[Federal Register Volume 84, Number 233 (Wednesday, December 4, 2019)]
[Proposed Rules]
[Pages 66518-66559]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24475]



[[Page 66517]]

Vol. 84

Wednesday,

No. 233

December 4, 2019

Part III





Securities and Exchange Commission





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17 CFR Part 240





Amendments to Exemptions From the Proxy Rules for Proxy Voting Advice; 
Proposed Rule

  Federal Register / Vol. 84 , No. 233 / Wednesday, December 4, 2019 / 
Proposed Rules  

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-87457; File No. S7-22-19]
RIN 3235-AM50


Amendments to Exemptions From the Proxy Rules for Proxy Voting 
Advice

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
proposing amendments to its rules governing proxy solicitations to help 
ensure that investors who use proxy voting advice receive more 
accurate, transparent, and complete information on which to make their 
voting decisions, in a manner that does not impose undue costs or 
delays that could adversely affect the timely provision of proxy voting 
advice. The proposed amendments would condition the availability of 
certain existing exemptions from the information and filing 
requirements of the federal proxy rules for proxy voting advice 
businesses upon compliance with additional disclosure and procedural 
requirements. In addition, the proposed amendments would codify the 
Commission's interpretation that proxy voting advice generally 
constitutes a solicitation within the meaning of the Securities 
Exchange Act of 1934. Finally, the proposed amendments would amend the 
proxy rules to clarify when the failure to disclose certain information 
in proxy voting advice may be considered misleading within the meaning 
of the rule, depending upon the particular facts and circumstances at 
issue.

DATES: Comments should be received by February 3, 2020.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm); or
     Send an email to rule-comments@sec.gov. Please include 
File Number S7-22-19 on the subject line.

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary, 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549-1090.

All submissions should refer to File Number S7-22-19. This file number 
should be included on the subject line if email is used. To help the 
Commission process and review your comments more efficiently, please 
use only one method of submission. The Commission will post all 
comments on the Commission's website (http://www.sec.gov/rules/proposed.shtml). Comments also are available for website viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE, 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. All comments received will be posted without 
change. Persons submitting comments are cautioned that we do not redact 
or edit personal identifying information from comment submissions. You 
should submit only information that you wish to make available 
publicly.
    We or the staff may add studies, memoranda, or other substantive 
items to the comment file during this rulemaking. A notification of the 
inclusion in the comment file of any such materials will be made 
available on our website. To ensure direct electronic receipt of such 
notifications, sign up through the ``Stay Connected'' option at 
www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Daniel S. Greenspan, Senior Counsel, 
Office of Rulemaking, Division of Corporation Finance, at (202) 551-
3430, U.S. Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing amendments to 17 CFR 
240.14a-1(l) (``Rule 14a-1(l)''), 17 CFR 240.14a-2 (``Rule 14a-2''), 
and 17 CFR 240.14a-9 (``Rule 14a-9'') under the Securities Exchange Act 
of 1934 [15 U.S.C. 78a et seq.] (``Exchange Act'').\1\
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    \1\ Unless otherwise noted, when we refer to the Exchange Act, 
or any paragraph of the Exchange Act, we are referring to 15 U.S.C. 
78a of the United States Code, at which the Exchange Act is 
codified, and when we refer to rules under the Exchange Act, or any 
paragraph of these rules, we are referring to title 17, part 240 of 
the Code of Federal Regulations [17 CFR 240], in which these rules 
are published.
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Table of Contents

I. Introduction
II. Discussion of Proposed Amendments
    A. Proposed Codification of the Commission's Interpretation of 
``Solicitation'' Under Rule 14A-1(l) and Section 14(a)
    B. Proposed Amendments to Rule 14a-2(b)
    1. Conflicts of Interest
    2. Registrants' and Other Soliciting Persons' Review of Proxy 
Voting Advice and Response
    C. Proposed Amendments to Rule 14a-9
    D. Transition Period
III. Economic Analysis
    A. Introduction
    1. Overview of Proxy Voting Advice Businesses' Role in the Proxy 
Process
    B. Economic Baseline
    1. Affected Parties and Current Regulatory Framework
    2. Certain Industry Practices
    C. Benefits and Costs
    1. Benefits
    2. Costs
    D. Effects on Efficiency, Competition, and Capital Formation
    1. Efficiency
    2. Competition
    3. Capital Formation
    E. Reasonable Alternatives
    1. Require Proxy Voting Advice Businesses To Include Full 
Registrant Response in the Businesses' Voting Advice
    2. Different Timing for, or Number of, Reviews
    3. Public Disclosure of Conflicts of Interest
    4. Require Additional Mandatory Disclosures in Proxy Voting 
Advice
    5. Require Disabling of Pre-Populated and Automatic Voting 
Mechanisms
    6. Exempt Smaller Proxy Voting Advice Businesses From the 
Additional Conditions to the Exemptions
IV. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Incremental and Aggregate Burden and Cost Estimates for the 
Proposed Amendments
V. Small Business Regulatory Enforcement Fairness Act
VI. Initial Regulatory Flexibility Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules
    D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
VII. Statutory Authority

I. Introduction

    Annual and special meetings of publicly-traded corporations, where 
shareholders are provided the opportunity to vote on various matters, 
are a key component of corporate governance. For various reasons, 
including the widely dispersed nature of public share ownership, most 
shareholders do not attend these meetings in person. Proxies are the 
means by which most shareholders of publicly traded companies exercise 
their right to vote on corporate matters.\2\ Congress vested in the 
Commission the broad authority to oversee the proxy solicitation 
process when it originally enacted the Exchange Act in 1934.\3\ As

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the securities markets have become increasingly more sophisticated and 
complex, and the intermediation of share ownership and participation of 
various market participants has grown in kind,\4\ the Commission's 
interest in ensuring fair, honest and informed markets, underpinned by 
a properly functioning proxy system, dictates that we regularly assess 
whether the system is serving investors as it should.\5\
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    \2\ See Concept Release on the U.S. Proxy System, Release No. 
34-62495 (Jul. 14, 2010) [75 FR 42982 (July 22, 2010)] (``Concept 
Release''), at 42984.
    \3\ See Regulation of Communications Among Shareholders, Release 
No. 34-31326 (Oct. 16, 1992) [57 FR 48276 (Oct. 22, 1992)] 
(``Communications Among Shareholders Adopting Release''), at 48277 
(``Underlying the adoption of section 14(a) of the Exchange Act was 
a Congressional concern that the solicitation of proxy voting 
authority be conducted on a fair, honest and informed basis. 
Therefore, Congress granted the Commission the broad `power to 
control the conditions under which proxies may be solicited' . . . 
.'').
    \4\ See Concept Release, supra note 2, at 42983 (``This 
complexity stems, in large part, from the nature of share ownership 
in the United States, in which the vast majority of shares are held 
through securities intermediaries such as broker-dealers or banks . 
. .'').
    \5\ See, e.g., id. at 43020 (``The U.S. proxy system is the 
fundamental infrastructure of shareholder suffrage since the 
corporate proxy is the principal means by which shareholders 
exercise their voting rights. The development of issuer, securities 
intermediary, and shareholder practices over the years, spurred in 
part by technological advances, has made the system complex and, as 
a result, less transparent to shareholders and to issuers. It is our 
intention that this system operate with the reliability, accuracy, 
transparency, and integrity that shareholders and issuers should 
rightfully expect.'').
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    One of the defining characteristics of today's market is the 
significant role played by institutional investors,\6\ which today own, 
by some estimates, between 70 and 80 percent of the market value of 
U.S. public companies.\7\ Investment advisers voting on behalf of 
clients and other institutional investors, by virtue of their 
significant holdings (often on behalf of others, including retail 
investors) in many public companies, must manage the logistics of 
voting in potentially hundreds, if not thousands, of shareholder 
meetings and on thousands of proposals that are presented at these 
meetings each year, with the significant portion of those voting 
decisions concentrated in a period of a few months.\8\
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    \6\ See generally Janette Rutterford & Leslie Hannah, The Rise 
of Institutional Investors, Financial Market History: Reflections on 
the Past of Investors Today (David Chambers & Elroy Dimson eds., 
2017); Lucian A. Bebchuk, Alma Cohen & Scott Hirst, The Agency 
Problems of Institutional Investors, 31 J. Econ. Perspectives, 
Summer 2017, at 89; Marshall E. Blume & Donald B. Keim, 
Institutional Investors and Stock Market Liquidity: Trends and 
Relationships, SSRN Electronic Journal (2012), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2147757.
    \7\ Compare Charles McGrath, 80% of equity market cap held by 
institutions, Pensions & Investments (Apr. 25, 2017), https://www.pionline.com/article/20170425/INTERACTIVE/170429926/80-of-equity-market-cap-held-by-institutions, with Broadridge & PwC, 2018 
Proxy Season Review, ProxyPulse 1 (Oct. 2018), https://www.pwc.com/us/en/governance-insights-center/publications/assets/pwc-broadridge-proxypulse-2018-proxy-season-review.pdf (estimating that 
institutions own 70% of public company shares). This report also 
notes that institutional investors have significantly higher voter 
participation rates than retail investors, casting votes 
representing 91 percent of all the shares they held in 2018, 
compared to only 28 percent for retail investors during the same 
period. Id. at 2.
    \8\ The Investment Company Institute (``ICI'') has stated that 
during the 2017 proxy season, registered investment funds cast more 
than 7.6 million votes on 25,859 proxy proposals on corporate proxy 
ballots and that the average mutual fund voted on 1,504 separate 
proxy proposals for U.S.-listed portfolio companies (figures exclude 
companies domiciled outside the U.S.). See Morris Mitler et al., 
Funds and Proxy Voting: The Mix of Proposals Matters, Investment 
Company Institute (Nov. 5, 2018), https://www.ici.org/viewpoints/view_18_proxy_environment; Letter from Paul Schott Stevens, 
President and CEO of ICI (March 15, 2019) (``ICI Letter''), at 3. In 
addition, the Ohio Public Employees Retirement System has noted that 
it receives in excess of 10,000 proxies in any given proxy season. 
See Letter from Karen Carraher, Executive Director & Patti Brammer, 
Corporate Governance Officer, Ohio Public Employees Retirement 
System (Dec. 13, 2018) (``OPERS Letter''), at 2. Unless otherwise 
indicated, comment letters cited in this release are to the 
Commission's Roundtable on the Proxy Process held Nov. 15, 2018 
(``2018 Proxy Roundtable''), available at https://www.sec.gov/proxy-roundtable-2018.
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    Investment advisers and other institutional investors often retain 
proxy advisory firms to assist them in making their voting 
determinations on behalf of clients and to handle other aspects of the 
voting process.\9\ For purposes of this release, we refer to these 
firms and any person who markets and sells proxy voting advice as 
``proxy voting advice businesses.'' \10\ Unless otherwise indicated, 
the term ``proxy voting advice'' as used in this release refers to the 
voting recommendations provided by proxy voting advice businesses on 
specific matters presented at a registrant's shareholder meeting or for 
which written consents or authorizations from shareholders are sought 
in lieu of a meeting, along with the analysis and research underlying 
the voting recommendations, and delivered to the proxy voting advice 
business's clients through any means, such as in a standalone written 
report or multiple reports, an integrated electronic voting platform 
established by the proxy voting advice businesses, or any combination 
thereof.\11\
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    \9\ See generally GAO Report to Congress, Corporate Shareholder 
Meetings--Proxy Advisory Firms' Role in Voting and Corporate 
Governance Practices (Nov. 2016) (``2016 GAO Report''); GAO Report 
to Congress, Corporate Shareholder Meetings--Issues Relating to 
Firms that Advise Institutional Investors on Proxy Voting (June 
2007) (``2007 GAO Report''); see also Commission Guidance Regarding 
Proxy Voting Responsibilities of Investment Advisers, Release No. 
IA-5325 (Aug. 21, 2019) [84 FR 47420 (Sept. 10, 2019)] (``Commission 
Guidance on Proxy Voting Responsibilities''), at 5; Letter from Gary 
Retelny, President and CEO of Institutional Shareholder Services, 
Inc. (Nov. 7, 2018) (``ISS Letter''), at 1.
    \10\ See proposed Rule 14a-1(l)(iii)(A).
    \11\ The reference to ``proxy voting advice,'' as used in this 
release, is not intended to encompass (1) research reports or data 
that are not used to formulate the voting recommendations or (2) 
administrative or ministerial services.
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    Proxy voting advice businesses typically provide institutional 
investors and other clients a variety of services that relate to the 
substance of voting, such as: Providing research and analysis regarding 
the matters subject to a vote; promulgating general voting guidelines 
that their clients can adopt; and making voting recommendations to 
their clients on specific matters subject to a shareholder vote, either 
based on the proxy voting advice business's own voting guidelines or on 
custom voting guidelines that the client has created.\12\ This advice 
is often an important factor in the clients' proxy voting decisions. 
Clients use the information to obtain a more informed understanding of 
different proposals presented in the proxy materials, and as an 
alternative or supplement to using their own internal resources when 
deciding how to vote.\13\
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    \12\ ISS Letter, supra note 9.
    \13\ See Commission Guidance on Proxy Voting Responsibilities, 
supra note 9 (``Contracting with proxy advisory firms to provide 
these types of functions and services can reduce burdens for 
investment advisers (and potentially reduce costs for their clients) 
as compared to conducting them in-house.''); see also OPERS Letter, 
supra note 8, at 1 (``However, with limited staff and resources, it 
is extremely difficult to devote the necessary time and attention to 
the thousands of proxies we receive each proxy season. Consequently, 
OPERS has chosen to partner with a proxy advisory firm, which allows 
us to fulfill our engagement and governance obligations in a more 
productive and efficient manner.''); Letter from Kenneth A. Bertsch, 
Executive Director, Council of Institutional Investors (Nov. 8, 
2018) (``CII Letter''), at 16 (``Proxy research firms, while 
imperfect, play an important and useful role in enabling effective 
and cost-efficient independent research, analysis and informed proxy 
voting advice for large institutional shareholders, particularly 
since many funds hold shares of thousands of companies in their 
investment portfolios.'').
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    Proxy voting advice businesses may also provide services that 
assist clients in handling the administrative tasks of the voting 
process, typically through an electronic platform that enables their 
clients to cast votes more efficiently.\14\ In some cases, proxy voting 
advice businesses are given authority to execute votes on behalf of 
their clients in accordance with the clients' general guidance or 
specific instructions.\15\ One way a proxy voting advice business may 
assist clients with voting execution is through an electronic vote 
management system that allows the proxy voting advice business to (1) 
populate each client's ballots with recommendations

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based on that client's voting instructions to the business (``pre-
population''); and (2) submit the client's ballots to be counted. 
Clients utilizing such services may choose to review the proxy voting 
advice business's pre-populated ballots before they are submitted or to 
have them submitted automatically, without further client review 
(``automatic submission'').\16\
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    \14\ See Commission Guidance on Proxy Voting Responsibilities, 
supra note 9.
    \15\ Id.
    \16\ See, e.g., Letter from Katherine Rabin, Chief Executive 
Officer, Glass, Lewis & Co., LLC (Nov. 14, 2018) (``Glass Lewis 
Letter''), at 2, 4 (describing how ballots are populated and 
submitted).
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    Proxy voting advice businesses play an integral role in the proxy 
voting process by providing an array of voting services that can help 
clients manage their proxy voting needs and make informed investment 
decisions.\17\ Although estimates vary, each year proxy voting advice 
businesses provide voting advice to thousands of clients that exercise 
voting authority over a sizable number of shares that are voted 
annually.\18\ Accordingly, proxy voting advice businesses are uniquely 
situated in today's market to influence these investors' voting 
decisions.
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    \17\ Id.; see Letter from Yves P. Deniz[eacute], Senior Managing 
Director, Teachers Insurance and Annuity Association of America 
(June 10, 2019) (``TIAA Letter''), at 3, 6, 7 (``Proxy advisory 
services are a crucial part of [TIAA's] voting process. . . . Every 
year, [TIAA] completes a proxy voting review of more than 3,000 U.S. 
and 11,000 global companies and processes more than 100,000 unique 
agenda items. . . . [W]e rely on proxy advisory firms to gather and 
synthesize the information we need to make informed voting decisions 
in a timely and efficient manner.''); Letter from Michael Garland, 
Assistant Comptroller, Office of N.Y.C. Comptroller (Jan. 2, 2019) 
(``NYC Comptroller Letter''), at p. 4 of enclosed statement before 
the Senate Banking Committee on Dec. 8, 2018 (``During the peak of 
U.S. proxy season . . . the number of meetings and votes is very 
large, putting a premium on having a high-quality, efficient 
process, to which the proxy advisory firms are indispensable.''); 
OPERS Letter, supra note 8, at 2 (``OPERS receives in excess of 
10,000 proxies in any given proxy season. We have determined it is 
more operationally efficient to use the workflow of our proxy 
advisory firm to cast votes on these matters.''); Letter from Gail 
C. Bernstein, General Counsel, Investment Adviser Association (Dec. 
31, 2018) (``IAA Letter''), at 2 (``[P]roxy advisory firms . . . 
provide important support, particularly voting-related 
administration services. Indeed, investment advisers of all sizes 
would face extreme logistical difficulty if they were unable to use 
these services to assist in the mechanics of voting proxies and for 
research.'').
    \18\ One major proxy voting advice business, Institutional 
Shareholder Services, Inc. (``ISS''), reported that it had 
approximately 2,000 institutional clients. See The ISS Advantage, 
Institutional Shareholder Services, available at https://www.issgovernance.com/about/about-iss/ (last visited Sept. 20, 
2019). Another major firm, Glass, Lewis & Co., LLC (``Glass 
Lewis''), reported that, as of 2019, it had ``1,300+ clients, 
including the majority of the world's largest pension plans, mutual 
funds, and asset managers, who collectively manage more than $35 
trillion in assets.'' See Company Overview, Glass Lewis, available 
at https://www.glasslewis.com/company-overview/ (last visited Sept. 
20, 2019).
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    Given these market realities, it is vital that proxy voting advice 
be based on the most accurate information reasonably available and that 
the businesses providing such advice be sufficiently transparent with 
their clients about the processes and methodologies used to formulate 
the advice.\19\ This is especially true when proxy voting advice 
businesses provide advice to investment advisers, which often make 
voting determinations on behalf of investors. The Commission has a 
strong interest in protecting those investors by ensuring that 
information provided by proxy voting advice businesses enables 
investment advisers to make informed voting determinations on 
investors' behalf.\20\ In this regard, because proxy voting advice 
provided by proxy voting advice businesses generally constitutes a 
``solicitation'' subject to the federal proxy rules,\21\ it is 
important that our rules governing the proxy solicitation process are 
working to achieve these goals. In recent years, registrants, 
investors, and others have expressed concerns about proxy voting advice 
businesses.\22\ As described in more detail below, these concerns have 
focused on the accuracy and soundness of the information and 
methodologies used to formulate proxy voting advice businesses' 
recommendations as well as potential conflicts of interest that may 
affect those recommendations. Given proxy voting advice businesses' 
potential to influence the voting decisions of investment advisers and 
other institutional investors,\23\ who often vote on behalf of others, 
we are concerned about the risk of proxy voting advice businesses 
providing inaccurate or incomplete voting advice (including the failure 
to disclose material conflicts of interest) that could be relied upon 
to the detriment of investors. In light of these concerns, we are 
proposing amendments to the federal proxy rules that are designed to 
enhance the accuracy, transparency of process, and material 
completeness of the information provided to clients of proxy voting 
advice businesses when they cast their votes, as well as amendments to 
enhance disclosures of conflicts of interest that may materially affect 
the proxy voting advice businesses' voting advice.
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    \19\ See, e.g., Concept Release, supra note 2, at 8 (``[T]he 
proxy system involves a wide array of third-party participants . . . 
including proxy advisory firms . . . the increased reliance on these 
third parties . . . adds complexity to the proxy system and makes it 
less transparent to shareholders and to issuers.''). The Commission 
has previously conducted rulemaking in this area, as well as engaged 
with the public through various forums and statements on these 
issues. See, e.g., Commission Interpretation and Guidance Regarding 
the Applicability of the Proxy Rules to Proxy Voting Advice, Release 
No. 34-86721 (Aug. 21, 2019) [84 FR 47416 (Sept. 10, 2019)] 
(``Commission Interpretation on Proxy Voting Advice''); 2018 Proxy 
Roundtable, supra note 8; 2013 Roundtable on Proxy Advisory Services 
(Dec. 5, 2013), available at https://www.sec.gov/spotlight/proxy-advisory-services.shtml; Proxy Voting by Investment Advisers, 
Release No. IA-2106 (Jan. 31, 2003), 68 FR 6585 (Feb. 7, 2003) 
(``2003 Proxy Voting Release'').
    \20\ In addition, the Commission recently issued guidance 
regarding how an investment adviser's fiduciary duty and Rule 
206(4)-6 under the Investment Advisers Act of 1940 [15 U.S.C. 80b] 
(the ``Advisers Act'') relate to an investment adviser's exercise of 
voting authority on behalf of clients. See Commission Guidance on 
Proxy Voting Responsibilities, supra note 9, at 3. Proxy voting 
advice businesses also provide their services to a range of clients 
other than investment advisers, and those clients would also benefit 
from improvements in the quality of the voting advice they receive.
    \21\ See Commission Interpretation on Proxy Voting Advice, supra 
note 19 at 4; infra Section II.A.
    \22\ See, e.g., infra notes 24 and 70. See generally comment 
letters submitted in connection with the 2018 Proxy Roundtable, 
supra note 8; comment letters submitted in connection with the 2013 
Roundtable on Proxy Advisory Services, supra note 19, available at 
https://www.sec.gov/comments/4-670/4-670.shtml.
    \23\ See supra note 17.
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    In undertaking this rulemaking effort, we acknowledge the existence 
of a wider public debate about the role and impact of proxy voting 
advice businesses in the proxy voting system.\24\

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The focus of our rule proposal, however, is not on all aspects of proxy 
voting advice businesses' role in the proxy process. Rather, it is on 
measures that, if adopted, would address certain specific concerns 
about proxy voting advice businesses and would help to ensure that the 
recipients of their voting advice make voting determinations on the 
basis of materially complete and accurate information. The proposed 
amendments are designed to achieve these purposes without generating 
undue costs or delays that might adversely affect the timely provision 
of proxy voting advice.
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    \24\ For example, representatives of the registrant and retail 
investor communities have expressed concerns about the oversight and 
accountability over proxy voting advice businesses. See, e.g., 
Letter from Darla Stuckey, President and CEO, Society for Corporate 
Governance (Nov. 9, 2018) (``Soc. for Corp. Gov. Letter''), at 4 
(``There is no regulatory regime that governs the manner in which 
[proxy advisory firms] develop their policies or form the 
recommendations or ratings they make.''); Letter from Henry D. 
Eickelberg, Chief Operating Officer, Center on Executive 
Compensation (March 7, 2019) (``Center on Exec. Comp. Letter''), at 
1 (noting a ``concerning lack of accountability'' for proxy advisory 
firms); Letter from James L. Martin, 60 Plus Association (Oct. 5, 
2018); Letter from Nan Bauroth, Member, Main Street Investors 
Coalition Advisory Council (Jan. 25, 2019); Letter from Rasa Mokhoff 
(March 11, 2019); Letter from Pauline Yee (Apr. 9, 2019), at 1; 
Letter from Marie Reed (Apr. 16, 2019), at 1; Letter from 
Christopher Burnham, President, Institute for Pension Fund Integrity 
(Apr. 29, 2019), at 3; Letters from Bernard S. Sharfman (Oct 8, 
2018, Oct. 12, 2018, and Nov. 27, 2018); Letter from Tom D. Seip 
(Oct. 20, 2010), at 4-6, available at https://www.sec.gov/comments/s7-14-10/s71410.shtml; Letter from Mark Latham, Founder, 
VoterMedia.org (Sep. 29, 2010), at 5-6, available at https://www.sec.gov/comments/s7-14-10/s71410.shtml; Letter from Wachtell, 
Lipton, Rosen & Katz (Oct. 19, 2010) (``Wachtell Letter''), at 4-6, 
available at https://www.sec.gov/comments/s7-14-10/s71410.shtml 
(commenting in response to the Concept Release, supra note 2); 38th 
Annual SEC Government-Business Forum on Small Business Capital 
Formation (Aug. 14, 2019) (at which participants developed 
recommendations for reform of the proxy solicitation system, 
including ``effective oversight of proxy advisory firms''); James R. 
Copland, David F. Larcker & Brian Tayan, Proxy Advisory Firms--
Empirical Evidence and the Case for Reform, Manhattan Institute 6 
(May 2018), available at https://media4.manhattan-institute.org/sites/default/files/R-JC-0518-v2.pdf. Others, however, have 
expressed skepticism about these concerns. See, e.g., Sagiv Edelman, 
Proxy Advisory Firms: A Guide for Regulatory Reform, 62 Emory L.J. 
1369, 1409 (2013) (concluding that ``[t]he concerns of the critics 
of proxy advisory firms are overstated and distort how proxy 
advisory firms function and are used by their clients''); Stephen 
Choi, Jill Fisch & Marcel Kahan, The Power of Proxy Advisors: Myth 
or Reality?, 59 Emory L.J. 869, 905-06 (2010) (estimating that the 
impact of proxy advisory firms' voting recommendations on actual 
voting outcomes is far less than commonly attributed); TIAA Letter, 
supra note 17, at 5 (asserting that the correlation between proxy 
advisory firms' recommendations and the voting patterns of their 
clients is due more to the firms' alignment with their clients' 
voting philosophy than the clients' overreliance on the voting 
advice); CII Letter, supra note 13, at 15 (citing a lack of 
compelling evidence that additional regulation of proxy advisory 
firms is necessary).
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    We welcome feedback and encourage interested parties to submit 
comments on any or all aspects of the proposed rule amendments. When 
commenting, it would be most helpful if you include the reasoning 
behind your position or recommendation.

