An official from the Securities and Exchange Commission (SEC) has suggested that investors who vote in line with proxy advice could be classified as activists under regulation.
In a speech last week, Republican commissioner Mark Uyeda said “depending on the facts and circumstances, funds and asset managers using PVABs [proxy voting advice businesses] for voting decisions may have formed a group for [the] purposes of Section 13(d)(3) or Section 13(g)(3) of the Securities Exchange Act”.
His comments refer to the regulatory categories under which shareholders must file information with the SEC.
Section 13(g) is a relatively simple piece of paperwork, through which investors disclose if they own more than 5% of shares in an issuer.
Section 13 (d), on the other hand, is much more onerous and requires the shareholder to notify company management of any intentions to influence its strategy.
It has traditionally been used to compel activist investors, who take strategic positions in companies, to make themselves known to management quickly and explain any plans they have to push for fundamental changes to the way the business is run.
But, earlier this year, the SEC updated its interpretation of the rules to say that it applies to any major investor who wants to influence a company in any way.
The update wrought havoc on the global investment community, and was generally seen as another attempt by US regulators to clamp down on stewardship and ESG by making it harder to engage effectively with company management.
Last week’s update suggests that if shareholders with a combined ownership of more than 5% of a company follow the same proxy advice, they would qualify under Section 13(d).
“Shareholders form a group if they act together for the purpose of voting the equity securities of an issuer,” said Uyeda.
“To the extent that funds and asset managers are engaging in ‘robo-voting’ based on [proxy] recommendations, such practices should be reviewed to determine whether they comply with the Exchange Act and SEC rules,” he added.
He told the SEC it “should not shy away from scrutinising” the “consequences” of shareholders voting in tandem with each other on the back of proxy advice, which therefore places pressure or influence on US issuers.
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