As is true for many topics, the current administration has a different viewpoint on regulating proxy advisers and shareholder proposals than the previous one. But for former SEC Chair Jay Clayton, limiting ESG shareholder proposals and applying tougher standards to resubmit proposals on companies’ proxy statements simply makes sense.
“Many of the things that fall into ‘ESG-type proposals’ are not the types of things that lend themselves to an up or down vote or resolution,” Clayton, who led the SEC during the Trump administration, said Dec. 4 during a webinar hosted by the American Council for Capital Formation. “How you handle energy transition, to put that to an up or down vote on a particular proposal, that’s so naive.”
Clayton later added, “The idea that you can handle these difficult societal issues with an up or down on the proxy of a company is pretty remarkably arrogant.”
He also advocated for a bill that Republicans on the House Financial Services Committee advanced in July called the Protecting Americans’ Retirement Savings from Politics Act. The bill includes provisions that would raise the resubmission thresholds for shareholder proposals and allow companies to exclude environmental, social and political proposals. It would also require large asset managers to conduct an economic analysis when voting against board recommendations and compel investors to consent to the use of nonpecuniary factors in decision-making.
In 2020 under Clayton, the SEC raised the requirements for investors who wish to submit a shareholder proposal and approved higher thresholds for resubmitting shareholder proposals in subsequent years.
But in July 2022, the SEC under Chair Gary Gensler issued a proposal to make it more difficult for public companies to exclude shareholder proposals from proxy statements and make it easier for proponents to resubmit proposals.
Separately, the SEC in 2022 rescinded two amendments to its rules concerning proxy-voting advice adopted in 2020 under the previous administration that increased restrictions on proxy advisory firms.
The rescinded amendments would have allowed companies that were the subject of voting advice to access that advice prior to or at the same time as it was disseminated to clients. It also would have required proxy advisory firms to provide clients with access to any response the company provides on voting advice before those clients vote.
A study released in November from the American Council for Capital Formation, a think tank that opposes the SEC’s 2022 actions, found at least 64 instances where proxy advisers formulated recommendations based on data or analysis disputed by the companies themselves in the 2023 proxy season, a 28% increase from the 50 filings uncovered in 2021.
Several business groups have challenged the SEC’s 2022 rule-making, but in April a federal judge sided with the agency and said the SEC was within its authority to reconsider the 2020 rules.