II. Discussion of Proposed Amendments

A. Proposed Codification of the Commission's Interpretation of 
``Solicitation'' Under Rule 14a-1(l) and Section 14(a)

    Exchange Act Section 14(a) \25\ makes it unlawful for any person to 
``solicit'' any proxy with respect to any security registered under 
Exchange Act Section 12 in contravention of such rules and regulations 
prescribed by the Commission.\26\ The purpose of Section 14(a) is to 
prevent ``deceptive or inadequate disclosure'' from being made to 
shareholders in a proxy solicitation.\27\ Section 14(a) grants the 
Commission broad authority to establish rules and regulations to govern 
proxy solicitations ``as necessary or appropriate in the public 
interest or for the protection of investors.'' \28\
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    \25\ 15 U.S.C. 78n(a).
    \26\ Registrants only reporting pursuant to Exchange Act Section 
15(d) are not subject to the federal proxy rules, while foreign 
private issuers are exempt from the requirements of Section 14(a). 
17 CFR 240.3a12-3(b).
    \27\ J.I. Case Co. v. Borak, 377 U.S. 426, 432 (1964); see S. 
Rep. No. 1455, 73d Cong., 2d Sess., 74 (1934) (``In order that the 
stockholder may have adequate knowledge as to the manner in which 
his interests are being served, it is essential that he be 
enlightened not only as to the financial condition of the 
corporation, but also as to the major questions of policy, which are 
decided at stockholders' meetings.''); H.R. Rep. No. 1383, 73d 
Cong., 2d Sess., 14 (1934) (explaining the need for ``adequate 
disclosure'' and ``explanation''); Communications Among Shareholders 
Adopting Release, supra note 3, at 48277.
    \28\ 15 U.S.C. 78n(a); see Borak, 377 U.S. at 432 (noting the 
``broad remedial purposes'' evidenced by the language of Section 
14(a)); S. Rep. No. 73-792, 2d Sess., at 12 (1934) (``The committee 
recommends that the solicitation and issuance of proxies be left to 
regulation by the Commission.''); H.R. Rep. No. 1383, 73d Cong., 2d 
Sess., 14 (1934) (explaining the intention to give the Commission 
the ``power to control the conditions under which proxies may be 
solicited'').
---------------------------------------------------------------------------

    The Exchange Act does not define what constitutes a 
``solicitation'' for purposes of Section 14(a) and the Commission's 
proxy rules. Accordingly, the Commission has exercised its rulemaking 
authority over the years to define what communications are 
solicitations and to prescribe rules and regulations when necessary and 
appropriate to protect investors in the proxy voting process.\29\ The 
Commission first promulgated rules in 1935 to define a solicitation to 
include any request for a proxy, consent, or authorization or the 
furnishing of a proxy, consent or authorization to security 
holders.\30\ Since then, the Commission has amended the definition as 
needed to respond to new market practices that have raised investor 
protection concerns.\31\
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    \29\ See 15 U.S.C. 78n(a); 15 U.S.C. 78c(b); 15 U.S.C. 78w.
    \30\ See Exchange Act Release No. 34-378, 1935 WL 29270 (Sept. 
24, 1935).
    \31\ The Commission revised the definition in 1938 to include 
any request for a proxy, regardless of whether the request is 
accompanied by or included in a written form of proxy. See Release 
No. 34-1823 (Aug. 11, 1938) [3 FR 1991 (Aug. 13, 1991)], at 1992. It 
subsequently revised the definition in 1942 to include ``any request 
to revoke or not execute a proxy.'' See Release No. 34-3347 (Dec. 
18, 1942) [7 FR 10653 (Dec. 22, 1942)], at 10656.
    Courts have also taken a broad view of solicitation, with one 
noting that a report provided by a broker-dealer to shareholders of 
the target company in a contested merger constituted a solicitation 
because it advised the shareholders that one bidder's offer was 
``far more attractive'' than the other and therefore was a 
communication reasonably calculated to affect the shareholders' 
voting decisions. See Commission Interpretation on Proxy Voting 
Advice, supra note 19, at 5 n.13 (citing Union Pac. R.R. Co. v. 
Chicago & N.W. Ry. Co., 226 F. Supp. 400, 408 (N.D. Ill. 1964)); see 
also Long Island Lighting Co. v. Barbash, 779 F.2d 793, 796 (2d 
Cir.1985) (stating that the proxy rules applied not only to direct 
requests to furnish, revoke or withhold proxies, but also to 
communications which may indirectly accomplish such a result and 
finding newspaper and radio advertisements that encouraged citizens 
to advocate for a state-run utility company to be solicitation made 
in connection with an upcoming director election); SEC v. Okin, 132 
F.2d 784, 786 (2d Cir. 1943) (holding that the defendant shareholder 
who sent a letter to fellow shareholders in connection with an 
annual meeting asking them not to sign any proxies for the company 
was engaged in a solicitation).
---------------------------------------------------------------------------

    In particular, the Commission expanded the definition of a 
solicitation in 1956 to include not only requests for proxies, but also 
any ``communication to security holders under circumstances reasonably 
calculated to result in the procurement, execution, or revocation of a 
proxy.'' \32\ This expanded definition was prompted by recognition that 
some market participants were distributing written communications 
designed to affect shareholders' voting decisions well in advance of 
any formal request for a proxy that would have triggered the filing and 
information requirements of the federal proxy rules.\33\ Since 1956, 
the Commission understood its definition of a solicitation to be broad 
and applicable regardless of whether persons communicating with 
shareholders were seeking proxy authority for themselves.\34\ 
Recognizing the breadth of this definition, the Commission adopted an 
exemption from the information and filing requirements of the federal 
proxy rules for communications by persons not seeking proxy authority, 
but continued to include such communications within the definition of a 
``solicitation.'' \35\ The Commission also adopted another exemption 
from the information and filing requirements for proxy voting advice 
given by advisors to their clients under certain circumstances, but 
likewise continued to include such advice within the definition of 
``solicitation,'' subject to an exception discussed below.\36\ By 
adopting these exemptions, the Commission removed requirements that 
were considered unnecessary for these forms of solicitations, in order 
for shareholders to have access to more sources of

[[Page 66522]]

information when voting, though the antifraud provisions of the proxy 
rules continued to apply.
---------------------------------------------------------------------------

    \32\ 17 CFR 240.14a-1(l)(1)(iii); see Adoption of Amendments to 
Proxy Rules, Release No. 34-5276 (Jan. 17, 1956) [21 FR 577 (Jan. 
26, 1956)], at 577; see also Broker-Dealer Participation in Proxy 
Solicitations, Release No. 34-7208 (Jan. 7, 1964) [29 FR 341 (Jan. 
15, 1964)] (``Broker-Dealer Release''), at 341 (``Section 14 and the 
proxy rules apply to any person--not just management, or the 
opposition. This coverage is necessary in order to assure that all 
materials specifically directed to stockholders and which are 
related to, and influence their voting will meet the standards of 
the rules.'').
    \33\ See generally Communications Among Shareholders Adopting 
Release, supra note 3.
    \34\ See id. at 48276 (adopting Exchange Act Rule 14a-2(b)(1)).
    \35\ See id.
    \36\ See Shareholder Communications, Shareholder Participation 
in Corporate Electoral Process and Corporate Governance Generally, 
Release No. 34-16356 (Nov. 21, 1979) [44 FR 68764 (Nov. 29, 1979)] 
(``1979 Adopting Release''), at 68766.
---------------------------------------------------------------------------

    The Commission has previously observed that the breadth of the 
definition of a solicitation may result in proxy advisory firms being 
subject to the federal proxy rules because they provide recommendations 
that are reasonably calculated to result in the procurement, 
withholding, or revocation of a proxy and that, as a general matter, 
the furnishing of proxy voting advice constitutes a solicitation.\37\ 
Most recently, the Commission issued an interpretative release 
regarding the application of the federal proxy rules to proxy voting 
advice.\38\ As the Commission explained in that release, the 
determination of whether a communication is a solicitation depends upon 
both the specific nature and content of the communication and the 
circumstances under which the communication is transmitted.\39\ The 
Commission noted several factors that indicate proxy advisory firms 
generally engage in solicitations when they give proxy voting advice to 
their clients, including:
---------------------------------------------------------------------------

    \37\ See Concept Release, supra note 2, at 43009; see also 
Broker-Dealer Release, supra note 32, at 341.
    \38\ Commission Interpretation on Proxy Voting Advice, supra 
note 19.
    \39\ See Question and Response 1 of Commission Interpretation on 
Proxy Voting Advice, supra note 19, at 6; see also Concept Release, 
supra note 2 at 43009 n.244.
---------------------------------------------------------------------------

     The proxy voting advice generally describes the specific 
proposals that will be presented at the registrant's upcoming meeting 
and presents a ``vote recommendation'' for each proposal that indicates 
how the client should vote;
     Proxy advisory firms market their expertise in researching 
and analyzing matters that are subject to a proxy vote for the purpose 
of assisting their clients in making voting decisions;
     Many clients of proxy advisory firms retain and pay a fee 
to these firms to provide detailed analyses of various issues, 
including advice regarding how the clients should vote through their 
proxies on the proposals to be considered at the registrant's upcoming 
meeting or on matters where shareholder approval is sought; and
     Proxy advisory firms typically provide their 
recommendations shortly before a shareholder meeting or authorization 
vote,\40\ enhancing the likelihood that their recommendations will 
influence their clients' voting determinations.\41\
---------------------------------------------------------------------------

    \40\ See, e.g., Letter from Maria Ghazal, Senior Vice President 
and Counsel, Business Roundtable (June 3, 2019) (``Business 
Roundtable Letter 2''), at 9 (``[R]ecent survey results support the 
contention that a spike in voting follows adverse voting 
recommendations by ISS during the three-business day period 
immediately after the release of the recommendation.''); Transcript 
of Roundtable on the Proxy Process, at 242 (Nov. 15, 2018), 
available at https://www.sec.gov/files/proxy-round-table-transcript-111518.pdf (``2018 Roundtable Transcript''); Frank Placenti, Are 
Proxy Advisors Really A Problem?, American Council for Capital 
Formation 3 (Oct. 2018), http://accfcorpgov.org/wp-content/uploads/2018/10/ACCF_ProxyProblemReport_FINAL.pdf.
    \41\ Commission Interpretation on Proxy Voting Advice, supra 
note 19, at 8.
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    Where these or other significant factors (or a significant subset 
of these or other factors) is present,\42\ the proxy advisory firms' 
voting advice generally would constitute a solicitation subject to the 
Commission's proxy rules because such advice would be ``a communication 
to security holders under circumstances reasonably calculated to result 
in the procurement, withholding or revocation of a proxy.'' \43\ 
Furthermore, the Commission explained that such advice generally would 
be a solicitation even if the proxy advisory firm is providing 
recommendations based on the client's own tailored voting guidelines, 
and even if the client chooses not to follow the advice.\44\
---------------------------------------------------------------------------

    \42\ Such other factors may include the fact that many proxy 
advisory firms' recommendations are typically distributed broadly.
    \43\ See Question and Response 1 of Commission Interpretation on 
Proxy Voting Advice, supra note 19, at 9.
    \44\ Id.
---------------------------------------------------------------------------

    We are proposing to codify this Commission interpretation by 
amending Rule 14a-1(l). The proposed amendment would add paragraph (A) 
to Rule 14a-1(l)(1)(iii) \45\ to make clear that the terms ``solicit'' 
and ``solicitation'' include any proxy voting advice that makes a 
recommendation to a shareholder as to its vote, consent, or 
authorization on a specific matter for which shareholder approval is 
solicited, and that is furnished by a person who markets its expertise 
as a provider of such advice, separately from other forms of investment 
advice, and sells such advice for a fee. We believe the furnishing of 
proxy voting advice by a person who has decided to offer such advice, 
separately from other forms of investment advice, to shareholders for a 
fee, with the expectation that its advice will be part of the 
shareholders' voting decision-making process, is conducting the type of 
activity that raises the investor protection concerns about inadequate 
or materially misleading disclosures that Section 14(a) and the 
Commission's proxy rules are intended to address.\46\ We further 
believe that the regulatory framework of Section 14(a) and the 
Commission's proxy rules, with their focus on the information received 
by shareholders as part of the voting process, is well-suited to 
enhancing the quality and availability of the information that clients 
of proxy voting advice businesses are likely to consider as part of 
their voting determinations.\47\
---------------------------------------------------------------------------

    \45\ The proposed amendment is intended to make clear that proxy 
voting advice provided under the specified circumstances constitutes 
a solicitation under current Rule 14a-1(l)(1)(iii). It is not 
intended to amend, limit, or otherwise affect the scope of Rule 14a-
1(l)(1)(iii).
    \46\ We understand that investment advisers may discuss their 
views on proxy voting with clients or prospective clients, as part 
of their portfolio management services or other common investment 
advisory services. Such discussions could be prompted (such as in 
the case of a client or prospective client that has asked the 
adviser for its views on a particular transaction) or unprompted. 
For example, a mutual fund board may request that a prospective 
subadviser discuss its views on proxy voting, including particular 
types of transactions such as mergers or corporate governance. The 
proposed amendments are not intended to include these types of 
communications as solicitations for purposes of Section 14(a). 
Instead, the proposed amendments are intended to apply to entities 
that market their proxy voting advice as a service that is separate 
from other forms of investment advice to clients or prospective 
clients.
    \47\ We understand that a proxy voting advice business might, if 
applicable requirements are met, be registered as an investment 
adviser and subject to additional regulation under the Advisers Act 
and the Commission's rules thereunder. However it is not unusual for 
a registrant under one provision of the securities laws to be 
subject to other provisions of the securities laws when engaging in 
conduct that falls within the other provisions. Given the focus of 
Section 14(a) and the Commission's proxy rules on protecting 
investors who receive communications regarding their proxy votes, it 
is appropriate that proxy voting advice businesses be subject to 
applicable rules under Section 14(a) when they provide proxy voting 
advice.
---------------------------------------------------------------------------

    We recognize that the major proxy voting advice businesses may use 
more than one benchmark voting policy or set of guidelines in 
formulating their voting recommendations on a particular matter to be 
voted on at a shareholder meeting (or for which written consents or 
authorizations are sought in lieu of a meeting). For example, a proxy 
voting advice business may offer differing voting recommendations on a 
matter based on the application of its benchmark policy or specialty 
voting policies, such as a socially responsible policy, a 
sustainability policy, or a Taft-Hartley labor policy. The voting 
recommendations formulated under the benchmark policy and each of these 
specialty policies would be considered to be separate communications of 
proxy voting advice under proposed Rule 14a-1(l)(1)(iii)(A) and for 
purposes of the proposed rule amendments discussed below.
    We also recognize that the term ``solicit'' in Section 14(a) 
arguably might be construed more narrowly than how the Commission has 
long interpreted

[[Page 66523]]

that term. Under such a view, ``solicitation'' arguably might be 
limited to requests to obtain proxy authority or to obtain shareholder 
support for a preferred outcome, which might exclude certain proxy 
voting advice by a person retained to provide such advice to a client. 
We do not believe, however, such a narrow reading of Section 14(a) is 
required or warranted, and we adhere to the Commission's longstanding 
view since 1956 that any communications reasonably calculated to result 
in a shareholder's proxy voting decision may be regarded as a 
solicitation subject to Commission rules under Section 14(a). The term 
``solicit'' did not have a single, narrow meaning when Section 14(a) 
was enacted.\48\ Moreover, as discussed above, an overarching purpose 
of Section 14(a) is to ensure that communications to shareholders about 
their proxy voting decisions contain materially complete and accurate 
information.\49\ It would be inconsistent with that goal if persons 
whose business is to offer and sell voting advice broadly to large 
numbers of shareholders, with the expectation that their advice will 
factor into shareholders' voting decisions, were beyond the reach of 
Section 14(a).\50\ The fact that shareholders may retain providers of 
proxy voting advice to advance their own interests does not obviate 
these concerns; to the contrary, in many circumstances it makes the 
role of this advice all the more important to those shareholders' 
decisions, and all the more significant in the proxy process.
---------------------------------------------------------------------------

    \48\ Contemporaneous dictionaries ascribed several relevant 
meanings to the term ``solicit,'' including ``[t]o take charge or 
care of, as business''; ``[t]o move to action''; ``[t]o approach 
with a request or plea, as in selling''; and ``[t]o urge'' or 
``insist upon.'' See, e.g., Webster's New International Dictionary 
(2d ed. 1934); Funk & Wagnalls New Standard Dictionary of the 
English Language (1932) (defining ``solicit'' as including to 
``influence to action'').
    \49\ See Business Roundtable v. SEC, 905 F.2d 406, 410 (D.C. 
Cir. 1990) (``Proxy solicitations are, after all, only 
communications with potential absentee voters. The goal of federal 
proxy regulation was to improve those communications and thereby to 
enable proxy voters to control the corporation as effectively as 
they might have by attending a shareholder meeting.'').
    \50\ Courts have expressed similar concerns that the protections 
established by Section 14(a) would be hollow if the statutory 
provision is interpreted in an overly narrow manner. See, e.g., SEC 
v. Okin, 132 F.2d 784, 786 (2d Cir. 1943) (declining to view the 
Commission's authority as strictly limited to only requests for 
proxies, consents, or authorizations and stating regulation of 
written communications made prior to such formal requests but [that] 
are part of a continuous plan for a successful solicitation is 
needed ``if the purpose of Congress is to be fully carried out.'').
---------------------------------------------------------------------------

    Although we adhere to the Commission's longstanding view that any 
communication reasonably calculated to result in a proxy voting 
decision is a solicitation, we understand that there may be 
circumstances in which a person, such as a broker-dealer or an 
investment adviser, may receive requests for voting advice from a 
client that are unprompted by that person. The breadth of the 
Commission's definition of a solicitation could raise questions about 
whether such voting advice is a communication reasonably calculated to 
influence proxy voting by shareholders. The Commission has expressed 
the view in the past that such a communication should not be regarded 
as a solicitation subject to the proxy rules.\51\ We are proposing to 
codify this view through an amendment to Rule 14a-1(l)(2), which 
currently lists activities and communications that do not constitute a 
solicitation. As proposed, the definition of a solicitation would 
exclude any proxy voting advice furnished by a person who furnishes 
such advice only in response to an unprompted request.\52\
---------------------------------------------------------------------------

    \51\ Commission Interpretation on Proxy Voting Advice, supra 
note 19 at 10 (``We view these services provided by proxy advisory 
firms as distinct from advice prompted by unsolicited inquiries from 
clients to their financial advisors or brokers on how they should 
vote their proxies, which remains outside the definition of 
solicitation.''); see Broker-Dealer Release, supra note 32, at 341 
(setting forth the opinion of the SEC's General Counsel that a 
broker is not engaging in a ``solicitation'' if it is merely 
responding to his customer's request for advice and ``not actively 
initiating the communication''); 1979 Adopting Release, supra note 
36, at 68766.
    \52\ See proposed Rule 14a-1(l)(2)(v).
---------------------------------------------------------------------------

    The proposed amendment would make clear that the federal proxy 
rules do not apply to this form of proxy voting advice. We continue to 
believe that providing voting advice to a client where the client's 
request for the advice has been invited and encouraged by the person's 
marketing, offering, and selling such advice should be distinguished 
from advice provided by a person only in response to an unprompted 
request from its client.\53\ The information and filing requirements of 
the proxy rules \54\ (including the filing and furnishing of a proxy 
statement with information about the registrant and proxy cards with 
means for casting votes) or compliance with the proposed conditions of 
the exemptions described below, while appropriate for a person who 
chooses to actively market and sell its proxy voting advice, are ill-
suited for a person who receives an unprompted request from a client 
for its views on an upcoming matter to be presented for shareholder 
approval. For example, a person who does not sell voting advice as a 
business and who provides such advice only in response to an unprompted 
request from his or her client is unlikely to anticipate the need to 
establish the internal processes necessary to comply with our proposed 
new conditions to the exemptions in Rules 14a-2(b)(1) and 14a-
2(b)(3).\55\
---------------------------------------------------------------------------

    \53\ Some observers contend that a proxy voting advice business 
that ``is contractually obligated to furnish vote recommendations 
based on client-selected guidelines does not provide `unsolicited' 
proxy voting advice, and thus is not engaged in a `solicitation' 
subject to the Exchange Act proxy rules.'' See ISS Letter, supra 
note 9, at 8. For the reasons stated in this section, we do not 
agree with this view.
    \54\ Rules 14a-3 through 14a-6 set forth the filing, delivery, 
information, and presentation requirements for the proxy statement 
and form of proxy for solicitations subject to Regulation 14A [17 
CFR 240.14a-3 through 14a-6].
    \55\ See supra Section II.B.
---------------------------------------------------------------------------

    Furthermore, the proposed amendment to Rule 14a-1(l)(2) is intended 
to permit the furnishing of proxy voting advice without triggering the 
federal proxy rules under circumstances that present significantly less 
risk to investor protection. It is reasonable to expect that a person 
who does not promote himself or herself as an expert in proxy voting 
advice and provides voting advice only in response to unprompted 
requests will be furnishing such advice only to a client with whom 
there is an existing business relationship.\56\ We do not believe proxy 
voting advice provided under these limited circumstances presents the 
same investor protection or regulatory concerns as proxy voting advice 
businesses engaged in widespread marketing and sale of proxy voting 
advice to large numbers of investment advisers and other institutional 
investors who are often voting on behalf of other investors.
---------------------------------------------------------------------------

    \56\ For example, a broker-dealer's role as a financial advisor 
for a client on investment matters may cause the client to seek 
voting advice from the broker-dealer as well. See Broker-Dealer 
Release, supra note 32, at 341.
---------------------------------------------------------------------------

    If such advice were considered a solicitation, a person may, in the 
interest of caution, decline to share his or her advice or views on the 
upcoming matter with the client due to concerns about the need to file 
a proxy statement or his or her inability to comply with the exemptions 
from such a requirement. We believe that our proposed amendments to the 
definition of a solicitation in Rule 14a-1(l) are appropriately 
tailored to apply the protections of the federal proxy rules to proxy 
voting advice where they are most needed and in a manner consistent 
with Section 14(a).
Request for Comment
    1. Should we codify the Commission interpretation on proxy voting 
advice and the Commission view about unprompted requests for proxy 
voting

[[Page 66524]]

advice? \57\ Would the proposed codification (adding paragraph (A) to 
Rule 14a-1(l)(iii) and paragraph (v) to Rule 14a-1(l)(2)) provide 
market participants with better notice as to the applicability of the 
federal proxy rules?
---------------------------------------------------------------------------

    \57\ See Commission Interpretation on Proxy Voting Advice, supra 
note 19.
---------------------------------------------------------------------------

    2. Does the proposed amendment inadvertently include certain 
communications made by proxy voting advice businesses or other parties, 
such as investment advisers, that should not fall within the definition 
of ``solicitation''? If so, which communications, and how? Are there 
any revisions that we should consider that would better address these 
concerns or provide greater clarity?
    3. For example, the proposed amendment seeks to distinguish proxy 
voting advice businesses from investment advisers who provide voting 
advice as part of a broader advisory business that already is subject 
to an array of investor protection regulations by referring to proxy 
voting advice that is marketed and sold separately from other forms of 
investment advice. Instead of the proposed approach, should we refer to 
proxy voting advice that is marketed as a ``standalone service''? What 
would be the advantages and disadvantages of this approach? Would any 
further clarification of ``standalone services'' be required?
    4. Is there a different, more appropriate way of distinguishing 
proxy voting advice from other forms of investment advice?
    5. Should the proposed amendment be expanded to specify any other 
type of activity as constituting a solicitation?
    6. Should the proposed amendment clarifying that proxy voting 
advice provided by a person only in response to an unprompted request 
from his or her client be limited to persons who are registered broker-
dealers or investment advisers? Should there be other limits on the 
types of persons who should fall outside the definition of a 
solicitation?

B. Proposed Amendments to Rule 14a-2(b)

    Under the Commission's proxy rules, any person engaging in a proxy 
solicitation, unless exempt, is generally subject to filing and 
information requirements designed to ensure that materially complete 
and accurate information is furnished to shareholders solicited by the 
person. Among other things, the person making the solicitation is 
required to prepare a proxy statement with the information prescribed 
by Schedule 14A,\58\ together with a proxy card in a specified format, 
file these materials with the Commission, and furnish them to every 
shareholder who is solicited.\59\ Schedule 14A requires extensive 
information to be included in the proxy statement, such as descriptions 
of matters up for shareholder vote, securities ownership information of 
certain beneficial owners and management, disclosures of the 
registrant's executive compensation and related party transactions, 
and, for certain matters, financial statements. Once a proxy statement 
is furnished to shareholders, any other written communications that 
constitute solicitations must be filed with the Commission as 
additional soliciting materials no later than the date they are first 
sent to shareholders.\60\
---------------------------------------------------------------------------

    \58\ 17 CFR 240.14a-101.
    \59\ 17 CFR 240.14a-3(a).
    \60\ 17 CFR. 240.14a-6(b).
---------------------------------------------------------------------------

    Over the years, the Commission has recognized that these filing and 
information requirements may, in certain circumstances, impose burdens 
that deter communications useful to shareholders, and in such 
circumstances, may not be necessary to protect investors in the proxy 
voting process.\61\ Accordingly, the Commission has exempted certain 
kinds of solicitations from the filing and information requirements of 
the proxy rules, subject to various conditions, where such requirements 
are not necessary for investor protection. Rule 14a-9, the antifraud 
provision of the federal proxy rules, still applies, however, to these 
exempt solicitations.\62\
---------------------------------------------------------------------------

    \61\ See, e.g., Communications Among Shareholders Adopting 
Release, supra note 3, at 49278 (``[S]hareholders can be deterred 
from discussing management and corporate performance by the prospect 
of being found after the fact to have engaged in a proxy 
solicitation. The costs of complying with [the proxy] rules also has 
meant that . . . shareholders and other interested persons may 
effectively be cut out of the debate regarding proposals . . . .'').
    \62\ 17 CFR 240.14a-9.
---------------------------------------------------------------------------

    For example, Rule 14a-2(b)(1) generally exempts solicitations by 
persons who do not seek the power to act as proxy for a shareholder and 
do not have a substantial interest in the subject matter of the 
communication beyond their interest as a shareholder.\63\ This 
exemption was primarily intended to enable such shareholders to freely 
communicate with other shareholders on matters subject to a proxy vote, 
subject to other requirements outside of the proxy rules, such as 
Section 13(d) of the Exchange Act and the rules thereunder.\64\ Another 
exemption, Rule 14a-2(b)(3), generally exempts proxy voting advice 
furnished by an advisor \65\ to any other person with whom the advisor 
has a business relationship. This exemption was designed to remove an 
impediment to the flow of such advice to shareholders from advisors 
such as financial analysts, investment advisers, and broker-dealers who 
may be especially familiar with the affairs of registrants.\66\
---------------------------------------------------------------------------

    \63\ Specifically, Rule 14a-2(b)(1) provides that Sections 
240.14a-3 to 240.14a-6 (other than paragraphs 14a-6(g) and 14a-
6(p)), Section 240.14a-8, Section 240.14a-10, and Sections 240.14a-
12 to 240.14a-15 do not apply to:
    Any solicitation by or on behalf of any person who does not, at 
any time during such solicitation, seek directly or indirectly, 
either on its own or another's behalf, the power to act as proxy for 
a security holder and does not furnish or otherwise request, or act 
on behalf of a person who furnishes or requests, a form of 
revocation, abstention, consent or authorization. Provided, however, 
that the exemption set forth in this paragraph shall not apply to 
[various interested parties, including the registrant, its officers 
and directors, and other persons likely to benefit from successful 
solicitation.]
    17 CFR 240.14a-2(1).
    \64\ See Communications Among Shareholders Adopting Release, 
supra note 3, at 48280.
    \65\ When the Commission adopted this rule (formerly Rule 14a-
2(b)(2)), it made clear that ``advisor'' should be understood to 
mean ``one who renders financial advice in the ordinary course of 
[its] business.'' See 1979 Adopting Release, supra note 36, at 
68767. As the Commission stated, ``The definition [of advisor] 
focuses on persons with financial expertise and who are likely to be 
particularly familiar with information about corporate affairs which 
may be pertinent to voting decisions.'' Id. Rule 14a-2(b)(3) 
reflects this by making the exemption contingent, among other 
things, on the advisor rendering financial advice in the ordinary 
course of [its] business. See Rule 14a-2(b)(3)(i).
    \66\ See 1979 Adopting Release, supra note 36, at 68766.
---------------------------------------------------------------------------

