Policy Briefing — SEC Proxy Voting Advice Final Rule
The SEC adopted final amendments regulating proxy voting advice businesses on July 22, 2020, tightening disclosure, conflict management, and issuer engagement requirements before shareholders vote.
Executive briefing: On 22 July 2020 the U.S. Securities and Exchange Commission (SEC) adopted amendments to its proxy rules that codify the application of federal proxy solicitation regulations to proxy voting advice businesses (PVABs) and introduce conditions for exemptions relied upon by firms such as Institutional Shareholder Services and Glass Lewis. The rule requires enhanced conflict disclosures, mechanisms to provide registrants with timely access to recommendations, and obligations for investment advisers to demonstrate reasonable reliance frameworks. Compliance dates span 2021–2022, demanding immediate planning by governance, legal, and stewardship teams.
Understand the regulatory scope and timeline
The amendments modify Rule 14a-1(l) to clarify that proxy voting advice constitutes a solicitation, and they revise Rule 14a-2(b) exemptions by conditioning relief on PVABs providing specified disclosures and procedural safeguards. PVABs must disclose conflicts of interest in their reports, adopt written policies allowing subject companies to review and respond to advice prior to distribution (subject to timing constraints), and include hyperlinks to registrant responses for clients. The rules became effective 60 days after publication in the Federal Register, with compliance for conflicts disclosures required by 1 December 2021 and the review-and-response mechanisms mandated from 1 December 2022 following subsequent SEC staff guidance.
Investment advisers relying on PVAB research must reassess their fiduciary obligations under the Investment Advisers Act, as highlighted in the SEC’s contemporaneous supplemental guidance. Advisers should implement due diligence procedures to evaluate the reliability of voting recommendations, monitor for conflicts, and document how client voting policies are effectuated. The SEC’s Division of Examinations signaled that stewardship programs would be examined for alignment with this guidance, raising the stakes for robust governance.
Assess impacts across governance stakeholders
Proxy voting advice businesses: PVABs must overhaul their research production timelines to accommodate issuer engagement windows without compromising independence. They need enhanced compliance staffing to manage conflict disclosures, maintain audit trails of issuer feedback, and track hyperlinks or other direct-client communications. Technology platforms should log version histories and distribution timestamps to evidence timely delivery of revised recommendations when registrants submit factual corrections.
Public companies: Issuers gain structured opportunities to review draft recommendations but must be prepared to respond quickly. Investor relations teams should develop fact-checking protocols, designate subject-matter experts, and craft templates to address disputed data or analysis. Registrants also need to coordinate with legal counsel to determine when to issue supplemental proxy filings versus leveraging PVAB response channels.
Investment advisers and asset managers: Advisers must update proxy voting policies to document how they evaluate PVAB methodologies, manage conflicts, and resolve discrepancies between recommendations and client mandates. Stewardship committees should track when issuer feedback is incorporated into final recommendations and document rationales for any deviation from PVAB advice.
Design compliance programs for proxy advisers
PVABs should conduct a gap assessment of existing policies covering conflicts of interest, methodology transparency, and data quality assurance. Establish a governance framework assigning accountability to compliance officers, research heads, and technology leads. Document escalation paths for material conflicts—such as consulting services provided to issuers under coverage—and implement disclosure controls that update conflict statements dynamically as engagements evolve.
Develop workflow tools that capture issuer review timelines. For example, build dashboards showing when draft reports are shared, feedback received, edits made, and final recommendations issued. Automate alerts for deadlines to ensure compliance with the required minimum review periods based on the number of calendar days before a shareholder meeting. Maintain immutable audit logs to demonstrate adherence during SEC examinations.
Strengthen data integrity and methodology transparency
Because issuers frequently contest factual errors or analytical assumptions, PVABs must fortify data validation processes. Integrate feeds from multiple financial data providers, cross-check governance metrics, and document manual adjustments. Provide clients with methodology whitepapers that explain scoring models, peer group construction, and policy updates. When qualitative judgment plays a role, record expert committee deliberations and vote rationales.
Implement model risk management practices borrowed from banking regulations: catalog models, perform annual validations, and document controls for input data governance. Communicate to clients how corrections propagate through published research and how investors can request clarifications. Clear documentation mitigates the risk of enforcement actions alleging misleading statements or omissions.
