WASHINGTON—Business groups sued the Securities and Exchange Commission on Thursday in a bid to reinstate some restrictions on firms that provide proxy-voting advice to shareholders of public companies.
The lawsuit—filed by the U.S. Chamber of Commerce, Business Roundtable and Tennessee Chamber of Commerce & Industry—argues the SEC failed to follow proper procedures in its decision earlier this month to roll back a set of new requirements on proxy-voting advisers. It followed a suit filed last week by the National Association of Manufacturers, which alleged the SEC failed to provide enough justification for the move.
An SEC spokeswoman declined to comment. The agency had previously declined to comment on the manufacturers association lawsuit.
The lawsuits likely presage a wave of legal challenges from business interests against the regulatory agenda of SEC Chairman
Gary Gensler,
a Biden administration appointee.
Mutual funds and other big investors hire proxy advisers to provide voting recommendations for matters that come to a ballot at companies’ shareholder meetings. Such matters include major corporate policies, board members and executive compensation, as well as shareholder resolutions related to environmental, social or corporate-governance issues.
Proxy advisers sometimes recommend voting against the interests of corporate managers and insiders. Since their clients often control large chunks of a public company’s outstanding stock, corporate executives and business groups have long complained that proxy advisers have too much influence. The proxy-advisory business consists largely of just two firms, Institutional Shareholder Services Inc. and Glass, Lewis & Co.
A rule by the SEC passed during the Trump administration required proxy advisers to make their vote recommendations available to the public company in question no later than when they give the recommendations to their clients. It also required proxy-advice firms to help make their clients aware of a public company’s response to their recommendations.
Now controlled by a 3-2 Democratic majority, the SEC voted along party lines this month to rescind those two provisions of the rule, saying they could harm the independence and timeliness of proxy-voting advice. Democrats had complained at the time the 2020 rule was passed that it could sway the balance of power from a company’s investors to its managers.
In their lawsuit Thursday, the business groups said the SEC failed to provide enough evidence of new or changed circumstances to justify the reversal.
“The SEC’s harmful decision to roll back these reforms will allow proxy advisers to operate as a black box, as they have for decades, and create disincentives for companies to go, and stay, public,”
Suzanne P. Clark,
the U.S. Chamber’s president and chief executive,
said in a statement.
Write to Paul Kiernan at [email protected]
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