    These exemptions, however, have remained subject to various 
limitations and conditions designed to ensure that investors are 
protected where the Commission's filing and information requirements do 
not apply. For example, any person who wishes to rely on the Rule 14a-
2(b)(3) exemption may not receive special commissions or remuneration 
from anyone other than the recipient of the advice and must disclose 
any significant relationship or material interest bearing on the voting 
advice.\67\ Furthermore, any person who

[[Page 66525]]

relies on Rule 14a-2(b)(1) or Rule 14a-2(b)(3) remains subject to Rule 
14a-9's prohibition on false or misleading statements.
---------------------------------------------------------------------------

    \67\ The conditions to Rule 14a-2(b)(3) are:
    (i) The advisor renders financial advice in the ordinary course 
of his business;
    (ii) The advisor discloses to the recipient of the advice any 
significant relationship with the registrant or any of its 
affiliates, or a security holder proponent of the matter on which 
advice is given, as well as any material interests of the advisor in 
such matter;
    (iii) The advisor receives no special commission or remuneration 
for furnishing the proxy voting advice from any person other than a 
recipient of the advice and other persons who receive similar advice 
under this subsection; and
    (iv) The proxy voting advice is not furnished on behalf of any 
person soliciting proxies or on behalf of a participant in an 
election subject to the provisions of Sec.  240.14a-12(c).
    17 CFR 240.14a-2(b)(3).
---------------------------------------------------------------------------

    Proxy voting advice businesses typically rely upon the exemptions 
in Rule 14a-2(b)(1) and Rule 14a-2(b)(3) to provide advice without 
complying with the filing and information requirements of the proxy 
rules.\68\ Both exemptions, however, were adopted by the Commission 
before proxy voting advice businesses played the significant role that 
they now do in the proxy voting process and in the voting decisions of 
investment advisers and other institutional investors.\69\ Their role 
in the process today has led some to express concerns about, among 
other things, the services they provide to their clients, particularly: 
(i) The adequacy of disclosure of any actual or potential conflicts of 
interest that could materially affect the objectivity of the proxy 
voting advice; (ii) the accuracy and material completeness of the 
information underlying the advice; and (iii) the inability of proxy 
voting advice businesses' clients to receive information and views from 
the registrant, potentially contrary to that presented in the advice, 
in a manner that is consistently timely and efficient.\70\
---------------------------------------------------------------------------

    \68\ See Commission Interpretation on Proxy Voting Advice, supra 
note 19, at 7 (discussing the ``two exemptions to the federal proxy 
rules that are often relied upon by proxy advisory firms'').
    \69\ See supra note 18 (providing client statistics for ISS and 
Glass Lewis).
    \70\ See, e.g., Soc. for Corp. Gov. Letter, supra note 24, at 1; 
Business Roundtable Letter 2, supra note 40, at 10-13; Letter from 
Tom Quaadman, Executive Vice President, U.S. Chamber of Commerce 
Center for Capital Markets Competitiveness (Nov. 12, 2018) 
(``Chamber of Commerce Letter''), at 5-8; Letter from Tony Huang, 
Director, Advent Capital Management, LLC (July 29, 2019) (``Advent 
Capital Letter''), at 6-7 (advocating in favor of Commission 
rulemaking to reduce the ``opacity of the proxy advisory process and 
the potential for financial conflicts of interest''); Wachtell 
Letter, supra note 24. But commenters also submitted letters 
generally disputing the need for regulatory reform of proxy advisory 
firms. See, e.g., CII Letter, supra note 13, at 14; OPERS Letter, 
supra note 8, at 2; NYC Comptroller Letter, supra note 17, at p. 3 
of enclosed statement before the Senate Banking Committee on Dec. 8, 
2018; Letter from Thomas DiNapoli, Comptroller, State of New York 
(Nov. 13, 2018), at 4.
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    We recognize that proxy voting advice businesses can play a 
valuable role in the proxy voting process. We also believe it is 
unnecessary for such businesses to comply with the filing and 
information requirements of the proxy rules to the same extent as non-
exempt soliciting persons, provided other measures are in place to 
protect investors. However, in light of the substantial role that proxy 
voting advice businesses have in the voting decisions of their clients, 
who often vote on behalf of investors, we are proposing new conditions 
to the exemptions in Rules 14a-2(b)(1) and 14a-2(b)(3) that would apply 
specifically to persons furnishing proxy voting advice that constitutes 
a solicitation within the scope of proposed Rule 14a-
1(l)(1)(iii)(A).\71\
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    \71\ See supra Section II.A. Other persons providing voting 
advice that is beyond the scope of proposed Rule 14a-
1(l)(1)(iii)(A), such as financial advisors providing advice to 
clients with whom they have a business relationship, will be able to 
continue relying on the Rule 14a-2(b)(1) and Rule 14a-2(b)(3) 
exemptions without complying with the proposed new conditions.
---------------------------------------------------------------------------

    We believe that our proposed rule amendments would (i) improve 
proxy voting advice businesses' disclosures of conflicts of interests 
that would reasonably be expected to materially affect their voting 
advice, (ii) establish effective measures to reduce the likelihood of 
factual errors or methodological weaknesses in proxy voting advice, and 
(iii) ensure that those who receive proxy voting advice have an 
efficient and timely way to obtain and consider any response a 
registrant or certain other soliciting person may have to such advice. 
We believe that these amendments would ensure that investment advisers, 
who vote on behalf of investors, and others who rely on the advice of 
proxy voting advice businesses, receive accurate, transparent, and 
materially complete information when they make their voting decisions.
1. Conflicts of Interest
    Proxy voting advice businesses engage in activities or have 
relationships that could affect the objectivity or reliability of their 
advice, which may need to be disclosed in order for their clients to 
assess the impact and materiality of any actual or potential conflicts 
of interest with respect to a voting recommendation.\72\ In recent 
years, observers have noted the many ways in which these activities and 
relationships could result in conflicts of interest.\73\ Examples 
include:
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    \72\ Concept Release, supra note 2, at 43011.
    \73\ See 2018 Roundtable Transcript, supra note 40, at 202-16; 
2016 GAO Report, supra note 9, at 32-33; 2007 GAO Report, supra note 
9, at 9; Center on Exec. Comp. Letter, supra note 24, at 2-3; Soc. 
for Corp. Gov. Letter, supra note 24, at 6-7; Wachtell Letter, supra 
note 24, at 8-9; Timothy M. Doyle, The Conflicted Role of Proxy 
Advisors, American Council for Capital Formation 6 (May 22, 2018), 
available at https://corpgov.law.harvard.edu/2018/05/22/the-conflicted-role-of-proxy-advisors/ (``ACCF 2018 Report''); Edelman, 
supra note 24, at 1409; Manhattan Institute, supra note 24, at 16.
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     A proxy voting advice business providing voting advice to 
its clients on proposals to be considered at the annual meeting of a 
registrant while the proxy voting advice business also earns fees from 
that registrant for providing advice on corporate governance and 
compensation policies; \74\
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    \74\ See, e.g., Glass Lewis Letter, supra note 16, at 9 (``For 
instance, Glass Lewis strongly believes that the provision of 
consulting services to corporate issuers, directors, dissident 
shareholders and/or shareholder proposal proponents, creates a 
problematic conflict of interest that goes against the very 
governance principles for which we advocate.'').
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     A proxy voting advice business providing voting advice on 
a matter in which its affiliates or one of its clients has a material 
interest, such as a business transaction or a shareholder proposal put 
forward by that client;
     A proxy voting advice business providing ratings to 
institutional investors of registrants' corporate governance practices 
while at the same time consulting for the registrants that are the 
subject of the ratings to help increase their corporate governance 
scores; and
     A proxy voting advice business providing voting advice 
with respect to a registrant's shareholder meeting while affiliates of 
the business hold a significant ownership interest in the registrant, 
sit on the registrant's board of directors, or have relationships with 
the shareholder presenting the proposal in question.
    These types of circumstances, where the interests of a proxy voting 
advice business may diverge materially from the interests of investors, 
create a risk that the proxy voting advice business's voting advice 
could be influenced by the business's own interests.\75\ Although proxy 
voting advice businesses have described various measures they believe 
mitigate this risk,\76\ the voting decisions

[[Page 66526]]

of persons who rely on these businesses would be better informed if 
they received information sufficient for them to understand and assess 
these potential risks and measures.\77\ Investment advisers that use 
proxy voting advice businesses for voting advice cannot fully 
understand potential risks and the proxy voting advice businesses' 
mitigation measures if they do not have access to sufficiently detailed 
disclosure about the full extent and nature of any conflicts that are 
relevant to the voting advice they receive.\78\
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    \75\ See 2016 GAO Report, supra note 9, at 32-33; 2007 GAO 
Report, supra note 9, at 9; see also U.S. Dep't of the Treasury, A 
Financial System That Creates Economic Opportunities--Capital 
Markets 31 (Oct. 2017), https://www.treasury.gov/press-center/press-releases/documents/a-financial-system-capital-markets-final-final.pdf (``Public companies also had concerns about potential 
conflicts of interest that arise when a proxy advisory firm provides 
voting advice to its clients on public companies while 
simultaneously offering consulting services to those same companies 
to improve their corporate governance rankings.'').
    \76\ See, e.g., ISS Letter, supra note 9, at 10 (recognizing its 
duty of loyalty to its clients as a registered investment adviser 
and summarizing its various policies and procedures designed to 
ensure the integrity and independence of its advice, such as: A 
physical and functional firewall between ISS and ISS Corporate 
Solutions, Inc. (``ICS''); providing clients with conflicts 
disclosure; the inclusion of a legend in each proxy report alerting 
clients to potential conflicts; and the ability of ISS clients to 
obtain lists of all ICS clients); Glass Lewis Letter, supra note 16, 
at 6 (discussing its policies and procedures to help monitor, 
manage, and address potential conflicts and its practice of fully 
disclosing to clients the existence of potential conflicts by adding 
a disclosure note to the front cover of relevant proxy research 
reports). However, as discussed infra, concerns remain about the 
adequacy of these firms' conflicts of interest disclosures. We note 
that there is no uniform set of standards that applies to the 
policies and procedures utilized by the various proxy voting advice 
businesses to address risks posed by conflicts of interest, the 
absence of which can lead to inconsistent and inadequate disclosures 
and mitigation measures.
    \77\ For example, the Commission recently discussed, in a 
separate release, steps that investment advisers should consider 
taking when deciding whether to retain or continue retaining a proxy 
advisory firm. See Question and Response 2 of Commission 
Interpretation on Proxy Voting Advice, supra note 19, at 11-12.
    \78\ See Chamber of Commerce Letter, supra note 70, at 3-4 
(stating the Chamber's concern that conflicts of interest are 
pervasive at both ISS and Glass Lewis); ACCF 2018 Report, supra note 
73, at 24 (``The proxy advisory industry is immensely complex and 
interwoven. Its offerings and conflicts of interest are vague and 
unclear and yet the largest institutional investors, pensions, and 
hedge funds vote based on ISS and Glass Lewis recommendations.''); 
Wachtell Letter, supra note 24, at 8; Letter from John Okray, Vice 
President and Assistant Counsel, OppenheimerFunds, Inc. (Sep. 24, 
2009) (``Oppenheimer Letter''), at 2, available at https://www.sec.gov/comments/s7-13-09/s71309.shtml.
    However, some clients of proxy advisory firms have expressed 
that they are satisfied with their proxy advisory firms' efforts at 
managing conflicts of interest and the quality of conflicts 
disclosures. See, e.g., 2018 Roundtable Transcript, supra note 40, 
at 211-13; CII Letter, supra note 13, at 14; OPERS Letter, supra 
note 8, at 2; NYC Comptroller Letter, supra note 17, p. 3 of 
enclosed statement before the Senate Banking Committee on Dec. 8, 
2018.
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    To help ensure that sufficient information about material conflicts 
of interest is provided consistently across proxy voting advice 
businesses and in a reasonably accessible manner to the clients of 
proxy voting advice businesses, we are proposing amendments to the 
exemptions from the proxy solicitation rules in Rules 14a-2(b)(1) and 
(b)(3) to specify that they will be available to proxy voting advice 
businesses only to the extent that they provide specified disclosures 
about their material conflicts of interest.\79\ Rule 14a-2(b)(1) 
currently does not have a specified disclosure requirement for 
conflicts of interests. We recognize that the existing Rule 14a-2(b)(3) 
exemption does require advisors, including proxy voting advice 
businesses, to disclose to their clients the existence of significant 
relationships and material interests,\80\ a condition which the 
Commission adopted to address concerns that certain conflicts of 
interest might negatively affect the value of an advisor's advice.\81\ 
However, a number of observers have expressed concerns about the 
adequacy of these disclosures and have stated that more specific, 
prominent disclosure about conflicts is needed to enable clients to 
make a more informed assessment of proxy voting advice businesses' 
voting advice.\82\ For example, some observers have asserted that the 
conflicts disclosures provided by proxy voting advice businesses are 
vague or boilerplate disclosures that do not provide sufficient 
information about the nature of potential conflicts.\83\ In light of 
these concerns, we are proposing to require that persons who provide 
proxy voting advice within the scope of proposed Rule 14a-
1(l)(1)(iii)(A) include in such advice (and in any electronic medium 
used to deliver the advice) the following disclosures, which are 
intended to be more illuminating than what is currently specifically 
required by the existing Rule 14a-2(b)(1) and (b)(3) exemptions and 
specifically tailored to proxy voting advice businesses and the nature 
of their conflicts: \84\
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    \79\ See proposed Rule 14a-2(b)(9)(i).
    \80\ See current Rule 14a-2(b)(3)(ii).
    \81\ See 1979 Adopting Release, supra note 36, at 68766-67.
    \82\ See, e.g., Soc. for Corp. Gov. Letter, supra note 24, at 6-
7; Wachtell Letter, supra note 24, at 8-9.
    \83\ See, e.g., ACCF 2018 Report, supra note 73, at 24 (noting 
that the proxy advisory industry's ``conflicts [disclosures] are 
vague and unclear''); Wachtell Letter, supra note 24, at 8 
(describing the current practice of ``minimal and vague disclosure, 
sometimes in the form of blanket statements that simply note that 
conflicts may generally exist''); Oppenheimer Letter, supra note 79, 
at 2.
    \84\ See proposed Rule 14a-2(b)(9)(i).
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     Any material interests, direct or indirect, of the proxy 
voting advice business (or its affiliates \85\) in the matter or 
parties concerning which it is providing the advice;
---------------------------------------------------------------------------

    \85\ The term ``affiliate,'' as used in proposed Rule 14a-
2(b)(9)(i), would have the meaning specified in Exchange Act Rule 
12b-2. We recognize that proxy voting advice businesses may not 
necessarily have access to the information needed to determine 
whether an entity is an affiliate of a registrant, another 
soliciting person, or the shareholder proponent. Therefore, as 
proposed, proxy voting advice businesses would only be required to 
use publicly-available information to determine whether an entity is 
an affiliate of registrants, other soliciting persons, or 
shareholder proponents.
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     Any material transaction or relationship between the proxy 
voting advice business (or its affiliates) and (i) the registrant (or 
any of the registrant's affiliates), (ii) another soliciting person (or 
its affiliates), or (iii) a shareholder proponent (or its affiliates), 
in connection with the matter covered by the proxy voting advice;
     Any other information regarding the interest, transaction, 
or relationship of the proxy voting advice business (or its affiliate) 
that is material to assessing the objectivity of the proxy voting 
advice in light of the circumstances of the particular interest, 
transaction, or relationship; and
     Any policies and procedures used to identify, as well as 
the steps taken to address, any such material conflicts of interest 
arising from such interest, transaction, or relationship.
    As revised, the exemptions in Rules 14a-2(b)(1) and 14a-2(b)(3) 
would not be available unless the disclosures required by proposed Rule 
14a-2(b)(9)(i) are provided. By extending these disclosure requirements 
to both Rule 14a-2(b)(1) and Rule 14a-2(b)(3), the proposed amendments 
would help ensure that investment advisers and other clients that use 
proxy voting advice businesses for voting advice receive the same 
information about potential conflicts of interests, regardless of which 
exemption a proxy voting advice business may rely upon for its proxy 
voting advice.
    Proposed Rule 14a-2(b)(9)(i) would augment current disclosure 
requirements in Rules 14a-2(b)(1) and 14a-2(b)(3) \86\ by specifying 
that enhanced disclosure about material conflicts of interest must be 
included in the proxy voting advice. In addition, it would utilize a 
principles-based requirement to elicit disclosure of any other 
information regarding the interest, transaction, or relationship that 
would be material to a reasonable investor's assessment of the 
objectivity of the proxy voting advice. The disclosures provided under 
these provisions should be sufficiently detailed so that clients of 
proxy voting advice businesses can understand the nature and scope of 
the interest, transaction, or relationship to appropriately assess the 
objectivity and reliability of the proxy voting advice they receive. 
This may include the identities of the parties or affiliates involved 
in the interest, transaction, or relationship triggering the proposed 
disclosure requirement and, when

[[Page 66527]]

necessary for the client to adequately assess the potential effects of 
the conflict of interest, the approximate dollar amount involved in the 
interest, transaction, or relationship. Boilerplate language that such 
relationships or interests may or may not exist would be insufficient 
for purposes of satisfying this condition to the exemptions.
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    \86\ The exemption in Rule 14a-2(b)(1) does not currently 
require conflicts of interest disclosure, while Rule 14a-2(b)(3)(ii) 
requires disclosure of ``any significant relationship with the 
registrant or any of its affiliates, or a security holder proponent 
of the matter on which advice is given, as well as any material 
interests in such matter.'' 17 CFR 240.14a-2(b)(3)(ii).
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    The proposed amendments also would require a discussion of the 
policies and procedures, if any, used to identify and steps taken to 
address such potential and actual conflicts of interest. Such 
disclosure should include a description of the material features of the 
policies and procedures that are necessary to understand and evaluate 
them. Examples include the types of transactions or relationships 
covered by the policies and procedures and the persons responsible for 
administering these policies and procedures. We believe that clients of 
proxy voting advice businesses would benefit from having this 
information as they assess the objectivity of the voting advice in 
light of disclosures about actual or potential conflicts of interest, 
develop a better understanding of the businesses' approaches for 
handling conflicts of interests, evaluate whether the conflicts were 
addressed effectively, and make decisions regarding whether and how to 
use the voting advice.
    Furthermore, the proposed conflicts of interest disclosures would 
be required to be included in the proxy voting advice provided to 
clients.\87\ For example, the disclosures would have to be part of the 
written report, if any, containing the proxy voting advice provided to 
the business's clients. To the extent that a proxy voting advice 
business provides its voting advice through means of an electronic 
voting platform or other electronic medium in addition to or in lieu of 
a written report, proposed Rule 14a-2(b)(9)(i) also would require that 
the disclosure be conveyed on such voting platform or other electronic 
medium to ensure that the information is prominently disclosed 
regardless of the means by which the advice is disseminated. Due to 
this proposed requirement, it would be insufficient for a proxy voting 
advice business only to provide such disclosures upon request from the 
client. We believe that imposing an affirmative duty on proxy voting 
advice businesses to provide the proposed disclosures of material 
conflicts of interest is consistent with obligations to disclose 
potential conflicts of interest in other contexts.\88\ The proposed 
requirement also would standardize the manner in which conflicts of 
interest are disclosed by proxy voting advice businesses and assure 
that the required information receives due prominence and can be 
considered together with proxy voting advice at the time voting 
decisions are made.
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    \87\ Currently, Rule 14a-2(b)(3)(ii) requires that disclosure of 
conflicts-related information be conveyed to the recipient of the 
proxy voting advice, but does not specify in what manner.
    \88\ For example, the information about the interests of 
participants in a matter presented for a vote required by Item 5 of 
Schedule 14A and information about related party transactions 
required by Item 404 of Regulation S-K [17 CFR 229.404] must be 
affirmatively disclosed. See 17 CFR 229.404. In addition to the 
existing disclosure requirements of Rule 14a-2(b)(3)(ii), some proxy 
voting advice businesses are registered as investment advisers under 
the Advisers Act, and therefore have obligations to disclose 
conflicts of interest. The proposed requirements would apply to all 
proxy voting advice businesses and are tailored to address concerns 
that arise in the context of those activities. The proposed 
requirements would not limit, in any way, the obligations of a proxy 
voting advice business registered under the Advisers Act and would 
complement existing requirements. However, where the substance of 
the disclosure requirements overlap, we do not anticipate that proxy 
voting advice businesses registered as investment advisers would 
incur substantial duplicative costs because, in complying with the 
proposed requirements, these proxy voting advice businesses will 
have already needed to complete at least some of the work of 
identifying conflicts and developing disclosures to explain the 
conflicts.
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    We are aware that some proxy voting advice businesses have asserted 
that they have practices and procedures that adequately address 
conflict of interest concerns.\89\ Nevertheless, we believe that 
disclosure of such conflicts and any practices to address them should 
be more consistent across proxy voting advice businesses so that all 
clients of proxy voting advice businesses have materially complete 
information upon which to make informed voting decisions.\90\ As such, 
the proposed amendments would establish a baseline disclosure standard 
to which a proxy voting advice business must adhere in order to avail 
itself of the exemptions in Rule 14a-2(b)(1) and (3). We believe that 
by requiring proxy voting advice businesses to provide standardized 
disclosure regarding conflicts of interest, clients of these businesses 
would be in a better position to evaluate these businesses' ability to 
manage their conflicts of interest, both at the time the proxy voting 
advice business is first retained and on an ongoing basis.\91\
---------------------------------------------------------------------------

    \89\ See supra note 76 and accompanying text.
    \90\ Currently, proxy voting advice businesses have differing 
ways of disclosing their conflicts of interest. ISS discloses the 
details of its potential conflicts of interest, such as the 
identities of the parties and the amounts involved, through its 
ProxyExchange platform while Glass Lewis states that its disclosures 
are on the front cover of the report with its proxy voting advice. 
See ISS FAQs Regarding Recent Guidance from the U.S. Securities and 
Exchange Commission Regarding Proxy Voting Responsibilities of 
Investment Advisers (Oct. 17, 2019) (``ISS FAQs''), available at 
https://www.issgovernance.com/file/faq/ISS_Guidance_FAQ_Document.pdf.; Glass Lewis Letter, supra note 16.
    \91\ Although some commenters have advocated in favor of public 
disclosure of a proxy advisory firm's conflicts of interest, in 
addition to requiring disclosure in the advisor's proxy voting 
advice, see, e.g., Center on Exec. Comp. Letter, supra note 24, at 
2; Wachtell Letter, supra note 24, at 8, we are not proposing such a 
requirement. The Commission's primary concern in proposing these 
amendments to Rule 14a-2(b) is with the recipients of proxy voting 
advice, including investment advisers who use that advice to make 
voting decisions on behalf of clients with whom they have a 
fiduciary relationship. Moreover, we are aware that some proxy 
voting advice businesses may have compelling and legitimate business 
reasons for limiting the dissemination of this information. For 
example, ISS has stated that it maintains a strict firewall between 
itself and its subsidiary, ICS, in order to control the risk that a 
conflict of interest might jeopardize the independence of its proxy 
voting advice business. ISS Letter, supra note 9, at 13. ISS 
indicates that ``a key goal of the firewall is to keep the ISS 
Global Research team from learning the identity of ICS' clients, 
thereby insuring the objectivity and independence of ISS' research 
process and vote recommendation.'' Id. ISS has stated that requiring 
public disclosure of relevant details about ICS' clients might 
compromise this information barrier and severely undermine the 
company's conflict mitigation program. Id. at 14.
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Request for Comment
    7. Is the text of proposed Rule 14a-2(b)(9)(i) sufficient to elicit 
appropriate disclosure of a proxy voting advice business's conflicts of 
interest to its clients? Are there other examples of conflicts of 
interest that the Commission should take into account in considering 
the text of proposed Rule 14a-2(b)(9)(i)? Is the principles-based 
requirement in Rule 14a-2(b)(9)(i)(C) sufficient to capture material 
information about conflicts of interest not otherwise included within 
the scope of paragraphs (9)(i)(A) and (B)? Is there additional material 
information that should be required?
    8. Would the proposed disclosures provide clients of proxy voting 
advice businesses with adequate and appropriate information about the 
businesses' conflicts of interest when making their voting 
determinations?
    9. To what extent do existing disclosures address the concerns 
discussed in this release? What additional information may be required 
to ensure that they provide clients with the information clients need?
    10. Is there specific information, whether qualitative or 
quantitative, about proxy voting advice businesses' conflicts of 
interest that they should be required to disclose? For example, should 
proxy voting advice businesses be required to disclose the specific 
amounts that they receive from the relationships or interests covered 
by the

