new regulation will also impact how shareholders can have their proposals on the ballots.

Investors who lack time and money to get direct information on the company they own shares in usually hire proxy advisory firms that make recommendations about how shareholders should vote. With the new rules, proxy advisors will have less room for maneuver, and voting against managements’ preferences will be much more difficult and expensive. Firms recommending a vote against executives will have to disclose the methodology of their analysis to companies’ management and will be exposed to a risk of federal litigation if the executives do not consider the methodology appropriate.

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Dear Chairman Clayton and Members of the Commission:

We share the Commission’s concerns about concentration in the proxy advisory market. Yet, we disagree with the following proposed remedies: 1) forcing proxy advisors to share their opinions with managers ahead of time and 2) treating opinions on proxies as proxy solicitations. By increasing the cost of opining on proxy statements such proposals will only discourage new entry into the proxy advisory market and exacerbate the problem of market concentration in this sector.

We ask the Commission to strike these proposed changes.

Signed

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Robert Daines
Pritzker Professor of Law and Business
Stanford Law School

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Ronald Gilson
Charles J. Meyers Professor of Law and Business
Stanford Law School

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Curtis Milhaupt
Professor of Law
Stanford Law School

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