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Two SEC members discuss the role of proxy advisers

  • Speech — gray Image

Dec 04, 2013

SEC Chair Mary Jo White and Commissioner Daniel Gallagher gave speeches yesterday at the Transatlantic Corporate Governance Dialogue Conference in Washington, D.C., on proxy advisers. Ms. White provided an objective view of shareholder engagement, explaining the benefits of proxy advisory firms and touching upon the concerns some have regarding the role these firms play. Mr. Gallagher was decidedly more opinionated, calling for the SEC to "remedy problematic staff guidance" and provide measures to increase transparency.

In her speech, Ms. White focused on the "critical role" shareholders play in corporate governance issues. She underscored the importance of shareholder engagement throughout her speech. When discussing the role of proxy advisory firms, she explained  how they can be seen as enhancing shareholder engagement — helping shareholders develop a better understanding of the companies they invest in. However, she noted that proxy advisory firms can also be viewed as impeding shareholder investment — providing potentially biased views on companies' governance matters that a shareholder might mistakenly accept as an independent assessment.

Mr. Gallagher was emphatic in his speech that the SEC — along with other global policymakers — should swiftly act upon the concerns raised by the outsized role of proxy advisers. He cited a concept release from 2010 which highlighted concerns the SEC had about proxy advisory firms, including conflicts of interest and lack of transparency. Mr. Gallagher proposed that the two proxy adviser staff no-action letters (issued by the SEC in response to investment adviser rules released in 2003) should be withdrawn and replaced with Commission-level guidance. The guidance should, he said, "ensure that investment advisers are complying with the original intent of the 2003 rule and effectively carrying out their fiduciary duties. This would go a long way toward mitigating the concerns arising from the outsized and potentially conflicted role of proxy advisory firms."

Both Ms. White and Mr. Gallagher mentioned that the discussions held at the conference would directly inform the SEC's roundtable discussions (link to SEC's Web site) on the role of proxy advisers being held on December 5, 2013.

The full text of these speeches is available on the SEC's Web site:

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