[[Page 66528]]

proposed conflicts of interests disclosures?
    11. Would requiring specific disclosure of this sort raise 
competitive or other concerns for proxy voting advice businesses? For 
example, would the proposed disclosures be incompatible with firewalls 
or other mechanisms used by proxy voting advice businesses to prevent 
conflicts of interest from affecting the advice these businesses 
provide?
    12. What information would be most relevant to an investment 
adviser or other client of a proxy voting advice business in seeking to 
understand how the proxy voting advice business identifies and 
addresses conflicts of interest?
    13. Do proxy voting advice businesses consult on particular matters 
where their input influences the substance of the matter to be voted on 
(e.g., providing consulting services to a hedge fund with respect to 
transformative transactions, such as a proxy contest where the fund is 
presenting a competing slate of directors)? If so, what type of 
disclosure would help investors to understand the proxy voting advice 
business's role and potential conflicts of interest regarding these 
situations? Is the text of proposed Rule 14a-2(b)(9)(i) sufficient to 
elicit disclosure of material conflicts of interest of this type?
    14. Currently, Rule 14a-2(b)(3) requires disclosure to the 
recipient of the voting advice of ``any significant relationship'' with 
the registrants and other parties as well as ``any material interests'' 
of the advisor in the matter. By contrast, disclosure under proposed 
Rule 14a-2(b)(9)(i) would be required only to the extent that the 
information would be material to assessing the objectivity of the proxy 
voting advice. Is the terminology in each provision sufficiently clear 
with respect to the types of relationships or interests that are 
covered by each requirement? For example, is there sufficient clarity 
on how to assess whether a relationship is ``material,'' or is 
additional guidance needed? Should we consider alternative thresholds 
or language for the proposed conflicts of interests disclosure 
requirement of Rule 14a-2(b)(9)(i)? If so, what language should we 
consider? As an alternative, should we use the same terminology as Rule 
14a-2(b)(3)? Should we look instead to Item 404 of Regulation S-K, 
which requires disclosure of a ``direct or indirect material 
interest''? Is Item 5 of Schedule 14A, which requires disclosures of 
``any substantial interest'' of the covered persons, an alternative 
that we should consider?
    15. Should proposed Rule 14a-2(b)(9)(i) limit the matters which a 
proxy voting advice business must disclose to those that occurred on or 
after a certain date, or is a more principles-based disclosure 
requirement preferable?
    16. Proposed Rule 14a-2(b)(9)(i) is a principles-based requirement 
that does not specify the manner in which conflicts of interest should 
be disclosed, so long as the disclosure is included in the proxy voting 
advice business's voting advice and, if applicable, conveyed through 
any electronic medium that the proxy voting advice business uses in 
lieu of or in addition to a written report. Should proposed Rule 14a-
2(b)(9)(i) be more prescriptive regarding the presentation of conflicts 
of interest disclosure, or is it preferable to let the proxy voting 
advice business and its client determine how this information will be 
presented to the client?
    17. Is it important that the conflicts of interest disclosure 
required by proposed Rule 14a-2(b)(9)(i) be included in the proxy 
voting advice, or would providing it separately suffice?
    18. To the extent that a proxy voting advice business uses a voting 
platform or other electronic medium to convey its voting advice, should 
we require that the conflicts of interest disclosure be conveyed in the 
same manner?
    19. Should we require the conflicts of interest disclosure that a 
proxy voting advice business provides to its clients be made public? If 
public disclosure were required, when and in what manner should the 
disclosures be released to the public? Would this raise competitive or 
other concerns for proxy voting advice businesses?
    20. The proposed amendments are intended to promote consistency in 
the disclosures proxy voting advice businesses make about their 
conflicts of interest. Is the consistency of this information an 
important consideration?
    21. Should we require proxy voting advice businesses to include in 
their disclosure to clients a discussion of the policies and procedures 
used to identify, as well as the steps taken to address, any conflicts 
of interest, as proposed? Do proxy voting advice businesses have 
sufficient incentive to include this disclosure on their own?
    22. What are the anticipated costs to proxy voting advice 
businesses and their clients associated with requiring additional 
conflicts of interest disclosure, as proposed? For example, what are 
the costs for proxy voting advice businesses to determine whether an 
entity is an affiliate of a registrant, another soliciting person, or 
shareholder proponent? Should we impose structural requirements (e.g., 
like the structural reforms in the global analyst research settlements) 
\92\ in addition to disclosure requirements?
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    \92\ See Federal Court Approves Global Research Analyst 
Settlement, SEC Litigation Release No. 18438 (Oct. 31, 2003). See 
also SEC Fact Sheet on Global Analyst Research Settlements (April 
28, 2003), available at https://www.sec.gov/news/speech/factsheet.htm.
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    23. Are there existing regulatory models of conflicts of interest 
disclosure that would be useful for us to consider? If so, what are the 
alternatives that we should consider in lieu of proposed Rule 14a-
2(b)(9)(i)? For example, should we require all proxy voting advice 
businesses to disclose conflicts to the same extent that their clients 
(e.g., an investment adviser) would be reasonably expected to disclose 
such conflicts to their own clients (e.g., the funds or retail investor 
clients to whom the investment adviser provides advice)?
2. Registrants' and Other Soliciting Persons' Review of Proxy Voting 
Advice and Response
a. Need for Review of Proxy Voting Advice by Registrants and Other 
Soliciting Persons
    For the clients of proxy voting advice businesses to be able to 
rely on the voting advice they receive to make informed voting 
decisions, the analysis and research supporting the advice must be 
accurate and complete in all material respects.\93\ This is especially 
critical when an investment adviser retains a proxy voting advice 
business to provide information that will inform the adviser's voting 
determinations. However, in recent years concerns have been expressed 
by a number of commentators, particularly within the registrant 
community, that there could be factual errors, incompleteness, or 
methodological weaknesses in proxy voting advice businesses' analysis 
and information underlying their voting advice that could materially 
affect the reliability of their voting recommendations and could affect 
voting outcomes, and that processes currently in place to mitigate 
these risks are insufficient.\94\ These concerns are

[[Page 66529]]

coupled with the perception of many registrants that (i) they lack an 
adequate opportunity to review proxy voting advice before it is 
disseminated, (ii) there are not meaningful opportunities to engage 
with the proxy voting advice businesses and rectify potential factual 
errors or methodological weaknesses in the analysis underlying the 
proxy voting advice before votes are cast, particularly for registrants 
that do not meet certain criteria (such as inclusion in a particular 
stock market index),\95\ and (iii) once the voting advice is delivered 
to the proxy voting advice business's clients, which typically occurs 
very shortly before a significant percentage of votes are cast and the 
meeting held, it is often not possible for the registrant to inform 
investors in a timely and effective way of its contrary views or errors 
it has identified in the voting advice.\96\ Although communication 
between proxy voting advice businesses and registrants may have 
improved over time,\97\ recent feedback and studies suggest that many 
registrants remain concerned about the limited ability of registrants 
to provide input that might address errors, incompleteness, or 
methodological weaknesses in proxy voting advice.\98\
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    \93\ See Concept Release, supra note 2, at 43011 (``To the 
extent that proxy advisory firms develop, disseminate, and implement 
their voting recommendations without adequate accountability for 
informational accuracy . . . informed shareholder voting may be 
likewise impaired.'').
    \94\ See, e.g., Letter from Maria Ghazal, Senior Vice President 
and Counsel, Business Roundtable (Nov. 9, 2018) (``Business 
Roundtable Letter 1''), at 11 (discussing examples of errors in 
voting advice and registrants' interactions with proxy advisory 
firms to address perceived errors); Letter from Neil Hansen, Vice 
President, Investor Relations and Corporate Secretary, Exxon Mobil 
Corporation (June 26, 2019) (``Exxon Letter''), at 4-5 (addressing 
perceived methodological limitations of proxy advisory firms' 
evaluation of executive compensation structures); Richard Levick, 
`Vinny' and the Proxy Advisors: A Five Trillion Dollar Debate, 
Forbes.com (Dec. 17, 2018), https://www.forbes.com/sites/richardlevick/2018/12/17/vinny-and-the-proxy-advisors-a-five-trillion-dollar-debate/#73164b9f2f4b; Placenti, supra note 40, at 
10-11. But see, e.g., Letter from Kenneth A. Bertsch, Executive 
Director, Council of Institutional Investors (Oct. 24, 2019) 
(asserting the lack of evidence of pervasive inaccuracies in proxy 
voting advice); OPERS Letter, supra note 8, at 3 (discussing the 
effectiveness of OPERS' internal controls to identify and mitigate 
errors in proxy reports and indicating its satisfaction with the 
quality of the advice it receives from its proxy advisory firm); CII 
Letter, supra note 13, at 15 (noting a lack of compelling evidence 
indicating that more regulation of proxy advisory firms is necessary 
or in the best interests of investors, companies, or the capital 
markets generally).
    \95\ See ISS Letter, supra note 9, at 10.
    \96\ See, e.g., Business Roundtable Letter 1, supra note 94, at 
16 (discussing survey results and testimonials supporting the 
contention that a spike in shareholder voting follows adverse voting 
recommendations during the period immediately after the release of 
proxy voting advice); Soc. for Corp. Gov. Letter, supra note 24, at 
5 (``The inability to review draft reports from proxy advisory firms 
as a matter of right means that companies who want factual errors or 
omissions corrected are often unable to get a response from proxy 
advisory firms until it is too late, i.e., until after votes have 
been cast on the basis of a recommendation that relied--at least in 
part--on inaccurate or incomplete information.''); Business 
Roundtable Letter 2, supra note 40, at 9 (``This high incidence of 
voting immediately on the heels of the publication of proxy advisory 
reports suggests, at best, that investors spend little time 
evaluating proxy advisory firms' guidance and determining whether it 
is in the best interests of their clients and, at worst, that they 
simply outsource the vote to the proxy advisor.''); see also 2018 
Roundtable Transcript, supra note 40, at 226-40.
    \97\ See 2016 GAO Report, supra note 9, at 23.
    \98\ See, e.g., Business Roundtable Letter 1, supra note 94, at 
11; Placenti, supra note 40, at 7 (discussing the results from a 
survey of one hundred public companies about the quality of 
information in proxy voting advice and its impact on shareholder 
voting); 2015 Proxy Season Survey, Nasdaq & U.S. Chamber of Commerce 
2 (as of Sept. 24, 2019), http://www.centerforcapitalmarkets.com/wp-content/uploads/2013/08/2015-Proxy-Season-Survey-Summary.pdf 
(summarizing the results of a survey of public companies' concerns 
about the accuracy of information in the proxy voting advice 
pertaining to their companies, as well as complaints about the 
efficacy of engaging with proxy advisory firms to impact the voting 
advice).
---------------------------------------------------------------------------

    In response, proxy voting advice businesses have pointed to 
internal policies and procedures aimed at ensuring the integrity of 
their research \99\ and the steps they have taken to enable feedback 
from registrants before their voting advice is issued. ISS and Glass 
Lewis, for example, both have systems in place to share certain 
information with registrants.\100\ In the United States, ISS offers the 
constituent companies of the Standard and Poor's 500 Index the 
opportunity to review a draft of ISS' voting advice before it is 
delivered to clients.\101\ Glass Lewis has a program that allows 
registrants who participate to receive a data-only version of its 
voting advice before publication to clients.\102\ In addition, Glass 
Lewis implemented a pilot program for the 2019 proxy season, known as 
its Report Feedback Statement (``RFS'') service, which offers U.S. 
public companies and shareholder proponents the opportunity to express 
differences of opinion they may have with Glass Lewis' research.\103\ 
Participants in this pilot program were able to submit feedback about 
the analysis of their proposals, and have comments delivered directly 
to Glass Lewis's investor clients along with Glass Lewis' response to 
the RFS.\104\
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    \99\ For example, ISS has stated that it offers all registrants 
a free copy of its published analysis for their shareholder meetings 
upon request, which ISS believes affords the registrants the 
opportunity to bring any factual errors to ISS' attention. See ISS 
Letter, supra note 9, at 9. When it does become aware of material 
factual errors, ISS notes that it promptly issues a ``Proxy Alert'' 
to inform clients of any corrections and, if necessary, any 
resulting changes in ISS' vote recommendations. Id. at 11. Glass 
Lewis has similar policies to address factual errors and omissions. 
See Glass Lewis Letter, supra note 16, at 6. ISS has also noted 
that, as a registered investment adviser, it has a fiduciary duty of 
care to make a reasonable investigation to determine that it is not 
basing vote recommendations on materially inaccurate or incomplete 
information. See ISS Letter, supra note 9, at 2. We note, however, 
that not all proxy voting advice businesses are registered as 
investment advisers. It is also important to note that there is 
often disagreement between proxy voting advice businesses and 
registrants over whether information in proxy voting advice should 
be classified as an ``error.'' See id. at 10.
    \100\ See ISS Letter, supra note 9, at 2; Glass Lewis Letter, 
supra note 16, at 6-7; see also 2016 GAO Report, supra note 9, at 28 
(summarizing the issuer-review programs of ISS and Glass Lewis).
    \101\ See ISS Letter, supra note 9, at 10. ISS states that 
drafts of its proxy advice are always provided on a ``best efforts'' 
basis and it does not guarantee that an issuer in the S&P 500 will 
have an opportunity to review a draft analysis. See ISS Draft Review 
Process for U.S. Issuers, ISS, https://www.issgovernance.com/iss-draft-review-process-u-s-issuers/ (last visited Sept. 20, 2019). 
Participating companies need to register with ISS in advance to 
receive a draft, and drafts are provided only for the reports for 
annual shareholder meetings, not special meetings, nor for any 
meeting where the agenda includes a merger or acquisition proposal, 
proxy fight, or any item that ISS, in its sole discretion, considers 
to be of a contentious nature, such as a ``vote-no'' campaign. Id.
    \102\ Glass Lewis refers to this as its Issuer Data Report (IDR) 
service. See Issuer Data Report, Glass Lewis, https://www.glasslewis.com/issuer-data-report/(last visited Oct. 25, 2019); 
2018 Roundtable Transcript, supra note 40, at 230.
    \103\ See Katherine Rabin, CEO of Glass, Lewis, & Co., Glass 
Lewis' Report Feedback Service: Direct, Unfiltered Commentary from 
Issuers and Shareholder Proponents, Harvard Law School Forum on 
Corporate Governance and Financial Regulation, https://corpgov.law.harvard.edu/2019/03/31/glass-lewis-report-feedback-service-direct-unfiltered-commentary-from-issuers-and-shareholder-proponents/; Report Feedback Statement--Frequently Asked Questions, 
Glass Lewis (May 2019), available at https://www.glasslewis.com/report-feedback-statement-service/.
    \104\ Registrants generally must pay the proxy voting advice 
business to obtain access to the information that they can then 
review. This is true as well for the RFS service. Rabin, supra note 
103 (``In order to facilitate processing and distribution, there is 
a distribution fee associated with participation in the RFS service, 
and subscribers must also purchase a copy of the relevant Proxy 
Paper on which they wish to provide feedback.'').
---------------------------------------------------------------------------

    Although some proxy voting advice businesses provide opportunities 
for review and feedback, these existing practices may be inadequate to 
address registrants' and others' concerns and ensure that those who 
make proxy voting decisions receive information that is accurate and 
complete in all material respects. For example, some proxy voting 
advice businesses do not provide registrants with an opportunity to 
review their reports containing voting advice in advance of 
distribution to their clients. Even those proxy voting advice 
businesses that provide such review opportunities do not provide all 
registrants with an advance copy of their reports containing their 
voting advice.\105\ For example, it is our understanding that proxy 
voting advice businesses do not typically extend this opportunity to 
registrants with smaller market capitalization or to registrants 
holding special meetings. Those registrants that do have an opportunity 
to review the draft reports are often given a short period of time, 
sometimes

[[Page 66530]]

with little advance notice, to provide their feedback to the proxy 
voting advice business and are not given an opportunity to see the 
final report sent to clients to determine the business's response, if 
any, to their feedback. Finally, because a substantial percentage of 
proxy votes are typically cast within a few days or less of the proxy 
voting advice business's release of its proxy voting advice \106\ and 
registrants often become aware of the recommendations in the proxy 
voting advice only after the advice has already been distributed, it 
can be difficult for the clients of proxy voting advice businesses to 
obtain registrants' factual, methodological, or other objections to the 
voting advice before submitting their votes.\107\ Although we recognize 
that some proxy voting advice businesses have policies in which they 
would issue alerts informing their clients of errors in their voting 
advice or updated information released by the registrant, such policies 
result in the proxy voting advice businesses, not the client, 
determining whether the errors or information are material to a voting 
decision and sharing such information only after their advice has 
already been published.\108\ As a result, some have advocated for the 
establishment of mandatory review periods that would allow registrants 
a meaningful opportunity to review and provide their feedback on proxy 
voting advice before the businesses provide the advice to clients and 
before the clients make their voting decisions.\109\
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    \105\ See 2018 Roundtable Transcript, supra note 40, at 230.
    \106\ See Business Roundtable Letter 2, supra note 40, at 9.
    \107\ See 2018 Roundtable Transcript, supra note 40, at 227-28 
(``So once the report is issued, it is an uphill battle . . . filing 
SEC solicitation materials or doing other things to try to correct 
the record are very difficult.''); Placenti, supra note 40, at 3 
(``[C]ompanies do not have the opportunity to adequately respond to 
the recommendation, even if it is factually incorrect.''). 
Registrants may file supplemental proxy materials to counter 
negative proxy voting recommendations and to alert investors to any 
factual or analytical errors they have identified in a proxy 
advisor's advice or disagreements with regard to methodology or 
analysis, but the efficacy of this is uncertain. Id. Although 
shareholders have the ability to change their vote at any time prior 
to the shareholder meeting, to our knowledge this seldom occurs. 
There may be a number of explanations for this, including the degree 
of inconvenience to a shareholder entailed in changing his or her 
vote.
    \108\ See, e.g., ISS FAQs Regarding Recent Guidance from the 
U.S. Securities and Exchange Commission Regarding Proxy Voting 
Responsibilities of Investment Advisers (Oct. 17, 2019) (``ISS 
FAQs''), available at https://www.issgovernance.com/file/faq/ISS_Guidance_FAQ_Document.pdf.
    \109\ See, e.g., Business Roundtable Letter 1, supra note 94, at 
11; Center on Exec. Comp. Letter, supra note 24, at 3; Letter from 
Gary A. LaBranche, President and CEO, National Investor Relations 
Institute (Nov. 13, 2018) (``NIRI Letter''), at 4; Soc. for Corp. 
Gov. Letter, supra note 24, at 5; Wachtell Letter, supra note 24, at 
7 (recommending that proxy advisory firms should give registrants 
the opportunity to review proxy voting advice before it is 
disseminated to clients); see also, ICI Letter, supra note 8, at 13 
(noting its amenability to exploring ways in which registrants' 
objections to proxy voting advice could be communicated to investors 
in a more timely way and convenient way, including ``pushing'' 
company views to clients of proxy advisory firms).
---------------------------------------------------------------------------

    We believe there would be value in establishing a mechanism that 
would foster enhanced engagement between proxy voting advice businesses 
and registrants and, as discussed below, certain other soliciting 
persons (such as dissident shareholders engaged in a proxy contest), so 
that investors or those who vote on their behalf would have the benefit 
of the input and views of registrants and certain other soliciting 
persons as they consider and potentially act on proxy voting advice. 
Such a mechanism has the potential to improve the accuracy, 
transparency, and completeness of the information available to those 
making voting determinations. Indeed, we believe such benefits could be 
realized even where the proxy voting advice business's voting 
recommendation is not adverse to the registrant's or certain other 
soliciting person's recommendation and no errors exist in the analysis 
underlying the advice. The registrant and certain other soliciting 
person may have disagreements that extend beyond the accuracy of the 
data used, such as differing views about the proxy advisor's 
methodological approach or other differences of opinion that they 
believe are relevant to the voting advice. In these circumstances, 
providing the clients of proxy voting advice businesses with convenient 
access to the views of the registrant and certain other soliciting 
persons at the same time they receive the proxy voting advice could 
improve the overall mix of information available when the clients make 
their voting decisions.\110\
---------------------------------------------------------------------------

    \110\ See Communications Among Shareholders Adopting Release, 
supra note 3, at 48280 (``Shareholders will be better protected by 
having access to as many sources of opinions relating to voting 
matters as possible. . . .'').
---------------------------------------------------------------------------

    Accordingly, we are proposing measures intended to (i) facilitate 
improved dialogue among proxy voting advice businesses and registrants 
and certain other soliciting persons (including certain dissident 
shareholders) before the advice is disseminated to clients of the proxy 
voting advice business and (ii) provide a means for registrants and 
certain other soliciting persons to communicate their views about the 
advice before the proxy voting advice businesses' clients cast their 
votes. We believe that establishing a process that allows registrants 
and other soliciting persons a meaningful opportunity to review proxy 
voting advice in advance of its publication and provide their 
corrections or responses would reduce the likelihood of errors, provide 
more complete information for assessing proxy voting advice businesses' 
recommendations, and ultimately improve the reliability of the voting 
advice utilized by investment advisers and others who make voting 
determinations, to the ultimate benefit of investors.
b. Review of Proxy Voting Advice by Registrants and Other Soliciting 
Persons
    The proposed amendments to Rule 14a-2(b) would require one 
standardized opportunity for timely review and feedback by registrants 
of proxy voting advice before a proxy voting advice business 
disseminates its voting advice to clients, regardless of whether the 
advice on the matter is adverse to the registrant's own 
recommendation.\111\ The proposal would provide the same opportunity to 
review and provide feedback on the proxy voting advice to persons who 
are conducting non-exempt solicitations through the use of a proxy 
statement and proxy card pursuant to Regulation 14A, such as a person 
soliciting proxies in support of its director nominees in a contested 
election or its own proposal that is unrelated to director elections 
(e.g., a solicitation by a dissident shareholder against a proposed 
business combination transaction). As noted above, a registrant or 
certain other soliciting person may have disagreements with the proxy 
voting advice, whether factual, methodological or otherwise, which if 
available to investors would help inform their voting decisions, even 
in instances where the registrant or certain other soliciting person's 
voting recommendation on the matter is the same as that of the proxy 
voting advice business.\112\
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    \111\ See proposed Rule 14a-2(b)(9)(ii).
    \112\ Under our proposal, registrants and certain other 
soliciting persons would have the opportunity to review and provide 
feedback on the proxy voting advice, regardless of whether that 
advice is adverse to the voting recommendation of the registrant or 
certain other soliciting person. For ease of administration, we do 
not think that our proposed requirement should put the burden on the 
proxy voting advice business, registrant, or certain other 
soliciting person to determine whether proxy voting advice is 
``adverse'' to another person's voting recommendation. For example, 
in a contested director election, it is common for a proxy voting 
advice business to recommend the election of some nominees of the 
registrant's slate of candidates as well as the election of some 
nominees of the dissident shareholders' slate. Making a 
determination whether such advice would be adverse to the registrant 
or the dissident shareholder could be difficult and highly 
subjective. It is also common for a proxy voting advice business to 
present in a single, integrated written report its voting 
recommendations on all matters to be voted at the registrant's 
meeting, with its recommendations on some matters aligned with the 
registrant's recommendations but recommendations on other matters 
contrary to those of the registrant. Requiring the proxy voting 
advice business to separate its written report so that only adverse 
recommendations would be presented for review could require 
additional time, burden, and cost for the proxy voting advice 
business.

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[[Page 66531]]

    New proposed Rule 14a-2(b)(9)(ii) would require, as one of the 
conditions to the exemptions in Rules 14a-2(b)(1) and 14a-2(b)(3), 
that, subject to certain conditions, the proxy voting advice business 
provide registrants and certain other soliciting persons covered by its 
proxy voting advice a limited amount of time to review and provide 
feedback on the advice before it is disseminated to the business's 
clients, with the length of time provided depending on how far in 
advance of the shareholder meeting the registrant or other soliciting 
person has filed its definitive proxy statement. Given the challenges 
typically faced by proxy voting advice businesses to prepare and 
deliver their proxy voting advice to clients within very narrow 
timeframes,\113\ the proposed rule is intended to provide an incentive 
for registrants and others to file their definitive proxy statements as 
far in advance of the meeting date as practicable,\114\ thereby 
allowing more time for proxy voting advice businesses and their clients 
to formulate and consider voting recommendations.\115\ As proposed, if 
the registrant (or certain other soliciting person) files its 
definitive proxy statement less than 45 but at least 25 calendar days 
before the date of its shareholder meeting, the proxy voting advice 
business would be required to provide the registrant (or certain other 
soliciting person) no fewer than three business days to review the 
proxy voting advice and provide feedback as a condition of the 
exemptions.\116\ However, if the registrant (or certain other 
soliciting person) files its definitive proxy statement 45 calendar 
days or more before its shareholder meeting, the proxy voting advice 
business would be required to provide the registrant (or certain other 
soliciting person) at least five business days to review the proxy 
voting advice and provide feedback.\117\ To the extent that registrants 
customarily file their definitive proxy materials 35-40 days in advance 
of a shareholder meeting,\118\ we expect that this five-business day 
period would be available to many issuers only if they file earlier 
than they typically do today. In the event a registrant (or certain 
other soliciting person) files its definitive proxy statement less than 
25 calendar days before the meeting, the proxy voting advice business 
would have no obligation under the proposed amendment to provide the 
proxy voting advice to the registrant (or certain other soliciting 
person) as a condition of the exemption. As proxy voting advice 
businesses perform much of the work related to their voting advice only 
after the filing of the definitive proxy statements describing the 
matters presented for a proxy vote,\119\ we do not believe there would 
be sufficient time for a meaningful assessment of the advice or 
opportunity to make revisions in response to any feedback provided when 
the definitive proxy statements are filed so close to the date of the 
shareholder meeting.\120\ By requiring that registrants and other 
soliciting persons file their definitive proxy statements at least 25 
calendar days in advance of the shareholder meeting in order to avail 
themselves of the review and feedback process, we believe that the 
proposed amendments would afford proxy voting advice businesses a 
reasonable amount of time to engage with registrants and other 
soliciting persons without jeopardizing their ability to provide timely 
voting advice to their clients.
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    \113\ See, e.g., Letter from Donna F. Anderson, Head of 
Corporate Governance & Eric Veiel, Co-Head of Global Equity, T. Rowe 
Price (Dec. 13, 2018), at 3 (discussing the ``compressed'' proxy 
voting process); IAA Letter, supra note 17, at 5 (noting the 
``extremely tight timeline for the entire proxy voting process'').
    \114\ Registrants customarily file their definitive proxy 
materials 35-40 days before a shareholder meeting. The Proxy 
Materials, Broadridge Financial Solutions, Inc., https://www.shareholdereducation.com/SHE-proxy_materials.html. See also 2019 
Proxy Statements, Ernest & Young LLP, available at https://
www.ey.com/publication/vwluassetsdld/2019proxystatements_05133-
181us_6december2018-v2/$file/2019proxystatements_05133-
181us_6december2018-v2.pdf?OpenElement (noting that registrants 
generally mail proxy statements 30 to 50 days before the annual 
meeting). Furthermore, registrants using the ``notice and access'' 
method of delivery for proxy materials must make their proxy 
materials publicly available and send the Notice of internet 
Availability of the Proxy Materials at least 40 calendar days prior 
to the shareholder meeting date. See Exchange Act Rule 14a-16.
    \115\ See, e.g., ICI Letter, supra note 8, at 13 (``Timeliness 
also is a crucial consideration. In the current compressed proxy 
voting schedule, any response that a company wishes to make to a 
proxy advisory firm's recommendation . . . must occur promptly, so 
that investors can consider it prior to casting their votes.'').
    \116\ Proposed Rule 14a-2(b)(9)(ii)(A)(2). We note that the 
proxy voting advice required to be provided may include multiple 
reports, if applicable, that the proxy voting advice business 
produces for its clients. For example, some proxy voting advice 
businesses may provide a so-called ``benchmark report,'' as well as 
separate ``specialty reports'' to a client. See Exxon Letter, supra 
note 94, at p. 7.
    \117\ Proposed Rule 14a-2(b)(9)(A)(1). Where the registrant is 
soliciting written consents or authorizations from shareholders for 
an action in lieu of a meeting, the proxy voting advice business 
must allow no fewer than three business days for the review and 
feedback period if the registrant files its definitive soliciting 
materials less than 45 but at least 25 calendar days before the 
action is effective. Similarly, if the registrant files its 
definitive soliciting materials for written consents or 
authorizations for a proposed action at least 45 calendar days 
before the expected effective date of the action, it must be given 
at least five business days to review and provide feedback on the 
proxy voting advice.
    \118\ See supra note 114.
    \119\ See ISS Letter, supra note 9, at 10 (describing the 
availability of the registrant's proxy statement as the ``hard 
start'' of the firm's process for formulating the proxy voting 
advice that will be delivered to clients.).
    \120\ Based on the staff's experience, it is relatively uncommon 
for registrants or other soliciting persons to file their definitive 
proxy statement so close to the date of shareholder meeting. For 
example, registrants and soliciting persons typically are motivated 
to file the definitive proxy statements as soon as possible in order 
to maximize the period of time they have to solicit and obtain the 
votes needed for approval of their proposals.
---------------------------------------------------------------------------

    In addition to the review and feedback period, in order to rely on 
the exemptions in Rules 14a-2(b)(1) or (b)(3), a proxy voting advice 
business would be required to provide registrants and certain other 
soliciting persons with a final notice of voting advice. This notice, 
which must contain a copy of the proxy voting advice that the proxy 
voting advice business will deliver to its clients, including any 
revisions to such advice made as a result of the review and feedback 
period, must be provided by the proxy voting advice business no later 
than two business days prior to delivery of the proxy voting advice to 
its clients.\121\ This would provide registrants and certain other 
soliciting persons the opportunity to determine the extent to which the 
proxy voting advice has changed, including whether the proxy voting 
advice business made any revisions as a result of feedback from the 
registrant. We note, however, that registrants and certain other 
soliciting persons would be entitled to this two-business day final 
notice period whether or not they provided