Operationalize conflicts of interest disclosures
Identify all business lines that could create perceived or actual conflicts, including issuer consulting, ESG ratings services, or custom policy development. For each conflict, describe the nature, materiality, and mitigation strategy—such as informational barriers or separate staffing. Ensure disclosure language is concise yet specific, avoiding boilerplate. Embed controls that trigger compliance review when new engagements are proposed, preventing distribution of advice until disclosures are updated.
Provide clients with centralized access to conflict registers, including historical data for trend analysis. Offer attestation letters confirming that research staff are evaluated on analytical quality rather than issuer relationships. Maintain training programs covering ethical walls, handling of material non-public information, and documentation standards.
Prepare investment advisers for enhanced oversight
Asset managers should revisit due diligence questionnaires for PVABs, capturing methodology transparency, error correction processes, and independence safeguards. Establish periodic performance reviews comparing PVAB recommendations to actual vote outcomes and company performance metrics. When outsourcing vote execution to proxy service platforms, verify reconciliation controls to ensure ballots reflect current recommendations and client policy overrides.
Document supervisory procedures that outline who approves reliance on PVAB advice, how exceptions are escalated, and how advisers evaluate issuer feedback. Incorporate testing into compliance monitoring programs—for instance, sampling meeting agendas to confirm research accuracy and tracking incidents where vote instructions required revision. Align procedures with Form ADV disclosures to avoid misleading statements about stewardship capabilities.
Coordinate issuer response strategies
Public companies should develop rapid-response playbooks to leverage the review opportunity. Create cross-functional teams spanning legal, finance, ESG, and investor relations to scrutinize draft reports. Maintain data repositories containing up-to-date capitalization tables, executive compensation figures, and governance policies to expedite factual verification. When disagreements hinge on interpretation rather than data, prepare investor messaging that contextualizes the company’s strategy and mitigates reputational risk.
Enhance board engagement by briefing directors on the amended rules, the organization’s governance profile, and anticipated investor questions. Simulate tabletop exercises that walk through receiving a negative voting recommendation and developing a response within the allotted timeframe. Track the effectiveness of engagements by monitoring changes in PVAB recommendations or investor voting outcomes.
Monitor litigation and policy developments
The proxy advisor rules faced legal challenges and subsequent SEC rulemakings under new leadership. Governance teams must monitor litigation outcomes, such as ISS’s lawsuit challenging the SEC’s authority, and policy reversals including the SEC’s 2022 rescission of certain conditions. Maintain a regulatory tracker summarizing enforcement actions, staff bulletins, and statements from commissioners. Update compliance programs as new interpretive guidance emerges, ensuring documentation reflects the current rule set.
Engage with industry associations like the Council of Institutional Investors or the Society for Corporate Governance to benchmark practices, share feedback with regulators, and anticipate future reforms. Participation in comment processes can influence implementation details and demonstrate proactive governance.
Action checklist for the next 90 days
- Complete a rule gap analysis for PVAB operations, capturing policy updates, technology needs, and resource requirements, and present findings to executive leadership.
- Update investment adviser proxy voting policies to document due diligence over PVAB recommendations, including testing of data accuracy and conflict monitoring.
- Develop issuer rapid-response kits with templates, contact lists, and escalation paths for reviewing draft proxy advice and communicating corrections.
- Implement compliance dashboards that track disclosure updates, issuer engagement timelines, and stewardship analytics for audit readiness.
- Establish stakeholder training programs—covering research analysts, stewardship officers, and board liaisons—to embed the amended rule expectations.
Zeph Tech equips governance leaders with operating models, analytics, and peer benchmarks that translate the SEC’s proxy advisor reforms into resilient stewardship programs and accountable corporate engagement.
Follow-up: Although the SEC softened the rule in 2022, the Fifth Circuit vacated that rescission in December 2023, effectively reinstating the 2020 conditions while the Commission evaluates its next steps.
Sources
- Exemptions from the Proxy Rules for Proxy Voting Advice — U.S. Securities and Exchange Commission; Final rule release detailing the conditions proxy voting advice businesses must meet to rely on exemptions from proxy filing and information requirements.
- SEC adopts amendments to improve proxy voting advice — U.S. Securities and Exchange Commission; Commission press release summarising the proxy voting advice amendments and compliance timeline.