Global proxy advisory firms are feeling uneasy

One half of America is celebrating Donald Trump's election, while just about the other half bemoans his win.

- AMIT TANDON

Corporate America is among those in a triumphant mood. They expect taxes to be lowered, tariffs to rise, regulatory cobwebs to be cleared, and bureaucracy to be streamlined, if not altogether axed. In contrast, there is a sense of disquiet among global proxy advisory firms—the narrow edge of the market in which my firm operates. They expect the Proxy Rules 2019, which were slowly being rolled back, to now have fresh life injected.

In the US, prior to 2019, there were no formal regulations that dealt with proxy advisory firms. The two large proxy advisors followed general guidelines and best practices, but there were no specific rules in place.

The sway of proxy advisory firms has been a topic of discussion in the US for a long time. Even earlier this year, Jamie Dimon, the executive chair of JPMorgan, highlighted the "undue influence" of proxy advisers in his 60-page annual shareholder letter.

Despite these concerns, the US Securities and Exchange Commission (SEC) acted only in August 2019, under the chairmanship of Jay Clayton, a Trump-appointed commission chair. The SEC introduced new guidance to regulate proxy advisory firms. This guidance clarified that the voting recommendations made by proxy advisors could be classified as "solicitations" under federal proxy rules—that is, communication aimed at influencing the voting decisions of shareholders. This subjects the proxy firms to anti-fraud provisions, significantly increasing their legal risks. Additionally, the guidance emphasized the need for transparency and accuracy in proxy voting advice.