[[Page 66532]]

comments on the version of proxy voting advice they received in 
connection with the review and feedback period.\122\ This final notice 
would allow the registrant and/or soliciting person to determine 
whether or not to provide a statement in response to the advice and 
request that a hyperlink to its response be included in the voting 
advice delivered to clients of the proxy voting advice business.\123\
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    \121\ Proposed Rule 14a-2(b)(9)(ii)(B). Both paragraphs (A)(1) 
and (A)(2) of proposed Rule 14a-2(b)(9)(ii) specify that the proxy 
voting advice business is required to provide the version of its 
proxy voting advice that it ``intends to deliver to its clients,'' 
which allows for the possibility that the proxy voting advice 
business may subsequently revise such advice. However, proposed Rule 
14a-2(b)(9)(ii)(B) refers to the proxy voting advice that the proxy 
voting advice business ``will deliver to its clients,'' which 
effectively requires that the version of voting advice included in 
the final notice of voting advice will be the actual voting advice 
that will be disseminated to clients, including any revisions made 
that were not incorporated into the advice as a result of the review 
and feedback period under Rules 14a-2(b)(9)(ii)(A)(1) or (A)(2), as 
applicable.
    \122\ Providing this final notice of voting advice, whether or 
not the registrant or certain other soliciting person chooses to 
provide comments to the proxy voting advice business during the 
review and feedback period, would, we believe, eliminate the 
possibility that such parties might provide frivolous comments to 
the proxy voting advice business during the review and feedback 
period merely to preserve their right to receive the final notice of 
voting advice.
    \123\ See, e.g., Center on Exec. Comp. Letter, supra note 24 
(recommending that registrants be allowed two opportunities to 
review proxy voting advice before it is issued--the first time to 
review the ``draft'' proxy report and the second time to review the 
``final'' proxy report).
---------------------------------------------------------------------------

    Once the two-day final notice period has expired, proposed Rule 
14a-2(b)(9)(ii) would not impose any obligation on the proxy voting 
advice business to provide registrants or certain other soliciting 
persons with any additional opportunities to review its proxy voting 
advice with respect to the same shareholder meeting in order to rely on 
the exemptions in Rules 14a-2(b)(1) and 14a-2(b)(3).\124\
---------------------------------------------------------------------------

    \124\ See Note 1 to paragraph (ii) of proposed Rule 14a-2(b)(9).
---------------------------------------------------------------------------

    To provide a means for proxy voting advice businesses to maintain 
control over the dissemination of their proxy voting advice and 
minimize the risk of unintentional or unauthorized release, our 
proposed amendment would allow a proxy voting advice business to 
require that registrants and certain other soliciting persons, as 
applicable, agree to keep the information confidential, and refrain 
from commenting publicly on the information, as a condition of 
receiving the proxy voting advice.\125\ The terms of such agreement 
would apply until the proxy voting advice business disseminates its 
proxy voting advice to one or more clients and could be no more 
restrictive than similar types of confidentiality agreements the proxy 
voting advice business uses with its clients.\126\
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    \125\ See Note 2 to paragraph (ii) of proposed Rule 14a-2(b)(9).
    \126\ We note by way of analogy that express agreements to 
maintain material non-public information in confidence are 
sufficient to exempt communication of such information from 
triggering the public disclosure requirements of Regulation FD [17 
CFR 243.100 to 103] (``Regulation FD''). See 17 CFR 
243.100(b)(2)(ii).
    We also recognize that certain proxy voting advice businesses 
currently have policies that expressly prohibit the businesses from 
considering or using any material non-public information provided by 
registrants during their engagement with the businesses. These 
policies also call for the registrants to promptly disclose to the 
public any non-public information shared with the businesses or any 
commitments with respect to future actions or behavior during the 
engagement process. See FAQs: Engagement on Proxy Research, ISS, 
https://www.issgovernance.com/contact/faqs-engagement-on-proxy-research/ (last visited Sept. 23, 2019).
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    Proxy voting advice businesses would not be required to extend the 
review and feedback period or final notice of voting advice to persons 
conducting solicitations that are exempt pursuant to Rule 14a-2 \127\ 
or to proponents who submit shareholder proposals pursuant to Exchange 
Act Rule 14a-8 and whose proposal will be voted upon at the 
registrant's upcoming meeting. We are mindful of the potential 
disruptions and costs that the proposed review and feedback period and 
final notice of voting advice requirements could have on the current 
practices of proxy voting advice businesses and their clients. 
Therefore, we are proposing to require proxy voting advice businesses 
to extend the review and feedback and final notice opportunities to 
parties other than the registrant only in those instances in which the 
registrant's solicitation is contested by soliciting persons who intend 
to deliver their own proxy statements and proxy cards to 
shareholders.\128\ We believe that the proxy voting advice businesses' 
voting advice in these types of contested situations likely will be 
based on the soliciting persons' proxy statements, other mandated 
disclosure documents, and public statements containing substantive 
information.\129\ By contrast, neither shareholder proponents nor 
persons conducting exempt solicitations are required to file 
substantive disclosure documents with the Commission or to make public 
statements containing substantive information that proxy voting advice 
businesses likely will include in their analyses. Accordingly, we 
believe it is appropriate to limit the proposed review and feedback 
period and final notice requirements to those solicitations where the 
soliciting persons are providing mandated disclosures or other 
substantive information that are likely to be part of the proxy voting 
advice businesses' analyses. Providing such soliciting persons with the 
same opportunity to review and provide feedback on proxy voting advice 
that is afforded to registrants would ensure equality of treatment 
among contesting parties and should enable investment advisers and 
other clients of proxy voting advice businesses to receive more 
accurate and complete information at the time they are casting votes.
---------------------------------------------------------------------------

    \127\ See 17 CFR 240.14a-2. For example, under our proposal, the 
review requirement would not apply to solicitations in which:
     A person is soliciting that shareholders cast 
``withhold'' or ``against'' votes with respect to one or more of the 
registrant's director nominees, without seeking proxy authority, 
which is generally a soliciting activity exempt under Rule 14a-
2(b)(1); or
     a person is not acting on behalf of the registrant and 
the aggregate number of persons solicited is not more than ten, 
which are exempt under Rule 14a-2(b)(2).
    \128\ Our proposed approach is similar to existing review and 
comment practices used by certain proxy voting advice businesses, 
which also differentiate such practices based on whether a matter to 
be considered at the meeting is contested or not. See ISS, supra 
note 126 (``Notably, during the annual meeting season, in-person 
meetings are typically limited to contentious issues, including 
contested mergers, proxy contests, or other special situations . . . 
.'').
    \129\ See supra note 126 (``ISS research and recommendations are 
based exclusively on public information . . . .'').
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    It is important to note that while our rule proposal would require, 
as a condition of the exemptions in Rules 14a-2(b)(1) and 14a-2(b)(3), 
that proxy voting advice businesses provide an opportunity for 
registrants and other parties engaged in non-exempt solicitations to 
review proxy voting advice and suggest revisions before the 
distribution of the advice, it does not require proxy voting advice 
businesses to accept any such suggested revisions.\130\ It is equally 
important to recognize, however, that proxy voting advice subject to 
the Rule 14a-2(b) exemptions is not exempt from Rule 14a-9 liability, 
which prohibits materially misleading misstatements or omissions in 
proxy solicitations.
---------------------------------------------------------------------------

    \130\ As proposed, the rule would leave the content of proxy 
voting advice entirely within the proxy voting advice business's 
discretion, the only exception being the inclusion of the 
registrant's or other soliciting person's hyperlink (or other 
analogous electronic medium, as discussed infra in Section 
II.B.2.c.). We believe leaving the content to the proxy voting 
advice businesses' discretion may allay concerns that a registrant's 
or certain other soliciting person's review of proxy voting advice 
could interfere with the business's objectivity and independence. 
See, e.g., ISS Letter, supra note 9, at 11; Glass Lewis Letter, 
supra note 16, at 8.
---------------------------------------------------------------------------

    A number of alternative approaches for a review and feedback 
mechanism have been suggested by commenters,\131\ with a range of 
different review periods,\132\ as well as the ability of registrants to 
include full written statements in the body of the proxy voting advice 
business's written reports containing its advice.\133\ Others have 
expressed concerns about increased

[[Page 66533]]

costs and timing pressures, emphasizing the need to consider the impact 
of any additional regulation on the ability of proxy voting advice 
businesses to deliver timely, cost-effective advice to their 
clients.\134\ We believe the amendments we have proposed would give 
registrants and certain other soliciting persons sufficient time to 
assess the voting advice without being overly intrusive to proxy voting 
advice businesses and their clients. In formulating the proposed review 
and feedback period and notice of voting advice requirements, we have 
sought to improve the quality of information available to investors 
while balancing, on the one hand, the need for registrants and certain 
soliciting persons to conduct a meaningful assessment of the advice and 
communicate any concerns or errors regarding the advice with, on the 
other hand, the concerns about imposing an undue delay or otherwise 
jeopardizing the ability of proxy voting advice businesses to meet 
their contractual commitments to clients and their clients' ability to 
make timely and informed voting decisions.\135\ However, we are 
soliciting comment on whether the proposed review and feedback period 
and notice requirements are appropriate and invite comments on how this 
proposed process could be revised to improve the information available 
to investors and better serve the needs of the various parties involved 
in the proxy process.
---------------------------------------------------------------------------

    \131\ See supra note 109.
    \132\ See, e.g., Center on Exec. Comp. Letter, supra note 24, at 
3 (recommending ``a review period of at least five business days''); 
NIRI Letter, supra note 109, at 4 (recommending review ``at least 
five business days before issuance'').
    \133\ See, e.g., Soc. for Corp. Gov. Letter, supra note 24, at 
2; Wachtell Letter, supra note 24, at 8.
    \134\ See, e.g., 2018 Roundtable Transcript, supra note 40, at 
233, 251-52; see also CII Letter, supra note 13, at 15-16 (``More 
regulation of proxy research firms could increase costs for pension 
plans and other institutional investors, with no clear benefits. . . 
. [E]xcessive regulation of proxy research firms could impair the 
ability of institutional investors to promote good corporate 
governance and accountability at the companies in which they own 
stock.'')
    \135\ See ISS Letter, supra note 9, at 10 (cautioning that the 
imposition of additional burdens and requirements might be untenable 
given the firm's existing time constraints) (``In many cases, ISS 
has a contractual obligation to deliver proxy reports and vote 
recommendations to clients ten days to two weeks in advance of the 
meeting. . . . Given the limited time between the hard start of 
receiving the proxy statement and the hard stop of delivering the 
report to clients sufficiently in advance of the meeting, along with 
the concentration of a large percentage of meetings during so called 
`proxy season,' there simply is not time to afford all of the 
approximately 39,000 issuers ISS covers globally the opportunity to 
review draft reports.''); see also CII Letter, supra note 13, at 14-
15.
---------------------------------------------------------------------------

c. Response to Proxy Voting Advice by Registrants and Other Soliciting 
Persons
    In addition to the proposed review and feedback period and final 
notice requirements, registrants and certain soliciting persons would 
also have the option under the proposed amendments to request that 
proxy voting advice businesses include in their proxy voting advice 
(and on any electronic medium used to distribute the advice) a 
hyperlink or other analogous electronic medium directing the recipient 
of the advice to a written statement prepared by the registrant that 
sets forth its views on the advice. Although registrants are able, 
under the existing proxy rules, to file supplemental proxy materials to 
respond to negative proxy voting recommendations and to alert investors 
to any disagreements they have identified with a proxy voting advice 
business's voting advice, the efficacy of these responses may be 
limited, particularly given the high incidence of voting that takes 
place very shortly after a proxy voting advice business's voting advice 
is released to clients and before such supplemental proxy materials can 
be filed.\136\ The proposed amendments would provide a more efficient 
and timely means of ensuring that a proxy voting advice business's 
clients, including investment advisers, are able to consider 
registrants' views at the same time they are considering the proxy 
voting advice and before making their voting determinations, thus 
improving the overall mix of information available to them at that 
time.\137\
---------------------------------------------------------------------------

    \136\ See supra note 96 and accompanying text.
    \137\ See Question 2 of Commission Guidance on Proxy Voting 
Responsibilities, supra note 9, at 12 (discussing steps an 
investment adviser could use to evaluate its compliance). We expect 
that the proposed amendments to permit a registrant to review and 
provide its response to proxy voting advice would aid an investment 
adviser that has determined to take such steps. For example, we 
expect that the proposed requirement for inclusion of a hyperlink or 
other analogous electronic medium directing the recipient of the 
proxy voting advice to a written statement prepared by the 
registrant that sets forth the registrant's views on the advice 
could assist a proxy voting advice business's clients by alerting 
them to matters where, due to the differing views expressed by the 
registrant, the clients' assessment of any ``pre-populated'' votes 
made by the proxy voting advice business may be warranted before 
such votes are submitted.
---------------------------------------------------------------------------

    Under proposed Rule 14a-2(b)(9)(iii), as a condition to the 
exemptions found in Rules 14a-2(b)(1) and 14a-2(b)(3), a proxy voting 
advice business must, upon request, include in its proxy voting advice 
and in any electronic medium used to deliver the advice a hyperlink (or 
other analogous electronic medium) that leads to the registrant's 
statement about the proxy advisor's voting advice. To improve the 
overall mix of information available to the clients of proxy voting 
advice businesses, such a hyperlink (or other analogous electronic 
medium) would need to be included upon request regardless of whether 
the advice is adverse to the registrant's recommendation to its 
shareholders.\138\ Although we considered proposing a requirement that 
proxy voting advice businesses include a full written statement from 
the registrant in the proxy voting advice delivered to clients, we 
believe that requiring the inclusion of a hyperlink or other analogous 
electronic medium is a more efficient and straightforward approach that 
enables sufficient access to the registrant's statement without unduly 
restricting the proxy voting advice businesses' flexibility to design 
and prepare their proxy voting advice in the manner that they and their 
clients prefer. A hyperlink or other analogous electronic medium would 
likewise allow registrants flexibility to present their views in the 
manner they deem most appropriate or effective.\139\ It is important to 
note, however, that the registrant's statement would constitute a 
``solicitation'' as defined in Rule 14a-1(l) and be subject to the 
anti-fraud prohibitions of Rule 14a-9,\140\ as well as the filing 
requirements of Exchange Act Rule 14a-12,\141\ which would necessitate 
that it be filed as supplemental proxy materials no later than the date 
that the proxy voting advice, and thereby the registrant's statement, 
is first published, sent, or given to shareholders.\142\ To prevent 
undue delays in the distribution of the proxy voting advice to clients,

[[Page 66534]]

registrants would be required to provide the hyperlink (or other 
analogous electronic medium) to the proxy voting advice business no 
later than the expiration of the two-day final notice period that would 
be required under proposed Rule 14a-2(b)(9)(ii)(B) as a condition of 
the exemptions in Rules 14a-2(b)(1) and 14a-2(b)(3).
---------------------------------------------------------------------------

    \138\ See supra note 112.
    \139\ In cases where the proxy voting advice is electronically 
accessible, the proposed rule contemplates that the client would be 
able to click on a hyperlink, for example, and be directed to the 
registrant's statement. Alternatively, the client could type in the 
relevant URL (web address) using a web browser on the internet.
    \140\ In general, the inclusion of the hyperlink (or analogous 
electronic medium) required under proposed Rule 14a-2(b)(9)(iii) 
would not, by itself, make the proxy voting advice business liable 
for the content of the statements made by the registrant or certain 
other soliciting persons about the proxy voting advice. The 
Commission has previously stated a person's responsibility for 
hyperlinked information depends on whether the person has involved 
itself in the preparation of the information or explicitly or 
implicitly endorsed or approved the information. See Use of 
Electronic Media, Release No. 34-42728 (Apr. 28, 2000) [65 FR 25843 
(May 4, 2000)]. We believe our view is consistent with this 
framework as a proxy voting advice business would not likely be 
involved in the preparation of the hyperlinked statement and would 
likely be including the hyperlink (or analogous electronic medium) 
to comply with proposed Rule 14a-2(b)(9)(iii), and not to endorse or 
approve the content of the statement. We seek comment on the need 
for rule amendments to codify this view.
    \141\ 17 CFR 240.14a-12.
    \142\ Activation of the hyperlink (or other analogous electronic 
medium) so that the response is publicly available would trigger the 
registrant's obligation to publicly file its statement of response 
pursuant to Rule 14a-6 [17 CFR 240.14a-6]. Additional soliciting 
materials would be filed with the Commission on EDGAR under 
submission type DEFA 14A or DFAN 14A.
---------------------------------------------------------------------------

    As with the proposed review and feedback period and final notice 
requirements, our proposal to require inclusion of a hyperlink (or 
other analogous electronic medium) would provide other persons who are 
conducting non-exempt solicitations through the use of a proxy 
statement and proxy card pursuant to Regulation 14A with the same 
opportunity to include in the proxy voting advice and in any electronic 
medium used to deliver the advice a hyperlink (or other analogous 
electronic medium) that would lead to their response to the voting 
advice. We believe it is appropriate to limit the proposed requirement 
to extend this opportunity to parties other than the registrant to 
contested situations where shareholders and those acting on their 
behalf, including investment advisers, are actively being solicited by 
opposing sides through delivery of each side's own proxy statements and 
proxy cards and must decide with whom they wish to vote. Accordingly, 
proxy voting advice businesses would not be obligated to provide the 
same opportunity to persons conducting exempt solicitations. As with 
the proposed review and feedback period and final notice requirements, 
we are cognizant of the costs and potential logistical complications 
arising from the need to include a means for proxy voting advice 
businesses' clients to access a response to the proxy voting advice 
businesses' recommendations. Similarly, as discussed above, it is 
likely that the disclosures in these proxy statements and other 
mandated disclosure documents filed by the opposing sides, as well 
other public substantive statements that they make, would be considered 
by proxy voting advice businesses when formulating their voting advice. 
Accordingly, in our view, clients of proxy voting advice businesses 
have a greater need in non-exempt solicitations to be aware of 
disagreements over facts or opinions presented in the voting advice 
provided by proxy voting advice businesses. As with the registrant's 
statement of response, any such statements by dissident shareholders 
and other persons conducting non-exempt solicitations would constitute 
a ``solicitation'' as defined in Rule 14a-1(l), and would therefore be 
subject to the anti-fraud prohibitions of Rule 14a-9, and must be filed 
with the Commission as additional soliciting materials pursuant to Rule 
14a-12.
    The timing of the review and feedback period and final notice of 
voting advice under proposed Rule 14a-2(b)(9)(ii) generally would 
operate as follows: \143\
---------------------------------------------------------------------------

    \143\ For purposes of illustration, the following chart assumes 
that the registrant or other soliciting party is soliciting proxies 
for a meeting of shareholders. However, the description of timing 
would be identical if, in lieu of a shareholder meeting, the 
registrant or other soliciting party were soliciting proxies for a 
proposed action to be effected by shareholder vote, consent or 
authorization.
    The information in this chart is intended only as an 
illustration and, as such, should be read together with the complete 
text of this release.

------------------------------------------------------------------------
                 Action                               Timing
------------------------------------------------------------------------
Person conducts solicitation exempt      N/A. Proposed rules do not
 under Sec.   240.14a-2 or submits        apply.
 shareholder proposal pursuant to
 Exchange Act Rule 14a-8.
Registrant and/or soliciting person      N/A. Proposed rules do not
 conducts non-exempt solicitation and     dictate when the registrant
 files definitive proxy statement for     and/or soliciting person files
 shareholder meeting.                     its definitive proxy
                                          statement.
Proxy voting advice business provides    Subject to the proxy voting
 the registrant and/or soliciting         advice business's discretion,
 person with the version of the voting    so long as it provides its
 advice [dagger] that the business        voting advice to the
 intends to deliver to its clients        registrant and/or soliciting
 [proposed Rule 14a-2(b)(9)(ii)].         person and complies with the
                                          required review and feedback
                                          and final notice periods in
                                          proposed Rule 14a-2(b)(9)(ii)
                                          prior to the distribution of
                                          such advice to the business's
                                          clients.
Review and feedback period:               If definitive proxy
Registrant and/or soliciting person has   statement is filed at least 45
 an opportunity to review and provide     calendar days before the date
 feedback, if any, on the proxy voting    of the meeting, registrant and/
 advice business's voting advice          or soliciting person has at
 [proposed Rules 14a-2(b)(9)(ii)(A)(1)    least five business days to
 and (A)(2)]                              review and provide feedback;
                                          or
                                          If definitive proxy
                                          statement is filed less than
                                          45 but at least 25 calendar
                                          days before the date of the
                                          meeting, registrant and/or
                                          soliciting person has at least
                                          three business days to review
                                          and provide feedback; or
                                          If definitive proxy
                                          statement is filed less than
                                          25 calendar days before the
                                          date of the meeting, the proxy
                                          voting advice business is not
                                          required to provide its voting
                                          advice to registrant or
                                          soliciting person.
Proxy voting advice business may revise  N/A. Subject to the proxy
 its voting advice, as applicable.        voting advice business's
                                          discretion.
Final notice of voting advice:           No earlier than upon expiration
Proxy voting advice business provides a   of review and feedback period.
 copy of its voting advice that it will  Registrant and/or soliciting
 deliver to its clients to allow the      person has at least two
 registrant and/or soliciting person to   business days to provide a
 assess whether or not to provide a       hyperlink (or other analogous
 statement with its response to the       electronic medium) with its
 advice [proposed Rules 14a-              response, if any.
 2(b)(9)(ii)(B) and 14a-2(b)(9)(iii)]
Proxy voting advice business publishes   Subject to the proxy voting
 its proxy voting advice to clients,      advice business's discretion,
 which includes an active hyperlink *     but no earlier than upon
 (or other analogous electronic medium)   expiration of two-business day
 with the registrant's and/or             period allotted for the final
 soliciting person's response, if         notice of voting advice.
 requested [proposed Rule 14a-
 2(b)(9)(iii)].
* Registrant and/or soliciting person
 is responsible for providing a web
 address (URL) for the response and is
 expected to coordinate with the proxy
 voting advice business as necessary to
 ensure that the hyperlink (or other
 analogous electronic medium) is
 functional when included in the proxy
 voting advice.
Registrant holds its shareholder         N/A.
 meeting.
------------------------------------------------------------------------
[dagger] See supra note 121.


[[Page 66535]]

    We designed proposed Rules 14a-2(b)(9)(ii) and (iii) so they would 
not overly prescribe the manner in which proxy voting advice 
businessess and registrants (and certain other soliciting persons) 
interact with each other, but instead allow the parties the flexibility 
to determine the most effective and cost-efficient methods of 
compliance. Because our approach is meant to allow the parties 
flexibility within this general framework, there may be a number of 
market solutions capable of facilitating the parties' compliance with 
this proposed review process. There may be existing providers and/or 
services readily available to support the parties' needs or, 
alternatively, new services and providers may emerge to satisfy demand 
for effective market solutions. The parties may coordinate directly 
with each other to manage the review process or they could elect to 
enter into arrangements with third-party service providers who could 
coordinate the process on their behalf. We recognize that there also 
may be various technological solutions available to the parties that 
would facilitate their coordination. For example, we note that one 
commenter suggested the use of a digital portal as a draft review 
mechanism, as well as for management and dissemination of the 
registrant's statement in response to the proxy advisor's voting 
advice.\144\
    Because there may be a number of implementation details to resolve, 
effective coordination between proxy voting advice businesses and 
registrants (and certain other soliciting persons, as applicable) would 
be needed. For example, to ensure that the hyperlink to the statement 
from the registrant (or certain other soliciting persons) is activated 
concurrently with the release of the proxy voting advice and that the 
registrant (or certain other soliciting persons) is able to timely file 
its statement of response as additional soliciting materials, it would 
be necessary for the parties to coordinate the release date of the 
proxy voting advice containing the active hyperlink.\145\
---------------------------------------------------------------------------

    \144\ See Letter from Barbara Novick, Vice Chairman, & Ray 
Cameron, Managing Director, Blackrock (``Blackrock Letter'') (Nov. 
16, 2018), at 3.
    \145\ If the parties do not adequately coordinate the activation 
of the hyperlink with the release of the proxy voting advice, there 
is a risk that the hyperlink could be functional prematurely, and 
therefore that the registrant's or other soliciting person's 
statement of response would be publicly available before the 
registrant or other soliciting person was able to comply with Rule 
14a-12(b) and timely file the statement with the Commission as 
additional soliciting material.
---------------------------------------------------------------------------

    In light of the potentially significant adverse result for a proxy 
voting advice business if it experiences an immaterial or unintentional 
failure to comply with the conditions of new Rule 14a-2(b)(9),\146\ the 
proposed amendments provide that such failure will not result in the 
loss of the exemptions in Rules 14a-2(b)(1) or 14a-2(b)(3) so long as 
(A) the proxy voting advice business made a good faith and reasonable 
effort \147\ to comply and (B) to the extent that it is feasible to do 
so, the proxy voting advice business uses reasonable efforts to 
substantially comply with the condition as soon as practicable after it 
becomes aware of its noncompliance.\148\ We believe this provision 
would serve to mitigate the risk of any unintended adverse consequences 
for proxy voting advice businesses as they seek to comply with the 
review and feedback and other provisions that we are proposing as new 
conditions to Rules 14a-2(b)(1) and 14a-2(b)(3). Also, failure to 
comply with the conditions of new Rule 14a-2(b)(9) does not create a 
new private right of action for registrants against proxy voting advice 
businesses.
---------------------------------------------------------------------------

    \146\ For example, without such an exception, a proxy voting 
advice business that failed to give a registrant the full number of 
days for review of the proxy voting advice due to technical 
complications beyond its control, even if only a few hours shy of 
the requirement, would be unable to rely on the exemptions in Rule 
14a-2(b)(1) and (b)(3). Without an applicable exemption on which to 
rely, the proxy voting advice business likely would be subject to 
the proxy filing requirements found in Regulation 14A and its proxy 
voting advice required to be publicly filed.
    \147\ Similar to analogous provisions in other Commission rules, 
the determination of whether there has been a good faith and 
reasonable effort to comply with the proposed conditions would 
depend on the particular facts and circumstances. See, e.g., 17 CFR 
230.164 (providing relief for immaterial and unintentional failures 
to file or delays in filing free writing prospectuses.)
    \148\ See paragraph (iv) of proposed Rule 14a-2(b)(9).
---------------------------------------------------------------------------

