SEC Withdraws Proxy Firm No-Action Letters

By September 18, 2018General, Shopfloor Main

Investment advisers owe a fiduciary duty to the middle-class Americans whose retirement accounts they manage. Their decisions on how to vote an investor’s shares in corporate proxy contests must be guided by the investor’s best interests. But how can an investment adviser guard against any conflicts of interest that he or she may have and ensure that all proxy voting decisions are made in the best interest of the investor? It’s a good question, and one that helps explain why actions taken last week by the Securities and Exchange Commission (SEC) are so important.

Back in 2004, the SEC issued two so-called “no-action” letters that allowed investment advisers to simply outsource proxy voting decision-making to third-party proxy advisory firms to mitigate their own potential conflicts of interest. What those no-action letters failed to account for, however, were the many shortcomings and, worse, conflicts of interest embedded in the proxy advisory firms’ business models.

The practical effect of the no-action letters was, for more than a decade, to entrench and empower these unregulated, black box proxy advisory firms. Millions of Main Street investors are unaware that these important decisions have been outsourced to conflicted third parties, so the National Association of Manufacturers (NAM) has for years called on the SEC to withdraw the 2004 no-action letters. Last week, that’s just what the SEC did.

The SEC’s decision will restore the primacy of a fund manager’s fiduciary duty to protect investors’ retirement savings and also reduce proxy firms’ influence over manufacturers and the important decisions that guide company growth, job creation and economic expansion in America.

NAM President and CEO Jay Timmons released a statement last week praising the decision and calling for further oversight of proxy firms. The SEC’s announcement is a precursor to further discussion of these important issues at its proxy roundtable in November, where the NAM will continue to advocate corporate governance policies that bolster capital formation for manufacturers and strengthen the long-term interests of Main Street investors.

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