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Major proxy adviser sues US regulator over guidance

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Institutional Shareholder Services (ISS), a major proxy advisory firm, has filed a lawsuit against the US Securities and Exchange Commission (SEC), which ISS argues recently issued unlawful guidance.

The firm, whose services are used by many institutional investors, also contended that the SEC “inappropriately altered the regulatory regime applicable to the voting advice provided by proxy advisory firms”.

In late August the SEC produced guidance stating the regulator’s view that proxy advisers were subject to anti-fraud rules relating to materially false or misleading statements.

ISS president and CEO Gary Retelny said that after reviewing the guidance it was concerned the guidance would be “used or interpreted in a way that could impede our ability to deliver our data, research and analyses in an independent and timely manner”.

In a note about ISS’s lawsuit on its website, the Council of Institutional Investors (CII), a US asset owner organisation, said it had raised similar concerns in numerous letters to the SEC.

The regulator is to meet next week to consider new rules on proxy voting advice and shareholder proposals. It says it is working to “facilitate constructive shareholder engagement and enhance transparency, improve disclosures and increase confidence in the proxy process”.

Citing media reports, CII said the goal appeared to be a more management-friendly approach by proxy advisers, especially on executive pay. With regard to shareholder proposals, it said the SEC is expected to increase ownership and resubmission thresholds, “impeding new social and environmental proposals that might be raised in the future”.

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