Request for Comment
    24. How prevalent are factual errors or methodological weaknesses 
in proxy voting advice businesses' analyses? To what extent do those 
errors or weaknesses materially affect a proxy voting advice business's 
voting recommendations? To what extent are disputes between proxy 
voting advice businesses and registrants about issues that are factual 
in nature versus differences of opinion about methodology, assumptions, 
or analytical approaches?
    25. As a condition to the exemptions in Rules 14a-2(b)(1) and 14a-
2(b)(3), should registrants and certain other soliciting persons be 
permitted an opportunity to review proxy voting advice and provide 
feedback to the proxy voting advice businesses before the businesses 
provide the advice to clients, as proposed? If yes, how much time 
should be given to review and provide feedback on proxy voting advice? 
Are the timeframes set forth in proposed Rule 14a-2(b)(9)(ii) 
appropriate? What would the impact of these proposed timeframes be on 
registrants, proxy voting advice businesses, and their clients? Are 
there alternative timeframes that would be more appropriate? Should we 
allow a proxy voting advice business to provide its final notice of 
voting advice to the registrant at any time after the registrant has 
provided its comments during the review and feedback period, regardless 
of whether the review and feedback period has expired? Are there 
alternative conditions to the exemptions that the Commission should 
consider to address the concerns regarding inaccuracies and the ability 
for investors to get information that is accurate and complete in all 
material respects?
    26. Should the number of days for the review and feedback period be 
contingent on the date that the registrant files its definitive proxy 
statement? For example, should there be a longer period (e.g., five 
business days instead of three) if the registrant files its definitive 
proxy statement some minimum number of days before the shareholder 
meeting at which proxies will be voted, as proposed? Would registrants 
and other soliciting persons be likely to take advantage of the 
additional time by filing their definitive proxy statements early 
enough to qualify for this treatment?
    27. What impact would the proposed review and feedback period and 
final notice of voting advice have on the ability of proxy voting 
advice businesses to complete the formulation of their voting advice 
and deliver such advice to their clients in a timely manner? Are there 
additional timing considerations or logistical challenges that we 
should take into account?
    28. Should there generally be a review and feedback period and a 
final notice of voting advice, as proposed? Should we allow registrants 
(and certain other soliciting persons) more or fewer opportunities to 
review the voting advice than proposed? Should a proxy voting advice 
business be required to provide the final notice of voting advice only 
if the registrant (or certain other soliciting person) provides 
comments to the proxy voting advice business during the review and 
feedback period and the proxy voting advice business's revisions are 
pertinent to such comments? Should the period allotted for the final 
notice of

[[Page 66536]]

voting advice be two business days, as proposed? Should it be longer or 
shorter?
    29. Are there specific ways in which, if we allow the opportunity 
for registrants and certain other soliciting persons to review and 
provide feedback on the proxy voting advice, questions may arise about 
possible influencing of the proxy voting advice by the reviewing 
parties? How, if at all, could the independence of the advice be called 
into question if other parties reviewed and commented on it? \149\ How 
could we address such concerns? For example, would disclosure of the 
specific comments raised by the reviewing party and the proxy voting 
advice businesses' responses to this feedback help alleviate concerns 
about the independence of the advice?
---------------------------------------------------------------------------

    \149\ See Glass Lewis Letter, supra note 16, at 8 (noting that 
its policy of not engaging with registrants during the solicitation 
period preceding the shareholder meeting is due to concerns that 
such engagement could be viewed as affecting the independence of the 
voting advice provided to its clients).
---------------------------------------------------------------------------

    30. What effect will the proposals, if adopted, have on proxy 
voting advice businesses' ability to provide timely voting advice to 
their clients? What are the anticipated compliance burdens and 
corresponding costs that proxy voting advice businesses are expected to 
incur as a result of the proposed new conditions? What impact will 
these burdens and costs have on proxy voting advice businesses' 
clients?
    31. Should the proposed amendments allow a proxy voting advice 
business to seek reimbursement from registrants and other soliciting 
persons of reasonable expenses associated with the review and feedback 
period and final notice of voting advice in proposed Rule 14a-
2(b)(9)(ii)? If so, what would constitute reasonable expenses and how 
should these amounts be calculated? Should the calculation of these 
amounts be dependent on the size or other attributes of the proxy 
voting advice business, or on the size of the registrant, or number of 
recommendations? Should there be limits on the amount beyond reasonable 
expenses for which a proxy voting advice business can seek to be 
reimbursed?
    32. We proposed to limit the review and feedback period and final 
notice of voting advice requirements to only registrants and soliciting 
persons conducting non-exempt solicitations. Should the opportunity to 
review and provide feedback and receive final notice of voting advice 
also be given to other parties, such as shareholder proponents or 
persons engaged in exempt solicitations, such as in ``vote no'' or 
withhold campaigns?
    33. Should the voting advice formulated under the custom policies 
established by clients whose specialized needs are not addressed by a 
proxy voting advice business's benchmark or specialty policies \150\ be 
subject to the proposed review and feedback period and final notice of 
voting advice requirements? Are there any confidentiality concerns, 
such as the revelation of the client's investment strategies, which 
would arise from the ability of registrants or others to review the 
advice formulated under these customized policies? If so, is there a 
need for a method for distinguishing voting advice formulated under a 
proxy voting advice business's benchmark or specialty policy from 
advice formulated under a client's custom policy, and what would be the 
appropriate method for making this distinction? We note, for example, 
at least one major proxy voting advice business asserts that it is not 
the ``norm'' for its clients to adopt all or some of the business's 
benchmark policy, with the ``vast majority of institutional investors'' 
opting for ``increasingly more detailed policies with specific views'' 
on the issues presented for a vote in the proxy materials.\151\
---------------------------------------------------------------------------

    \150\ See supra note 116.
    \151\ See Glass Lewis Letter, supra note 16, at 2.
---------------------------------------------------------------------------

    34. Should the review and feedback period and final notice of 
voting advice requirements be a condition to the exemptions in all 
cases, as proposed, or should they be required only where a proxy 
voting advice business's voting recommendations are adverse to the 
reviewing party? In a proxy contest, should we require the review and 
feedback period and final notice of voting advice requirements only if 
voting recommendations are adverse to the reviewing party? In the case 
of a split vote recommendation, who should have the right to review the 
voting advice?
    35. Would the proposed review and feedback period and final notice 
of voting advice requirements work effectively in the context of a 
contested solicitation? Are there unique challenges or specific issues 
with the parties' compliance with these proposed requirements that are 
foreseeable in contested solicitations?
    36. Should we require the entirety of the proxy voting advice, 
including separate specialty reports,\152\ to be provided to the 
reviewing party or only excerpts or certain reports? If the latter, 
which excerpts or reports? How should the scope of any such excerpts or 
reports be determined? Should only the portions of the voting advice 
that are adverse to the registrant or certain other soliciting persons 
be subject to the review and feedback period and final notice of voting 
advice requirements? Should we require only the factual information 
and/or data underlying the advice to be provided to the reviewing 
party?
---------------------------------------------------------------------------

    \152\ See supra note 116.
---------------------------------------------------------------------------

    37. Should proxy voting advice on certain topics or kinds of 
proposals be excluded from the proposed review and feedback period and 
final notice of voting advice requirements? If so, which ones? If some 
are excluded, are there topics or kinds of proposals for which proxy 
voting advice should always be subject to the proposed requirements?
    38. Are there any risks raised by proxy voting advice businesses 
providing advance copies of voting advice (e.g., misuse of material, 
nonpublic information, or misappropriation of proprietary information), 
and if so, how can such risks be managed?
    39. Should we allow proxy voting advice businesses to require 
registrants and other soliciting persons to enter into confidentiality 
agreements prior to providing their proxy voting advice? If so, should 
we specify any terms or parameters of the required confidentiality 
agreement? For example should the rule stipulate that the terms of the 
confidentiality agreement may be no more restrictive than similar types 
of confidentiality agreements the proxy voting advice business uses 
with its clients, as proposed? Should we stipulate in the rule that a 
proxy voting advice business is not required to comply with the 
proposed review and feedback period and final notice of voting advice 
requirements unless the reviewing party has entered into an agreement 
to keep the information received confidential? Are there similar types 
of confidentiality agreements between proxy voting advice businesses 
and their clients? If so, what are the terms of those agreements? Is it 
appropriate for the rule to address the nature of a private contract 
between two parties?
    40. Can the confidentiality of information that a proxy voting 
advice business would provide to registrants and other soliciting 
persons under the proposal be effectively safeguarded? Would it be 
feasible for a proxy voting advice business to obtain a confidentiality 
agreement from the numerous registrants or soliciting persons with whom 
it interacts? Could confidentiality be assured through other means?

[[Page 66537]]

    41. Should proxy voting advice businesses be required to include in 
their voting advice to clients a hyperlink (or other analogous 
electronic medium) to the response by the registrant and certain other 
soliciting persons, as a condition to the exemptions in Rules 14a-
2(b)(1) and 14a-2(b)(3)? Are there better methods of making the 
response available to the clients of proxy voting advice businesses? 
Should the proposed rule provide certain guidelines or limitations on 
the responses (e.g., responses may cover only certain topics, such as 
disagreements on facts used to formulate the proxy voting advice)?
    42. Would the proposed condition that proxy voting advice 
businesses include a hyperlink (or other analogous electronic medium) 
directing their clients to the registrant's (or certain other 
soliciting person's) statement impact clients of proxy voting advice 
businesses, such as investment advisers? If so, how?
    43. In our view, proxy voting advice businesses would not be liable 
for the content of the registrant's (or certain other soliciting 
person's) statement solely due to inclusion of a hyperlink (or other 
analogous electronic medium) to such a statement in their voting 
advice. Should we codify this view in the text of proposed Rule 14a-
2(b)(9)?
    44. In instances where proxy voting advice businesses provide 
voting execution services (pre-population and automatic submission) to 
clients, are clients likely to review a registrant's response to voting 
advice? Should we amend Rules 14a-2(b)(1) and 14a-2(b)(3) so that the 
availability of the exemptions is conditioned on a proxy voting advice 
business structuring its electronic voting platform to disable the 
automatic submission of votes in instances where a registrant has 
submitted a response to the voting advice? Should we require proxy 
voting advice businesses to disable the automatic submission of votes 
unless a client clicks on the hyperlink and/or accesses the 
registrant's (or certain other soliciting persons') response, or 
otherwise confirms any pre-populated voting choices before the proxy 
advisor submits the votes to be counted? What would be the impact and 
costs to clients of proxy voting advice businesses of disabling pre-
population or automatic submission of votes? Could there be effects on 
registrants? For example, if a proxy voting advice business were to 
disable the automatic submission of clients' votes, could that deter 
some clients from submitting votes at all, thereby affecting a 
registrant's ability to achieve quorum for an annual meeting? If we 
were to adopt such a condition, what transitional challenges or 
logistical issues would disabling pre-population or automatic 
submission of votes present for proxy voting advice businesses, and how 
could those challenges or issues be mitigated?
    45. Should we permit proxy voting advice businesses to cure any 
unintentional or immaterial failure to comply with the proposed 
conditions so long as they make a good faith and reasonable effort, as 
proposed? We have proposed that the determination of whether a good 
faith and reasonable effort has been made should depend on the 
particular facts and circumstances. Is there a need for further clarity 
on the actions that may be needed to satisfy this standard? If so, what 
would be appropriate to consider in satisfying this standard?
    46. Should we prescribe a more detailed framework or establish 
procedural guidelines to help proxy voting advice businesses manage 
their interactions with registrants and certain other soliciting 
persons under proposed Rules 14a-2(b)(9)(ii) and (iii)? If so, what 
would be the appropriate framework?
    47. What steps would proxy voting advice businesses need to take to 
update their systems and procedures such that they would reasonably be 
able to comply with the new conditions of proposed Rule 14a-2(b)(9)? 
Are there other steps that proxy voting advice businesses would need to 
take, such as re-negotiating contracts with their clients? What are the 
associated costs that proxy voting advice businesses would be 
anticipated to incur as a result? If the proposal is adopted, how much 
preparatory time would a proxy voting advice business require following 
adoption of the proposed amendments, to ensure that its systems and 
procedures are equipped to facilitate the business's compliance with 
the new rules?
    48. Should proxy voting advice businesses be required to disclose 
the nature (e.g., frequency, format, substance, etc.) of their 
communication with registrants (and certain other soliciting persons) 
to their clients or publicly?
    49. What factors and/or conditions are primarily responsible for 
the incidence of factual errors and methodological weaknesses in proxy 
voting advice businesses' analyses? How effective would our proposal 
for standardized review and feedback and opportunity to include 
responses to the proxy voting advice be in addressing these factual 
errors and methodological weaknesses?
    50. Are there better approaches for addressing factual errors and 
methodological weaknesses in proxy voting advice businesses' analyses?
    51. To what extent have factual errors or methodological weaknesses 
in proxy voting advice businesses' analyses resulted in impaired voting 
advice or adversely affected the ability of proxy voting advice 
businesses' clients to vote securities effectively?

C. Proposed Amendments to Rule 14a-9

    Rule 14a-9 prohibits any proxy solicitation from containing false 
or misleading statements with respect to any material fact at the time 
and in the light of the circumstances under which the statements are 
made.\153\ In addition, such solicitation must not omit to state any 
material fact necessary in order to make the statements therein not 
false or misleading.\154\ Even solicitations that are exempt from the 
federal proxy rules' information and filing requirements are subject to 
this prohibition, as ``a necessary means of assuring that 
communications which may influence shareholder voting decisions are not 
materially false or misleading.'' \155\ This includes proxy voting 
advice that is exempt under Rules 14a-2(b)(1) and (b)(3). The 
Commission has previously stated that the furnishing of proxy voting 
advice, while exempt from the information and filing requirements, 
remains subject to the prohibition on false and misleading statements 
in Rule 14a-9.\156\ We continue to believe that subjecting proxy voting 
advice businesses to the same antifraud standard as registrants and 
other persons engaged in soliciting activities is appropriate in the 
public interest and for the protection of investors. In recent 
Commission guidance,\157\ we specifically addressed the application of 
Rule 14a-9 to proxy voting advice, stating that:
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    \153\ 17 CFR 240.14a-9.
    \154\ Id.
    \155\ 1979 Adopting Release, supra note 36, at 48942.
    \156\ See Concept Release, supra note 2, at 43010.
    \157\ See Question and Response 2 of Commission Interpretation 
on Proxy Voting Advice, supra note 19, at 11.
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    Any person engaged in a solicitation through proxy voting advice 
must not make materially false or misleading statements or omit 
material facts, such as information underlying the basis of its advice 
or which would affect its analysis and judgments, that would be 
required to make the advice not misleading. For example, the provider 
of the proxy voting advice should consider whether, depending on the 
particular statement, it may need to disclose [certain] types of 
information in

[[Page 66538]]

order to avoid a potential violation of Rule 14a-9.\158\
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    \158\ Id. at 12.
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    The types of information a proxy voting advice business may need to 
disclose could include the methodology used to formulate the proxy 
voting advice, sources of information on which the advice is based, or 
material conflicts of interest that arise in connection with providing 
the advice, without which the proxy voting advice may be 
misleading.\159\
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    \159\ Id.
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    Currently, the text of Rule 14a-9 provides four examples of what 
may be misleading within the meaning of the rule. These are:
     Predictions as to specific future market values;
     Material which directly or indirectly impugns character, 
integrity or personal reputation, or directly or indirectly makes 
charges concerning improper, illegal or immoral conduct or 
associations, without factual foundation;
     Failure to so identify a proxy statement, form of proxy 
and other soliciting material as to clearly distinguish it from the 
soliciting material of any other person or persons soliciting for the 
same meeting or subject matter; and
     Claims made prior to a meeting regarding the results of a 
solicitation.
    Consistent with the Commission's recent guidance, we are proposing 
to amend the list of examples in Rule 14a-9 to highlight the types of 
information that a proxy voting advice business may, depending upon the 
particular facts and circumstances, need to disclose to avoid a 
potential violation of the rule. Thus, the amended rule would list 
failure to disclose information such as the proxy voting advice 
business's methodology, sources of information and conflicts of 
interest as an example of what may be misleading within the meaning of 
the rule.
    In addition, we are aware of concerns that may arise when proxy 
voting advice businesses make negative voting recommendations based on 
their evaluation that a registrant's conduct or disclosure is 
inadequate, notwithstanding that the conduct or disclosure meets 
applicable Commission requirements.\160\ Without additional context or 
clarification, clients may mistakenly infer that the negative voting 
recommendation is based on a registrant's failure to comply with the 
applicable Commission requirements when, in fact, the negative 
recommendation is based on the determination that the registrant did 
not satisfy the criteria used by the proxy voting advice business. If 
the use of the criteria and the material differences between the 
criteria and the applicable Commission requirements are not clearly 
conveyed to proxy voting advice businesses' clients, there is a risk 
that the clients may make their voting decisions based on a 
misapprehension that a registrant is not in compliance with the 
Commission's standards or requirements. Similar concerns exist if, due 
to the lack of clear disclosures, clients are led to mistakenly believe 
that the unique criteria used by the proxy voting advice businesses 
were approved or set by the Commission.
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    \160\ See, e.g., Business Roundtable Letter 1, supra note 94, at 
12 (expressing concern over recommendations by proxy advisory firms 
to vote against (i) directors that do not meet the firms' own 
definition of ``independence'' and (ii) directors on governance 
committees where the registrant has excluded shareholder proposals 
through the Commission staff's no-action letter process); Letter 
from Tom Quaadman, Vice President, U.S. Chamber of Commerce Center 
for Capital Markets Competitiveness (Feb. 24, 2014), at 2-3, 
available at https://www.sec.gov/comments/4-670/4670-12.pdf 
(discussing the practice by proxy advisory firms of adopting 
policies that favored annual shareholder votes on executive 
compensation, notwithstanding that the Commission's Rule 14a-21(a) 
[17 CFR 240.14a-21] requires such a vote no less than once every 
three years); Timothy Doyle, The Realities of Robo-Voting, American 
Council for Capital Formation 9 (Nov. 2018), http://accfcorpgov.org/wp-content/uploads/ACCF-RoboVoting-Report_11_8_FINAL.pdf (``[In 
cases where] limited legal disclosures are actually required, a 
proxy advisory recommendation drawn from an unaudited disclosure can 
in many cases create a new requirement for companies--one that adds 
cost and burden beyond existing securities disclosures.'').
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    For example, if a proxy voting advice business were to recommend 
against the election of a director who serves on the registrant's audit 
committee on the basis that the director is not independent under the 
proxy voting advice business's independence standard for audit 
committee members, and the standard applied by the proxy voting advice 
business is more limiting than the Commission's rules,\161\ it may be 
necessary for the proxy voting advice business to make clear that the 
business's recommendation is based on its own different independence 
standard, rather than the Commission's standard, in order for such 
recommendation to be not misleading.
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    \161\ See Exchange Act Rule 10A-3 (specifying the independence 
standards for members of the audit committee). Further, Item 407 of 
Regulation S-K requires identification of each nominee for director 
that is ``independent'' under the standards of independence provided 
in Item 407(a)(1). 17 CFR 229.407(a)(1).
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    Similarly, a concern could arise if a proxy voting advice business 
recommends that clients vote against a say-on-pay proposal \162\ of a 
smaller reporting company (``SRC'') \163\ that provides scaled 
executive compensation disclosure in compliance with Commission rules 
for SRCs,\164\ rather than the expanded disclosure required of larger 
registrants.\165\ To the extent that such a proxy voting advice 
business does not make clear to its clients that it is making a 
negative voting recommendation based on its own disclosure criteria, 
notwithstanding that the registrant has complied with the compensation 
disclosure standards established by the Commission, the proxy voting 
advice business's clients may misunderstand the basis for the proxy 
voting advice business's recommendation.
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    \162\ Rule 14a-21 under the Securities Exchange Act of 1934 
requires, among other things, companies soliciting proxies for an 
annual or other meeting of shareholders at which directors will be 
elected to include a separate resolution subject to a shareholder 
advisory vote to approve the compensation of named executive 
officers.
    \163\ A smaller reporting company is defined in Item 10(f)(1) of 
Regulation S-K [17 CFR 229.10(f)(1)] as an issuer that is not an 
investment company, an asset-backed issuer (as defined in Sec.  
229.1101), or a majority-owned subsidiary of a parent that is not a 
smaller reporting company and that:
    (i) Had a public float of less than $250 million; or
    (ii) Had annual revenues of less than $100 million and either:
    (A) No public float; or
    (B) A public float of less than $700 million.
    \164\ See Item 402(l) of Regulation S-K. 17 CFR 229.402(l).
    \165\ When the Commission adopted comprehensive amendments to 
its executive compensation and related person disclosure 
requirements in 2006, it expressly provided certain scaled 
disclosure requirements for smaller issuers, in recognition of the 
fact that: (i) The executive compensation arrangements of smaller 
issuers are typically less complex than those of other public 
companies and (ii) satisfying disclosure requirements designed to 
capture more complicated compensation arrangements might impose new, 
unwarranted burdens on small business issuers. See Executive 
Compensation and Related Person Disclosure, Release No. 33-8732A [71 
FR 53158 (Sept. 8, 2006)], at 53192.
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    To address these concerns, the proposed amendment would add as an 
example of what may be misleading within the meaning of Rule 14a-9, 
depending upon particular facts and circumstances, the failure to 
disclose the use of standards or requirements that materially differ 
from relevant standards or requirements that the Commission sets or 
approves.\166\ We

[[Page 66539]]

wish to emphasize, however, that including such an example is not meant 
to imply that it would be inappropriate for proxy voting advice 
businesses to use standards or criteria that are different from 
Commission standards or requirements when formulating proxy voting 
advice. Shareholders may use any standards or criteria when making 
their proxy voting decisions, and proxy voting advice businesses and 
their clients may use any standards or criteria for proxy voting 
advice. By including this example, our focus is on ensuring that any 
advice provided to those clients is not materially misleading with 
respect to its underlying bases.
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    \166\ See note (e) to proposed Rule 14a-9. We understand that 
some proxy voting advice businesses currently may be providing this 
type of disclosure, as well as some of the other disclosures 
described in proposed note (e). Examples of standards or 
requirements that the Commission approves are the listing standards 
of the registered national securities exchanges, such as the New 
York Stock Exchange (NYSE). The SEC supervises, and is authorized to 
approve rules promulgated by, the NYSE and other national securities 
exchanges pursuant to Section 19 of the Exchange Act.
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    The ability of a client of a proxy voting advice business to make 
voting decisions is affected by the adequacy of the information it uses 
to formulate such decisions. As we recently discussed in a separate 
release, investment advisers may seek information of the type we are 
proposing from proxy voting advice businesses when exercising voting 
authority on behalf of clients.\167\ The proposed amendments are 
designed to help ensure that proxy voting advice businesses' clients 
are provided the information they need to make fully informed decisions 
and to clarify the potential implications of Rule 14a-9.
---------------------------------------------------------------------------

    \167\ See Question and Response 3 of Commission Guidance on 
Proxy Voting Responsibilities, supra note 9, at 17-20.
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Request for Comment
    52. Is the proposal to amend the list of examples in Rule 14a-9 
necessary in light of the Commission's recent guidance specifically 
underscoring the applicability of Rule 14a-9 to proxy voting advice? 
\168\ Should the proposal to amend Rule 14a-9 list different or 
additional examples and, if so, which examples?
---------------------------------------------------------------------------

    \168\ See Question and Response 2 of Commission Interpretation 
on Proxy Voting Advice, supra note 19, at 11-13.
---------------------------------------------------------------------------

    53. To what extent do proxy voting advice businesses currently 
apply their own standards or criteria that materially differ from those 
set or approved by the Commission, and how well do they alert clients 
to these differences when it may impact their voting advice?
    54. Should the proposed amendment refer only to standards or 
requirements that the Commission sets or approves or is a wider scope 
(i.e., rules of other legal or regulatory bodies) more appropriate? If 
a wider scope is preferable, should the regulatory standards of state 
or foreign regulatory bodies also be referenced?
    55. Alternatively, instead of amending Rule 14a-9 as proposed, 
should we require, as an additional condition under proposed Rule 14a-
2(b)(9), that a proxy voting advice business include in its voting 
advice (and in any electronic medium used to deliver the proxy voting 
advice) disclosure of its use or application, in connection with such 
proxy voting advice, of standards that materially differ from standards 
or requirements that the Commission sets or approves?

D. Transition Period

    We recognize that, if adopted, the proposed amendments would 
require proxy voting advice businesses to develop processes and systems 
to comply with the proposed conditions.\169\ As such, we propose to 
provide a one-year transition period after the publication of a final 
rule in the Federal Register to give affected parties sufficient time 
to comply with the proposed new requirements. We request comment on the 
specific challenges that would be posed in implementing the proposed 
amendments, including those related to timing and the need for a 
transition period to address these issues.
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    \169\ See supra Section II.B.2.c.; supra note 145 and 
accompanying text (discussing potential logistical issues associated 
with the proposed amendments to allow registrants and certain other 
soliciting persons the opportunity to review and respond to proxy 
voting advice).
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Request for Comment
    56. Are there any challenges that proxy voting advice businesses, 
their clients, or registrants anticipate in undertaking to develop 
systems and processes to implement the proposed amendments? If so, what 
are those challenges, and how could they be mitigated?
    57. Is the proposed transition period appropriate? If not, how long 
should the transition period be and why? Please be specific.
    58. Are there any other accommodations that we should consider for 
particular types of proxy voting advice businesses, registrants, or 
circumstances? Are there other transition issues or accommodations that 
we should consider?
Request for Comment--General Considerations
    We request and encourage interested persons to submit comments on 
any aspects of the proposed amendments, other matters that may have an 
impact on the amendments, and any suggestions for additional or 
alternative changes. With respect to any comments, we note that they 
are of the greatest assistance to our rulemaking initiative if 
accompanied by supporting data and analysis of the issues addressed by 
those comments, particularly quantitative information as to the costs 
and benefits, and any alternatives to the proposals where appropriate. 
Where alternatives to the proposal are suggested, please include 
information as to the costs and benefits of those alternatives.
    59. How effective would the proposed amendments be in facilitating 
the ability of proxy voting advice businesses' clients to obtain the 
information they need to make informed voting determinations, including 
for investment advisers that are exercising voting authority on behalf 
of clients?
    60. Are there any other conditions that should apply to proxy 
voting advice businesses seeking to rely on the exemptions in Rules 
14a-2(b)(1) and (b)(3)? If so, what are these conditions?
    61. Are there other approaches that are better suited to accomplish 
the Commission's objectives? For example, should proxy voting advice 
businesses be required to develop policies and procedures to help 
ensure that conflicts of interest are dealt with appropriately and to 
improve the accuracy of the information on which their proxy voting 
advice is based?
    62. What effect would these proposals, if adopted, have on 
competition in the proxy advisory industry? Would adoption of the 
proposals increase barriers to entry into the market for potential 
competitors or lead to unhealthy market concentration within the proxy 
advisory industry or, ultimately, lead to decline in the quality of 
proxy voting advice provided to investors?
    63. To the extent that adoption of the proposed amendments would 
limit the ability of smaller proxy voting advice businesses or 
potential new market entrants to operate and compete in the market for 
these services, should they be subject to the additional conditions in 
proposed Rule 14a-2(b)(9) in order to rely on the exemptions in Rules 
14a-2(b)(1) and (b)(3)? If not, what should the criteria be for 
determining who is not subject to Rule 14a-2(b)(9)? For example, should 
we base the availability of an accommodation for smaller proxy voting 
advice businesses on annual revenues, number of clients or market 
share? Would investment advisers or other institutional investors be 
less likely to hire proxy voting advice businesses that take advantage 
of such an accommodation? Are there other accommodations we should 
consider in lieu of or in addition to this exemption

[[Page 66540]]

for certain proxy voting advice businesses?

