SEC Wants Advisers to Re-Consider Pre-Populated Proxies
The SEC has questioned whether investment advisers should allow proxy advisory firms to use pre-population and automated voting following new proxy solicitation disclosure rules. The new rules require the proxy firms to inform issuers of their recommendation in time to allow the issuers to file responses. Where the proxy firms pre-populate votes, the SEC requires advisers to consider the issuer’s response to determine how to vote in the client’s best interest. The SEC requires the adviser to disclose the effect of allowing the proxy firm to continue to pre-populate proxies and/or utilize automated voting and amend its policies and procedures accordingly. The SEC is concerned with both the adviser’ fiduciary duty and its obligation to obtain informed consent.
When you cut through all the regulatory-speak, the SEC wants investment advisers to stop allowing proxy advisory firms to pre-populate ballots. Instead, advisers should evaluate the substance of the proxy proposals and the registrant/issuer’s response without slavishly hitting “send” on the pre-populated automated ballot.