III. Economic Analysis

A. Introduction

    We are proposing amendments to Exchange Act Rule 14a-2(b) to 
condition the availability of existing exemptions from the information 
and filing requirements of the proxy rules in Rules 14a-2(b)(1) and 
(b)(3) on all proxy voting advice businesses providing the following in 
connection with their proxy voting advice: (i) Enhanced conflicts of 
interest disclosure; (ii) a standardized opportunity for review and 
feedback by registrants and certain other soliciting persons of proxy 
voting advice before a proxy voting advice business disseminates its 
proxy voting advice to clients; and (iii) the option for registrants 
and certain soliciting persons to request that proxy voting advice 
businesses include in their proxy voting advice (and on any electronic 
medium used to distribute the advice) a hyperlink or other analogous 
electronic medium directing the recipient of the advice to a written 
statement that sets forth the registrant's or soliciting person's views 
on the proxy voting advice.\170\ We also are proposing to codify the 
Commission's interpretation that, as a general matter, proxy voting 
advice constitutes a solicitation within the meaning of Exchange Act 
Rule 14a-1(1). Finally, we are proposing to amend the list of examples 
in Exchange Act Rule 14a-9 to add as an example of a potentially 
material misstatement or omission within the meaning of the rule, 
depending upon particular facts and circumstances, the failure to 
disclose information such as the proxy voting advice business's 
methodology, sources of information, conflicts of interest, or the use 
of standards that materially differ from relevant standards or 
requirements that the Commission sets or approves.
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    \170\ The registrant's or soliciting person's written statement 
would constitute a ``solicitation'' under Exchange Act Rule 14a-1(l) 
and be subject to the anti-fraud prohibitions of Exchange Act Rule 
14a-9, as well as the filing requirements of Exchange Act Rule 14a-
12.
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    We are sensitive to the costs and benefits of our rules. When 
engaging in rulemaking that requires the Commission to consider or 
determine whether an action is necessary or appropriate in the public 
interest, Section 3(f) of the Exchange Act requires that the Commission 
consider, in addition to the protection of investors, whether the 
action will promote efficiency, competition, and capital 
formation.\171\ In addition, Section 23(a)(2) of the Exchange Act 
requires the Commission to consider the effects on competition of any 
rules the Commission adopts under the Exchange Act and prohibits the 
Commission from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act.\172\
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    \171\ 15 U.S.C. 78c(f).
    \172\ 15 U.S.C. 78w(a)(2).
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    The parties affected by the proposed amendments would include proxy 
voting advice businesses, clients of proxy voting advice businesses 
such as investment advisers and institutional investors, retail 
investors, as well as registrants and other soliciting persons.
    We have considered the economic effects of the proposed amendments, 
including their effects on competition, efficiency, and capital 
formation. Many of the effects discussed below cannot be quantified. 
Consequently, while we have, wherever possible, attempted to quantify 
the economic effects expected from this proposal, much of the 
discussion remains qualitative in nature. Where we are unable to 
quantify the economic effects of the proposed amendments, we provide a 
qualitative assessment of the potential effects and encourage 
commenters to provide data and information that would help quantify the 
benefits, costs, and the potential impacts of the proposed amendments 
on efficiency, competition, and capital formation.
1. Overview of Proxy Voting Advice Businesses' Role in the Proxy 
Process
    Every year, investment advisers and other institutional investors, 
whether on behalf of clients or on their own behalf, face decisions on 
how to vote the shares on a significant number of matters that are 
subject to a proxy vote, ranging from the election of directors and the 
approval of equity compensation plans to shareholder proposals 
submitted under Exchange Act Rule 14a-8.\173\ These investment advisers 
and other institutional investors also face voting determinations when 
a matter is presented to shareholders for approval at a special 
meeting, such as a merger or acquisition or a sale of all or 
substantially all of the assets of the company. As described above, 
these firms play a large role in proxy voting because of their large 
aggregate percentage ownership stake in many U.S. public 
companies.\174\ Voting can be resource intensive, involving organizing 
proxy materials, performing diligence on portfolio companies and 
matters to be voted on, determining how votes should be cast, and 
submitting proxy cards to be counted. To assist them in their voting 
decisions, investment advisers and other institutional investors 
frequently hire proxy voting advice businesses.\175\
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    \173\ 17 CFR 240.14a-8; see, e.g., Blackrock Letter, supra note 
144, at 1 (``[A]s a fiduciary to its clients, Blackrock engages with 
portfolio companies and votes proxies globally at over 17,000 
meetings annually.''); NYC Comptroller Letter, supra note 17, at 4 
(``For the year ending June 30, 2018, our office cast 71,000 
individual ballots at 7,000 shareowner meetings in 84 markets around 
the world . . . .''); OPERS Letter, supra note 8, at 2 (``OPERS 
receives in excess of 10,000 proxies in any given proxy season.'').
    \174\ See supra note 8 and accompanying text. As of the end of 
2018, investment companies held approximately 30 percent of the 
shares of U.S.-listed equities outstanding. See 2019 Investment 
Company Fact Book, Investment Company Institute (2019), https://www.ici.org/pdf/2019_factbook.pdf, at 37.
    \175\ See 2016 GAO Report, supra note 9, at 5.
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    Investment advisers and other institutional investors may retain 
proxy voting advice businesses to perform a variety of functions, 
including the following:
     Analyzing and making voting recommendations on the matters 
presented for shareholder vote and included in the registrants' proxy 
statements;
     Executing proxy votes (or voting instruction forms) in 
accordance with their instructions, which may include voting the shares 
in accordance with a customized proxy voting policy resulting from 
consultation between a proxy voting advice business and its 
client,\176\ the proxy voting advice businesses' proxy voting policies, 
or the client's own voting policy;
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    \176\ See ISS Letter, supra note 9, at 1 (``ISS enables our 
clients to receive customized proxy voting recommendations based on 
a client's specific customized voting guidelines. ISS implements 
more than 400 custom voting policies on behalf of institutional 
investor clients. As of January 1, 2018, approximately 85% of ISS' 
top 100 clients used a custom proxy voting policy. During calendar 
year 2017, approximately 87% of the total shares processed by ISS on 
behalf of clients globally were linked to such policies.'').
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     Assisting with the administrative tasks associated with 
voting and keeping track of the large number of voting determinations; 
and
     Providing research and identifying potential risk factors 
related to corporate governance.
    In the absence of the services offered by proxy voting advice 
businesses, investment advisers and other clients of these businesses 
may require considerable resources to independently conduct the work 
necessary to analyze and make voting determinations.
    Proxy voting advice businesses generally are compensated on a fee 
basis for their services, and they are able to

[[Page 66541]]

capture economies of scale for several of the services they provide, 
including supplying voting advice to clients.\177\ As a consequence, 
investment advisers and other institutional investors have found 
efficiencies in hiring these businesses to perform voting-related 
services, rather than performing them in-house.\178\
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    \177\ See Chester S. Spatt, Milken Institute, Proxy Advisory 
Firms, Governance, Failure, and Regulation 7 (2019) (``Spatt 
2019''), available at https://www.milkeninstitute.org/sites/default/files/reports-pdf/Proxy%20Advisory%20Firms%20FINAL.pdf.
    \178\ See Concept Release, supra note 2, at 42983.
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    Institutional investors, who hold a majority of the votes cast in 
the U.S. public equity markets, use to some extent the voting advice 
provided by proxy voting advice businesses. In 2007, the GAO found that 
among 31 institutional investors, large institutions relied less than 
small institutions on the research and recommendations offered by proxy 
voting advice businesses. Large institutional investors indicated that 
their reliance on proxy voting advice businesses was limited because 
they: (i) Conduct their own research and analyses to make voting 
determinations and use the research and recommendations offered by 
proxy voting advice businesses only to supplement such analyses; (ii) 
develop their own voting policies, which the proxy voting advice 
businesses are responsible for executing; and (iii) contract with more 
than one proxy voting advice business to gain a broader range of 
information on proxy issues.\179\ In contrast, small institutional 
investors said they had limited resources to conduct their own research 
and tended to rely more heavily on the research and recommendations 
offered by proxy voting advice businesses.\180\ The findings of a 2016 
GAO study of 11 institutional investors were similar.\181\
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    \179\ See 2007 GAO Report, supra note 9, at 17-18; see also 
Blackrock Letter, supra note 144, at 6 (``Blackrock's Investment 
Stewardship team has more than 40 professionals responsible for 
developing independent views on how we should vote proxies on behalf 
of our clients.''); NYC Comptroller Letter, supra note 17, at 4 
(``We have five full-time staff dedicated to proxy voting during 
peak season, and our least-tenured investment analyst has 12 years' 
experience applying the NYC Funds' domestic proxy voting 
guidelines.''); OPERS Letter, supra note 8, at 2 (``OPERS also 
depends heavily on the research reports we receive from our proxy 
advisory firm. These reports are critical to the internal analyses 
we perform before any vote is submitted. Without access to the 
timely and independent research provided by our proxy advisory firm, 
it would be virtually impossible to meet our obligations to our 
members.''); 2018 Roundtable Transcript, supra note 40, at 194 
(comments of Mr. Scot Draeger) (``If you've ever actually reviewed 
the benchmarks, whether it's ISS or anybody else, they're very 
extensive and much more detailed than small firm[s] like ours could 
ever develop with our own independent research.'').
    \180\ 2007 GAO Report, supra note 9, at 17-18.
    \181\ See 2016 GAO Report, supra note 9, at 2.
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    Research on the role of proxy voting advice businesses in proxy 
voting has produced inconclusive results. For example, with respect to 
the amount of influence that proxy voting advice has on proxy votes, 
some studies suggest that proxy voting advice has substantial influence 
on proxy votes,\182\ and some studies suggest a more limited 
influence.\183\ Further, existing research has not attempted to 
characterize the amount of influence that one would expect proxy voting 
advice to have given the business purpose \184\ of hiring a proxy 
voting advice business in the first place. As a result, existing 
research provides limited information on the extent to which proxy 
voting advice business clients incorporate proxy voting advice into 
their voting determinations relative to what would be expected given 
such an advice relationship.
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    \182\ See Cindy R. Alexander, Mark A. Chen, Duane J. Seppi, & 
Chester S. Spatt, Interim News and the Role of Proxy Voting Advice, 
23 Rev. Fin. Stud. 4419, 4422 (2010); Alon Brav, Wei Jiang, Tao Li, 
& James Pinnington, Columbia Business School Research Paper No. 18-
16, Picking Friends Before Picking (Proxy) Fights: How Mutual Fund 
Voting Shapes Proxy Contests 4 (2019), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3101473; James R. 
Copland, David F. Larcker and Brian Tayan, Stanford Business School 
Closer Look Series, The Big Thumb on the Scale: An Overview of the 
Proxy Advisory Industry 3 (2018), available at https://www.gsb.stanford.edu/sites/gsb/files/publication-pdf/cgri-closer-look-72-big-thumb-proxy-advisory.pdf; Manhattan Institute, supra 
note 24, at 6; Albert Verdam, VU University of Amsterdam, An 
Exploration of the Role of Proxy Advisors in Proxy Voting 23 (2006), 
available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=978835.
    \183\ See Stephen Choi, Jill Fisch & Marcel Kahan, The Power of 
Proxy Advisors: Myth or Reality?, 59 Emory L.J. 869, 905-06 (2010); 
Alon Brav, Wei Jiang, Tao Li, & James Pinnington, Columbia Business 
School Research Paper No. 18-16, Picking Friends Before Picking 
(Proxy) Fights: How Mutual Fund Voting Shapes Proxy Contests 35 
(2019), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3101473. The authors find that larger mutual 
fund families cast votes ``in ways completely independent from what 
are recommended by the advisors.'' Alon Brav et al., supra note 182, 
at 35.
    \184\ For example, Spatt argues that the use of proxy advisory 
firms to produce relevant information for proxy voting and to make 
recommendations is an efficient market response to the cost of 
producing the relevant information oneself. Spatt 2019, supra note 
177, at 8.
---------------------------------------------------------------------------

    Additionally, research on the role of proxy voting advice 
businesses in proxy voting has produced inconclusive results with 
respect to the quality of voting advice. For example, proxy voting 
advice businesses have been the subject of criticism for potentially 
being influenced by conflicts of interest,\185\ producing voting advice 
that contains inaccuracies, and utilizing one-size-fits-all 
methodologies in evaluating a diverse array of registrants.\186\ To 
assess the quality of voting advice, studies have sought to examine 
stock market reactions to announcements by registrants that the 
registrants will adopt policies consistent with those recommended by 
proxy voting advice businesses.\187\ Such an approach, however, ignores 
the possibility that proxy voting advice business clients may have 
goals other than, or in addition to, share value maximization or may 
have investment objectives that would not be achieved solely on the 
basis of a positive market reaction.\188\ Because investors may be 
willing to forgo share value to the extent that doing so allows the 
investor to achieve other goals, we are unable conclusively to infer 
recommendation quality from stock market reactions.
---------------------------------------------------------------------------

    \185\ For example, some proxy voting advice businesses provide 
consulting services to registrants on corporate governance or 
executive compensation matters, such as assistance in developing 
proposals to be submitted for shareholder vote. See Concept Release, 
supra note 2, at 42989. As a result, some proxy voting advice 
businesses provide voting recommendations regarding a registrant to 
their institutional investor clients on matters for which they may 
also provide consulting services to the registrant.
    \186\ See supra note 70.
    \187\ See generally David F. Larcker, Allan L. McCall & Gaizka 
Ormazabal, Outsourcing Shareholder Voting to Proxy Advisory Firms, 
58 J.L. & Econ. 173 (2015). The authors find that when registrants 
adjust their compensation program to be more consistent with 
recommendations of proxy voting advice businesses, the stock market 
reaction is statistically negative.
    \188\ See Spatt 2019, supra note 177, at 4; Patrick Bolton, Tao 
Li, Enrichetta Ravina, & Howard L. Rosenthal, Columbia Business 
School Research Paper No. 18-21, Investor Ideology 37 (2019), 
available at https://www.nber.org/papers/w25717.pdf; Gregor Matvos & 
Michael Ostrovsky, Heterogeneity and Peer Effects in Mutual Fund 
Proxy Voting, 98 J. Fin. Econ. 90 (2010); Manhattan Institute, supra 
note 24, at 6; Albert Verdam, supra note 182, at 12.
---------------------------------------------------------------------------

    Finally, studies have shown theoretically that, given certain 
assumptions, investors could be led to rely too much on proxy voting 
advice.\189\ The over-reliance stems from

[[Page 66542]]

a collective action problem among shareholders with respect to voting 
because shareholders do not internalize the positive externality of 
their actions on other shareholders. We note, however, that this 
conclusion relies on the assumption that investors have the singular 
goal of share value maximization. The applicability of their results is 
limited by the extent to which investors have goals other than, or in 
addition to, share value maximization.
---------------------------------------------------------------------------

    \189\ See generally Andrey Malenko & Nadya Malenko, Proxy 
Advisory Firms: The Economics of Selling Information to Voters, 74 
J. FIN. 2441 (2019). In their theoretical model, the authors assume 
shareholders have perfectly aligned incentives with all shareholders 
agreeing on share value maximization as the singular goal of the 
firm; proxy advice is provided by a single monopolistic proxy 
advisory firm; and, shareholders follow proxy advisory firm advice 
without exception. Additionally, the authors assume that when 
deciding whether to invest in their own independent research, 
shareholders believe that their votes will be pivotal to the vote 
outcome. The ownership structure of the company is key to the 
reported findings: The paper actually shows that proxy advisory 
services are valuable when ownership is sufficiently dispersed. The 
negative affect of the use of proxy advisors is likely to arise in 
companies with more concentrated ownership, but not very 
concentrated because in such cases shareholders again find proxy 
advisory services to be valuable.
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B. Economic Baseline

    The baseline against which the costs, benefits, and the impact on 
efficiency, competition, and capital formation of the proposed 
amendments are measured consists of the current regulatory requirements 
applicable to registrants, proxy voting advice businesses, and 
investment advisers and other clients of these businesses, as well as 
current industry practices used by these entities in connection with 
the preparation, distribution, and use of proxy voting advice.
1. Affected Parties and Current Regulatory Framework
a. Clients of Proxy Voting Advice Businesses as Well as Underlying 
Investors
    Clients that use proxy voting advice businesses for voting advice 
would be affected by the proposed rule amendments. In turn, investors 
and other groups on whose behalf these clients make voting 
determinations would be affected. As discussed in greater detail below, 
to our knowledge, the proxy voting advice industry in the United States 
consists of five major firms.\190\ Three of the five firms are 
registered with the Commission as investment advisers and as such, 
provide annually updated disclosure with respect to their types of 
clients on Form ADV. Table 1 below reports client types as disclosed by 
these three proxy voting advice businesses.
---------------------------------------------------------------------------

    \190\ These firms are (1) Institutional Shareholder Services 
(``ISS''), (2) Glass Lewis & Co. (``Glass Lewis''), (3) Egan-Jones 
Proxy Services (``Egan-Jones''), (4) Segal Marco Advisors, and (5) 
ProxyVote Plus.

                                    Table 1--Number of Clients by Client Type
----------------------------------------------------------------------------------------------------------------
                                                                               Number of clients \a\
                                                                 -----------------------------------------------
                       Type of client \b\                                         ProxyVote Plus    Segal Marco
                                                                      ISS \c\           \d\        Advisors \e\
----------------------------------------------------------------------------------------------------------------
Banking or thrift institutions..................................             130               0               0
Investment companies............................................             183               0               0
Pooled investment vehicles......................................             356               0              24
Pension and profit sharing plans................................             189             131              63
Charitable organizations........................................             113               0               0
State or municipal government entities..........................              12               0               0
Other investment advisers.......................................             863               0               0
Insurance companies.............................................              49               0               0
Sovereign wealth funds and foreign official institutions........               9               0               0
Corporations or other businesses not listed above...............             127               0               0
Other...........................................................         \f\ 208               0          \g\ 31
                                                                 -----------------------------------------------
    Total.......................................................           2,239             131             118
----------------------------------------------------------------------------------------------------------------
\a\ Form ADV filers indicate the approximate number of clients attributable to each type of client. If the filer
  has fewer than five clients in a particular category (other than investment companies, business development
  companies, and pooled investment vehicles), they may indicate that they have fewer than five clients rather
  than reporting the number of clients.
\b\ The table excludes client types for which all three filers indicated either zero clients or less than five
  clients.
\c\ The current Form ADV filing for ISS is available at https://adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=111940.
\d\ The current Form ADV filing for ProxyVote Plus is available at https://adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=122222.
\e\ The current Form ADV filing for Segal Marco Advisors is available at https://adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=114687. We note that Segal Marco Advisors lists two bases for
  registration: (i) That they are a large advisory firm, and (ii) that they are a pension consultant with
  respect to assets of plans having an aggregate value of at least $200,000,000 that qualifies for the exemption
  in Rule 203A-2(a) under the Advisers Act. As a result, some of their clients may not use Segal Marco Advisors
  for proxy voting advice.
\f\ ISS describes clients classified as ``Other'' as ``Academic, vendor, other companies not able to identify as
  above.'' See supra note c.
\g\ See supra note e.

    Table 1 illustrates the types of clients that utilize the services 
of proxy voting advice businesses. For example, while investment 
advisers constitute a 39 percent plurality of clients for ISS, other 
types of clients include pooled investment vehicles (16 percent), 
pension and profit sharing plans (8 percent), and investment companies 
(8 percent). Other users of the services offered by proxy voting advice 
businesses include corporations, charitable organizations, insurance 
companies, and academic endowments. Together, these various users of 
proxy voting advice business services make voting determinations that 
affect the interests of a wide array of retail investors, beneficiaries 
and other constituents.
b. Proxy Voting Advice Businesses
    Proxy voting advice businesses also would be affected by the 
proposed amendments. As the Commission has previously stated, voting 
advice provided by a business such as a proxy voting advice firm that 
markets its expertise in researching and analyzing proxy issues for 
purposes of helping its clients make proxy voting determinations (i.e., 
not merely performing administrative or ministerial services) generally 
constitutes a solicitation subject to federal proxy rules because it is 
``a communication to security holders under circumstances reasonably 
calculated to result in the procurement, withholding or revocation of a 
proxy.'' \191\ Proxy voting advice businesses engaged in activities 
constituting solicitations typically rely

[[Page 66543]]

on two exemptions from the information and filing requirements of the 
federal proxy rules: Rules 14a-2(b)(1) and (b)(3).\192\ Where a proxy 
voting advice business relies on 14a-2(b)(3), it must disclose to its 
clients any significant relationship with the registrant or any of its 
affiliates, or a security holder proponent of the matter on which 
advice is given, as well as any material interests of the proxy voting 
advice business in such matter. Even if exempt from the information and 
filing requirements of the federal proxy rules, the furnishing of proxy 
voting advice remains subject to the prohibition on false and 
misleading statements in Rule 14a-9.\193\
---------------------------------------------------------------------------

    \191\ See Commission Interpretation on Proxy Voting Advice, 
supra note 19, at 47417.
    \192\ 17 CFR 240.14a-2(b)(1), (b)(3).
    \193\ 17 CFR 240.14a-9.
---------------------------------------------------------------------------

    As of August 19, 2019, to our knowledge, the proxy advisory 
industry in the United States consists of five major firms: ISS, Glass 
Lewis, Egan-Jones, Marco Consulting Group (``Marco Consulting''), and 
ProxyVote Plus.
     ISS, founded in 1985, is a privately-held company that 
provides research and analysis of proxy issues, custom policy 
implementation, vote recommendations, vote execution, governance data, 
and related products and services.\194\ ISS also provides advisory/
consulting services, analytical tools, and other products and services 
to corporate registrants through ISS Corporate Solutions, Inc. (a 
wholly owned subsidiary).\195\ As of June 2019, ISS had more than 1,800 
employees in 30 offices in 13 countries, and covered approximately 
44,000 shareholder meetings in 115 countries, annually.\196\ ISS states 
that it executes about 10.2 million ballots annually on behalf of those 
clients.\197\ ISS is registered with the Commission as an investment 
adviser and identifies its work as pension consultant as the basis for 
registering as an adviser.\198\
---------------------------------------------------------------------------

    \194\ See 2016 GAO Report, supra note 9, at 6.
    \195\ Id.
    \196\ See supra note 18.
    \197\ Id.
    \198\ See 2016 GAO Report, supra note 9, at 9.
---------------------------------------------------------------------------

     Glass Lewis, established in 2003, is a privately-held 
company that provides research and analysis of proxy issues, custom 
policy implementation, vote recommendations, vote execution, and 
reporting and regulatory disclosure services to institutional 
investors.\199\ As of June 2019, Glass Lewis had more than 360 
employees in the U.S., the United Kingdom, Ireland, Germany, and 
Australia that provide services to more than 1,300 clients that 
collectively manage more than $35 trillion in assets.\200\ Glass Lewis 
states that it covers more than 20,000 shareholder meetings across 
approximately 100 global markets annually.\201\ Glass Lewis is not 
registered with the Commission in any capacity.
---------------------------------------------------------------------------

    \199\ See 2016 GAO Report, supra note 9, at 7.
    \200\ See Glass Lewis, supra note 1869.
    \201\ Id.
---------------------------------------------------------------------------

     Egan-Jones was established in 2002 as a division of Egan-
Jones Ratings Company.\202\ Egan-Jones is a privately-held company that 
provides proxy services, such as notification of meetings, research and 
recommendations on selected matters to be voted on, voting guidelines, 
execution of votes, and regulatory disclosure.\203\ As of September 
2016, Egan-Jones' proxy research or voting clients mostly consisted of 
mid- to large-sized mutual funds \204\ and the firm covered 
approximately 40,000 companies.\205\ Egan-Jones Ratings Company (Egan-
Jones' parent company) is registered with the Commission as a 
Nationally Recognized Statistical Ratings Organization.\206\
---------------------------------------------------------------------------

    \202\ See 2016 GAO Report, supra note 9, at 7.
    \203\ Id.
    \204\ Id.
    \205\ Id. While ISS and Glass Lewis have published updated 
coverage statistics on their websites, the most recent data 
available for Egan-Jones was compiled in the 2016 GAO Report.
    \206\ See Order Granting Registration of Egan-Jones Rating 
Company as a Nationally Recognized Statistical Rating Organization, 
Exchange Act Release No. 34-57031 (Dec. 21, 2007), available at 
https://www.sec.gov/ocr/ocr-current-nrsros.html#egan-jones.
---------------------------------------------------------------------------

     The proxy advisory segment of Segal Marco Advisors was 
originally established in 1988 as Marco Consulting and is a privately-
held company that provides investment analysis and advice and proxy 
voting services to a large number of Taft-Hartley pension and public 
benefit plans.\207\ Marco Consulting was acquired by Segal Advisors in 
2017.\208\ As of July 2019, Segal Marco Advisors votes proxies for 
roughly 8,000 companies annually.\209\ Segal Marco Advisors is 
registered with the Commission as an investment adviser and identifies 
its work as a pension consultant as one basis for registering as an 
adviser.\210\
---------------------------------------------------------------------------

    \207\ See 2016 GAO Report, supra note 9, at 7.
    \208\ See History, Segal Marco Advisors, https://www.segalmarco.com/about-us/history/ (last visited Oct. 3, 2019).
    \209\ See Corporate Governance and Proxy Voting, Segal Marco 
Advisors, https://www.segalmarco.com/services/corporate-governance-and-proxy-voting/ (last visited July 9, 2019).
    \210\ See 2016 GAO Report, supra note 9, at 9. Segal Marco 
Advisors also indicates assets under management as another basis for 
registering as an adviser. See Segal Advisors, Inc., Form ADV (July 
1, 2019), available at https://adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=114687.
---------------------------------------------------------------------------

     ProxyVote Plus is an employee-owned firm established in 
2002 to provide proxy voting services to Taft-Hartley pension fund 
clients.\211\ ProxyVote Plus conducts internal research and analysis of 
voting issues and executes votes based on its guidelines.\212\ 
ProxyVote Plus reviews and analyzes proxy statements and other 
corporate filings and reports annually to its clients on proxy votes 
cast on their behalf.\213\ ProxyVote Plus is registered with the 
Commission as an investment adviser and identifies its work as a 
pension consultant as the basis for registering as an adviser.\214\
---------------------------------------------------------------------------

    \211\ See 2016 GAO Report, supra note 9, at 7.
    \212\ Id. at 7-8.
    \213\ Id. at 8.
    \214\ See 2016 GAO Report, supra note 9, at 9.
---------------------------------------------------------------------------

    Of the five proxy voting advice businesses identified, ISS and 
Glass Lewis are the largest and most often used for proxy voting 
advice.\215\
---------------------------------------------------------------------------

    \215\ See 2016 GAO Report, supra note 9, at 8, 41 (``In some 
instances, we focused our review on Institutional Shareholder 
Services (ISS) and Glass Lewis and Co. (Glass Lewis) because they 
have the largest number of clients in the proxy advisory firm market 
in the United States.''); see also Center on Exec. Comp. Letter, 
supra note 24, at 1 (noting that there are ``two firms controlling 
roughly 97% of the market share for such services''); Soc. for Corp. 
Gov. Letter, supra note 24, at 1 (``While there are five primary 
proxy advisory firms in the U.S., today the market is essentially a 
duopoly consisting of Institutional Shareholder Services . . . and 
Glass Lewis & Co. . . .'').
---------------------------------------------------------------------------

c. Registrants and Other Soliciting Persons
    Registrants and other soliciting persons also would be affected by 
the proposed amendments. Registrants that have a class of equity 
securities registered under Section 12 of the Exchange Act as well as 
non-registrant parties that conduct proxy solicitations in respect to 
those registrants are subject to the federal proxy rules.\216\ In 
addition, there are certain issuers that voluntarily file proxy 
materials with the Commission. Finally, Rule 20a-1 under the Investment 
Company Act subjects all registered management investment companies to 
the federal proxy rules.\217\
---------------------------------------------------------------------------

    \216\ Foreign private issuers are exempt from the federal proxy 
rules under Rule 3a12-3(b) of the Exchange Act. See 17 CFR 240.3a12-
3.
    We are not aware of any asset-backed issuers that have a class 
of equity securities registered under Section 12 of the Exchange 
Act. Most asset-backed issuers are registered under Section 15(d) of 
the Exchange Act and thus are not subject to the federal proxy 
rules. Nine asset-backed issuers had a class of debt securities 
registered under Section 12 of the Exchange Act as of December 2018. 
As a result, these asset-backed issuers are not subject to the 
federal proxy rules.
    \217\ Rule 20a-1 under the Investment Company Act requires 
registered management investment companies to comply with 
regulations adopted pursuant to Section 14(a) of the Exchange Act 
that would be applicable to a proxy solicitation if it were made in 
respect of a security registered pursuant to Section 12 of the 
Exchange Act. See 17 CFR 270.20a-1.
    ``Registered management investment company'' means any 
investment company other than a face-amount certificate company or a 
unit investment trust. See 15 U.S.C. 80a-4.

---------------------------------------------------------------------------

[[Page 66544]]

    As of December 31, 2018, there were 5,746 registrants that had a 
class of securities registered under Section 12 of the Exchange Act 
(including 98 Business Development Companies (``BDCs'')).\218\ As of 
the same date, there were 120 companies that did not have a class of 
securities registered under Section 12 of the Exchange Act that 
voluntarily filed proxy materials.\219\ As of August 31, 2019 there 
were 12,718 registered management investment companies that were 
subject to the proxy rules: (i) 12,040 open-end funds, out of which 
1,910 were Exchange Traded Funds (``ETFs'') registered as open-end 
funds or open-end funds that had an ETF share class; (ii) 664 closed-
end funds; and (iii) 14 variable annuity separate accounts registered 
as management investment companies.\220\ The summation of these 
estimates yields 18,584 registrants that may be affected to a greater 
or lesser extent by the proposed amendments.\221\
---------------------------------------------------------------------------

    \218\ We estimate the number of registrants with a class of 
securities registered under Section 12 of the Exchange Act by 
reviewing all Forms 10-K filed during calendar year 2018 with the 
Commission and counting the number of unique registrants that 
identify themselves as having a class of securities registered under 
Section 12(b) or Section 12(g) of the Exchange Act. Foreign private 
issuers that filed Forms 20-F and 40-F and asset-backed issuers that 
filed Forms 10-D and 10-D/A during calendar year 2018 with the 
Commission are excluded from this estimate.
    BDCs are all entities that have been issued an 814-reporting 
number. Our estimate includes BDCs that may be delinquent or have 
filed extensions for their filings, and it excludes 6 wholly-owned 
subsidiaries of other BDCs.
    \219\ We identify issuers that voluntarily file proxy materials 
as those (1) subject to the reporting obligations of Exchange Act 
Section 15(d) but that do not have a class of equity securities 
registered under Exchange Act Section 12(b) or 12(g) and (2) that 
filed any proxy materials during calendar year 2018 with the 
Commission. The proxy materials we consider in our analysis are 
DEF14A, DEF14C, DEFA14A, DEFC14A, DEFM14A, DEFM14C, DEFR14A, 
DEFR14C, DFAN14A, N-14, PRE 14A, PRE 14C, PREC14A, PREM14A, PREM14C, 
PRER14A and PRER14C. Form N-14 can be a registration statement and/
or proxy statement. We manually review all Forms N-14 filed during 
calendar year 2018 with the Commission and we exclude from our 
estimates Forms N-14 that are exclusively registration statements.
    To identify issuers reporting pursuant to Section 15(d) but not 
registered under Section 12(b) or Section 12(g), we review all Forms 
10-K filed in calendar year 2018 with the Commission and count the 
number of unique issuers that identify themselves as subject to 
Section 15(d) reporting obligations but with no class of equity 
securities registered under Section 12(b) or Section 12(g).
    \220\ We estimate the number of unique registered management 
investment companies based on Forms N-CEN filed between June 2018 
and August 2019 with the Commission. Open-end funds are registered 
on Form N-1A. Closed-end funds are registered on Form N-2. Variable 
annuity separate accounts registered as management investment 
companies are trusts registered on Form N-3.
    The number of potentially affected Section 12 and Section 15(d) 
registrants is estimated over a different time period (i.e., January 
2018 to December 2018) than the number of potentially affected 
registered management investment companies (i.e., June 2018 to 
August 2019) because there is no complete N-CEN data for the most 
recent full calendar year (i.e., 2018). Registered management 
investment companies started submitting Form N-CEN in September 2018 
for the period ended on June 30, 2018 with the Commission.
    \221\ The 18,584 potentially affected registrants is the sum of:
     5,746 registrants with a class of securities registered 
under Section 12 of the Exchange Act;
     120 registrants without a class of securities 
registered under Section 12 of the Exchange Act that voluntarily 
filed proxy materials; and
     12,718 registered management investment companies.
---------------------------------------------------------------------------

    The abovementioned estimates are an upper bound of the number of 
potentially affected registrants because not all of these registrants 
may file proxy materials related to a meeting for which a proxy voting 
advice business issues proxy voting advice in a given year. Out of the 
18,584 potentially affected registrants mentioned above, 5,690 filed 
proxy materials with the Commission during calendar year 2018.\222\ Out 
of the 5,690 registrants, 4,758 (84 percent) were Section 12 or Section 
15(d) registrants and the remaining 932 (16 percent) were registered 
management investment companies.\223\
---------------------------------------------------------------------------

    \222\ For details on the estimation of companies that filed 
proxy materials with the Commission during calendar year 2018, see 
supra note 218.
    \223\ According to data from Forms N-CEN filed with the 
Commission between June 2018 and August 2019, there were 965 
registered management investment companies that submitted matters 
for its security holders' vote during the reporting period: (i) 729 
open-end funds, out of which 86 were ETFs registered as open-end 
funds or open-end funds that had an ETF share class; (ii) 235 
closed-end funds; and (iii) 1 variable annuity separate account. See 
Form N-CEN Item B.10). The discrepancy in the estimated number of 
registered management investment companies submitting proxy filings 
(i.e., 932) and Form N-CEN data (i.e., 965) likely is attributable 
to the different time periods over which the two statistics are 
estimated.
---------------------------------------------------------------------------

    Further, there were 95 other soliciting persons that submitted 
proxy materials with the Commission during calendar year 2018.\224\
---------------------------------------------------------------------------

    \224\ We estimate other soliciting persons as the number of 
unique CIKs of entities that submitted Forms DEFC14A, DEFN14A, and 
DFAN14A during calendar year 2018 with the Commission.
---------------------------------------------------------------------------

2. Certain Industry Practices
    The proposed amendments would codify existing and create certain 
additional obligations for proxy voting advice businesses that rely on 
exemptions from the information and filing requirements of the proxy 
rules. The current practice of proxy voting advice businesses vary and 
to the extent industry participants may already provide similar 
information or offer similar review and comment opportunities under 
their own practices, such practices could affect our analysis of the 
benefits and costs of the proposed amendments.
    For example, we are proposing to augment existing obligations by 
specifying that detailed disclosure of material conflicts of interest 
must be provided, as a condition to relying on the exemptions in Rules 
14a-2(b)(1) and (3), in the proxy voting advice and in any electronic 
medium used to deliver the advice, including a discussion of the 
policies and procedures used to identify, and steps taken to address, 
potential and actual conflicts of interest. We are aware that some 
proxy voting advice businesses have disclosure practices and procedures 
regarding conflicts of interest that may be similar to these proposed 
disclosure requirements.\225\ For example, Glass Lewis has noted that 
it adds a statement to the front cover of its proxy voting advice when 
it determines that there is a potential conflict of interest.\226\ 
Further, ISS has noted that its proxy voting advice contains a legend 
indicating that the subject of the advice may be a client of ISS' 
subsidiary, ISS Corporate Solutions, Inc. (ICS).\227\
---------------------------------------------------------------------------

    \225\ See supra note 76.
    \226\ See Glass Lewis Letter, supra note 16, at 9 (``Glass Lewis 
makes full disclosure to its clients to enable them the opportunity 
to understand the nature and scope of the potential conflict and 
make an assessment about the reliability or objectivity of the 
recommendation. This is done by adding a disclosure note to the 
front cover of the relevant proxy research report when Glass Lewis 
determines that there is a potential conflict of interest (e.g., 
related to Glass Lewis' ownership structure, business partnerships, 
client-submitted shareholder proposals, employee and outside 
advisors' relationships and when an investment manager client is a 
public company or a division of a public company).'').
    \227\ See Letter from Gary Retelny, President and Chief 
Executive Officer, Institutional Shareholder Services to the 
Committee on Banking, Housing and Urban Affairs, U.S. Senate (July 
6, 2018), at 4, available at https://www.issgovernance.com/file/duediligence/20180706-iss-senate-hearing-statement.pdf (describing 
measures ISS has historically taken to ensure transparency of any 
potential conflicts associated with ISS Corporate Solutions, Inc. 
(``ICS''), which is a subsidiary of ISS that provides governance 
tools and services to client) (``ISS' institutional clients can 
readily identify any potential conflict of interest through ISS' 
primary client delivery platform, ProxyExchange (PX), which provides 
information about the identity of ICS clients, as well as the types 
of services provided to those registrants and the revenue received 
from them. Similarly, each proxy analysis and research report issued 
by ISS contains a legend indicating that the subject of the analysis 
or report may be a client of ICS. This legend also advises 
institutional clients about the way in which they can receive 
additional, specific details about any registrant's use of products 
and services from ICS, which can be as simple as emailing our Legal/
Compliance department . . . .'').

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[[Page 66545]]

    We are also proposing conditions that would require that 
registrants and any other soliciting person covered by the proxy voting 
advice be provided the opportunity to review and provide feedback on 
the proxy voting advice that the proxy voting advice business intends 
to deliver to its clients before such advice is disseminated. The 
availability and length of the period for review and feedback would 
depend on how early the registrant filed its definitive proxy 
statement.\228\ These amendments are intended to give registrants and 
other soliciting persons an opportunity to engage with the proxy voting 
advice business and identify factual errors or methodological 
weaknesses in the proxy voting advice before it is disseminated to 
clients.
---------------------------------------------------------------------------

    \228\ See proposed Rule 14a-2(b)(9)(ii)(A)(1) and (A)(2). If the 
registrant files its definitive proxy statement at least 45 calendar 
days before the security holder meeting date, it will be given five 
business days to complete an initial review the proxy voting advice; 
if the registrant files less than 45 calendar days but at least 25 
calendar days before the meeting, it will be given no less than 
three business days to review. If the registrant files 25 calendar 
days or fewer before the meeting, there would not be a requirement 
to provide a review opportunity.
---------------------------------------------------------------------------

    We understand that Glass Lewis and ISS both currently provide some 
opportunities for registrants to review and respond to some aspects of 
their proxy voting advice. Glass Lewis offers a program that allows 
participating registrants to request, and be provided with, a data-only 
version of its proxy voting advice prior to Glass Lewis completing the 
analysis based on that data.\229\ This process enables registrants to 
notify Glass Lewis of any factual mistakes in the data prior to Glass 
Lewis completing and publishing the analysis for its clients.\230\ 
Under this program, registrants are provided 48 hours to review the 
draft analysis and provide corrections.\231\ ISS offers Standard & 
Poor's 500 companies and companies in comparable large capitalization 
indices in certain countries outside the United States an opportunity 
to review a draft analysis for factual errors prior to delivery of 
proxy voting advice to clients.\232\ ISS provides registrants one to 
two business days to review draft proxy voting advice and provide 
feedback before ISS disseminates the voting advice to clients.\233\
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    \229\ Glass Lewis Letter, supra note 16, at 6; see supra note 
102.
    \230\ Glass Lewis Letter, supra note 16, at 6.
    \231\ See Issuer Data Report, Glass Lewis, https://www.glasslewis.com/issuer-data-report/ (last visited July 30, 2019).
    \232\ See 2018 Roundtable Transcript, supra note 40, at 231-32 
(comments of Mr. Gary Retelny) (``[W]e distribute prior to 
publishing our final report, our draft report [to] the S&P 500 
generally and other large global companies. We do not do it for 
everyone.''); see also ISS Letter, supra note 9, at 10.
    \233\ See 2016 GAO Report, supra note 9, at 28.
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    The proposed amendments also would provide registrants and other 
soliciting persons with a final notice of voting advice. This notice, 
which must contain a copy of the proxy voting advice that the proxy 
voting advice business will deliver to its clients, including any 
revisions to such advice made as a result of the review and feedback 
period, must be provided by the proxy voting advice business no later 
than two business days prior to delivery of the proxy voting advice to 
its clients. We are not aware of any proxy voting advice business that 
provides registrants with such copies of proxy voting advice before it 
is provided to clients. Most registrants do not become aware of the 
data used in the proxy voting advice business's analysis or the 
recommendations derived therefrom until after the voting advice has 
been issued to the proxy voting advice business's clients, to the 
extent the registrant has access to the proxy voting advice at 
all.\234\
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    \234\ See, e.g., supra note 232.
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    Finally, the proposed amendments would require that proxy voting 
advice businesses include in their proxy voting advice and in any 
electronic medium used to deliver the proxy voting advice, if requested 
by the registrant or other soliciting person, a hyperlink (or other 
analogous electronic medium) to the registrant's or other soliciting 
person's statement regarding the proxy voting advice. The statement 
would constitute a ``solicitation'' as defined in Rule 14a-1(1) and be 
subject to the anti-fraud prohibitions of Rule 14a-9, as well as the 
filing requirements of Exchange Act Rule 14a-2. Currently, if 
registrants have concerns with the recommendations of proxy voting 
advice businesses, registrants can file additional definitive proxy 
materials with the Commission to address their concerns with the 
recommendations or analysis, but such an effort may not be effective. 
Some registrants have asserted that a large percentage of proxies are 
voted within 24 to 48 hours of proxy voting advice being issued \235\ 
and that it can be difficult to access and analyze the proxy voting 
advice, formulate a response, and file the necessary materials with the 
Commission within that time period.\236\
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    \235\ See, e.g., 2018 Roundtable Transcript, supra note 40, at 
242 (comment of Mr. Adam Kokas) (``[W]ithin a day or so of the 
report coming out, depending on the firm, 30 to 45 percent of our 
shares are voted within 24 to 48 hours.''); Soc. for Corp. Gov. 
Letter, supra note 24, at 3 (``Anecdotal evidence from some of our 
members consistently shows that as much as 30% of the total 
shareholder votes are cast within 24 hours of the ISS and Glass 
Lewis recommendations being released to their subscribers . . . 
.''); see also Placenti, supra note 40, at 8.
    \236\ See 2018 Roundtable Transcript, supra note 40, at 228 
(comment of Mr. Adam Kokas) (``[F]or all of these things related to 
proxy advisory firm reports and voting, there's a before and there's 
an after. So once the report is issued, it is an uphill battle, to 
say the least, from a public company perspective, certainly from a 
small to mid-market cap company, filing SEC solicitation materials 
or doing other things to try to correct the record are very 
difficult.'').
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    We do not have data that would allow us to examine with a 
meaningful degree of precision the timing of when proxies are voted. In 
2016, 2017, and 2018, the number of unique registrants that filed proxy 
materials with the Commission was 5,690, 5,744, and 5,862, 
respectively.\237\ Table 2 below reports the total number of times 
registrants filed additional definitive proxy materials in response to 
proxy voting advice in calendar years 2016, 2017, and 2018.\238\ Table 
2 also reports the number of instances registrants indicated particular 
concerns with respect to the proxy voting advice.\239\
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    \237\ See supra note 218 for details on the estimation of 
registrants that filed proxy materials with the Commission during a 
calendar year.
    \238\ Id.
    \239\ We divide registrant concerns into five categories: (1) 
Factual errors, (2) analytical errors, (3) general or policy 
disputes, (4) amended or modified proposal, and (5) other. We 
classify a concern as ``factual errors'' when the registrant 
identifies what it considers to be incorrect data or inaccurate 
facts that the proxy voting advice business uses in some part as a 
basis for its negative recommendation. We classify a concern as 
``analytical errors'' when the registrant identifies what it 
considers to be methodological errors in the proxy voting advice 
business's analysis that it used as a basis for its negative 
recommendation. We classify a concern as ``general or policy 
disputes'' when the registrant does not dispute the facts or the 
analytical methodology employed but instead generally espouses the 
view that specific evaluation policies or the evaluation framework 
established by the proxy voting advice business are overly 
simplistic or restrictive and do not adequately or holistically 
capture the merits of the proposal. We classify a concern as 
``amended or modified proposal'' when the registrant responds to a 
current or prior year negative recommendation from a proxy voting 
advice business by indicating that it has amended or modified 
proposals or existing governance practices prior to the annual 
meeting and requests investor consideration of these facts in making 
their vote. Finally, we classify as ``other'' those concerns where 
the registrant objects to the proxy voting advice business's 
negative recommendation but does not specifically cite nor respond 
to the rationale for the negative recommendation and instead makes a 
generalized argument in favor of the proposal. Registrants may have 
more than one concern with a proxy voting advice business's voting 
advice, so the number of firms filing amended proxy materials may 
not equal the sum of concern types within a given year.

[[Page 66546]]



                                    Table 2--Registrant Concerns Identified in Additional Definitive Proxy Materials
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Type of registrant concern
---------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Amended or
                          Year                                Filings     Factual errors    Analytical      General or       modified          Other
                                                                                              errors      policy dispute     proposal
--------------------------------------------------------------------------------------------------------------------------------------------------------
2016....................................................              99              24              40              54              18              11
2017....................................................              77              13              28              42              10               8
2018....................................................              84              17              28              58               6               2
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Although not required, registrants sometimes indicate in their 
additional definitive proxy materials the date on which they first 
became aware of the proxy voting advice business's voting advice. The 
date may represent the date the proxy voting advice was issued or may 
represent the date an advance copy was provided to the registrant. For 
example, in 2018, in 14 of the 84 filings, the registrant indicated the 
date on which it first became aware of voting advice issued by a proxy 
voting advice business.\240\ Among those 14 filings, the median 
(average) number of business days between the proxy voting advice 
business issuing its advice and the registrant filing amended proxy 
materials was 3 (3.8) business days.\241\ The median (average) number 
of business days remaining until the shareholder meeting was to take 
place with regard to those 14 filings was 9.5 (10.3) business 
days.\242\
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    \240\ For 2017 and 2016, the number of filings indicating the 
date on which the registrant became aware of a proxy voting advice 
business's voting advice was 14 of 77 and 21 of 99, respectively.
    \241\ The median (average) number of business days between the 
proxy voting advice business issuing its advice and the registrant 
filing additional definitive proxy materials for 2017 and 2016 was 
4.5 (6.4) and 3 (5), respectively.
    \242\ The median (average) number of business days remaining 
until the shareholder meeting was to take place in 2017 and 2016 was 
5.5 (8.4) and 8 (12.8), respectively.
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    It may be the case that, as discussed above, some registrants 
expect a large percentage of proxies to be voted within a short period 
of time following the issuance of proxy voting advice.\243\ As a 
result, some registrants may not file additional definitive proxy 
materials if they do not have the resources to do so quickly or if they 
do not think the effort would have a meaningful impact on votes.\244\ 
This decision may deprive market participants of information that would 
reasonably be expected to affect a voting or investment decision.
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    \243\ See supra note 235.
    \244\ See supra note 236.
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C. Benefits and Costs

    We discuss the economic effects of the proposed amendments below. 
For both the benefits and the costs, we consider each piece of the 
proposed amendments in turn. The proposed amendments include: (1) 
Amendments to the definition of solicitation in Rule 14a-1(1); (2) 
conditioning availability of the exemptions in Rules 14a-2(b)(1) and 
(b)(3) on proxy voting advice businesses providing disclosure regarding 
conflicts of interest; (3) conditioning availability of those 
exemptions on proxy voting advice businesses providing registrants and 
certain soliciting persons the opportunity to review and respond to 
draft proxy voting advice, subject to the registrant or other 
soliciting persons filing definitive proxy statements at least 25 
calendar days (45 calendar days, if the longer review and response 
period is desired) before the relevant meeting; and (4) an amendment to 
the examples in Rule 14a-9 of disclosure that, if omitted from a proxy 
solicitation, may be misleading.
1. Benefits
    First, we are proposing to codify the Commission's interpretation 
that, as a general matter, proxy voting advice constitutes a 
solicitation within the meaning of the Exchange Act Rule 14a-1(l). 
Overall, we do not expect this proposed amendment to have a significant 
economic impact because it codifies an already-existing Commission 
interpretation. Nonetheless, at the margins, this proposed amendment 
may benefit proxy voting advice businesses and their clients to the 
extent that codifying this interpretation in the Commission's proxy 
rules provides more clear notice that Section 14(a) and the proxy rules 
apply to proxy voting advice. We also are proposing to amend Rule 14a-
1(l)(2) to clarify that the furnishing of proxy voting advice by 
certain persons would not be deemed a solicitation. Specifically, 
voting advice from a person who furnishes such advice only in response 
to an unprompted request for the advice would not be deemed a 
solicitation. Again, we do not expect this proposed amendment to have a 
significant economic impact because it codifies the Commission's 
longstanding view that such a communication should not be regarded as a 
solicitation subject to the proxy rules.
    Second, we are proposing to amend rule 14a-2(b) to make the 
availability of the exemptions in Rules 14a-2(b)(1) and (b)(3) for 
proxy voting advice businesses contingent on providing enhanced 
disclosure of conflicts of interest specifically tailored to proxy 
voting advice businesses and the nature of their services.\245\ The 
proposed conflicts of interest disclosures are intended to augment 
existing requirements by specifying detailed disclosures about 
conflicts of interest that must be provided in proxy voting advice. The 
disclosures provided under the proposed amendments would need to be 
sufficiently detailed so that clients of proxy voting advice businesses 
can understand the nature and scope of the interest, transaction, or 
relationship and assess the objectivity and reliability of the proxy 
voting advice they receive. In addition, proxy voting advice businesses 
would be required to disclose any policies and procedures used to 
identify, as well as the steps taken to address, any material conflicts 
of interest, whether actual or potential, arising from such 
relationships and transactions. The proposed amendments also would 
specify that the enhanced conflicts disclosures must be provided in the 
proxy voting advice and in any electronic medium used to deliver the 
advice.
---------------------------------------------------------------------------

    \245\ See supra note 84.
---------------------------------------------------------------------------

    The proposed amendments could benefit the clients of proxy voting 
advice businesses by enabling them to better assess the objectivity of 
the proxy voting advice businesses' advice against potentially 
competing interests. The proposed amendment could also benefit clients 
of proxy voting advice businesses because they would receive the same 
information about potential conflicts of interest, regardless of which 
exemption the proxy voting advice business relies upon for its proxy 
voting advice (currently, only proxy voting advice businesses relying 
on the 14a-2(b)(3) exemption are required to provide disclosure about 
conflicts of interest). Furthermore, the requirement

[[Page 66547]]

that conflicts of interest disclosures be included in the proxy 
advisor's voting advice could benefit clients of proxy voting advice 
businesses by making more standard the manner in which such information 
is disclosed and ensuring that the required disclosures receive due 
prominence and can be considered together with proxy voting advice at 
the time clients are making voting determinations. This may, in turn, 
make it easier or more efficient for such clients to review and analyze 
the conflicts disclosure. Disclosure of material conflicts of interest 
can lead to more informed decision making, and we anticipate that 
institutional investors would use information from disclosures of 
material conflicts of interest to make more informed voting decisions. 
Thus, to the extent they cause the clients of proxy voting advice 
businesses to make more informed voting decisions on investors' behalf, 
these disclosure requirements could also benefit investors. Further, 
these disclosures could make it easier and more efficient for clients 
that are investment advisers to evaluate and determine whether to 
retain proxy voting advice businesses, in order to ensure that the 
investment adviser discharges its fiduciary duty to cast votes in the 
best interest of its clients.
    As we discuss in Section II.B.1 above, we are aware that some proxy 
voting advice businesses have asserted that that they have practices 
and procedures that address conflict of interest concerns.\246\ Even 
where certain proxy voting advice businesses may provide detailed 
disclosure about conflicts of interest under existing practices, 
requiring this disclosure as a condition to the proxy rule exemptions 
would help to ensure that the disclosure is more consistent across the 
proxy voting advice provided by proxy voting advice businesses, and 
would provide users of that advice with ready and timely access to such 
disclosure in the proxy voting advice and in any electronic medium used 
to deliver the advice. We believe this would allow clients of proxy 
voting advice businesses to more efficiently access and assess the 
conflicts disclosure. We note, however, to the extent that proxy voting 
advice businesses currently provide information that meets or exceeds 
the proposed disclosure requirements, the benefits we describe above 
would be more limited.\247\
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    \246\ See supra note 76.
    \247\ See supra note 76.
---------------------------------------------------------------------------

    Third, the proposed amendments to Rule 14a-2(b)(9) would, subject 
to the registrant or other soliciting persons filing definitive proxy 
statements at least 25 calendar days (45 calendar days, if the longer 
review and response period is desired) before the relevant meeting, 
require that proxy voting advice be provided to registrants and other 
soliciting persons before it is disseminated to clients of proxy advice 
businesses, in order to allow such registrants and other soliciting 
persons an opportunity for their review and feedback. The proposed 
amendments also would require that a proxy voting advice business, upon 
request, include in its proxy voting advice a hyperlink or other 
analogous electronic medium that leads to the registrant's or other 
soliciting person's response to the advice. We believe the proposed 
amendments would benefit clients of proxy voting advice businesses--and 
thereby ultimately benefit the investors they serve--by enhancing the 
overall mix of information available to those clients as they assess 
voting recommendations and make determinations about how to cast votes. 
Providing a standardized opportunity for registrants and other 
soliciting persons to review and provide feedback could also help 
identify factual errors or methodological weaknesses in the proxy 
voting advice businesses' analysis that could undermine the reliability 
of their proxy voting recommendations. To the extent that proxy voting 
advice businesses refine their advice based on feedback from 
registrants and other soliciting persons, users of the advice and the 
investors they serve (if applicable) could benefit from more accurate 
and complete voting advice. Even where the proxy voting advice is not 
revised based on feedback received, clients of these businesses may 
still benefit from having ready and timely access to the registrant's 
and other soliciting person's perspective when considering the advice, 
such as where there are differing views about the proxy advisor's 
methodological approach or other differences of opinion that the 
registrant or other soliciting person believes are relevant to the 
voting advice. This is particularly true where, as may often be the 
case, clients of proxy voting advice businesses must make voting 
decisions in a compressed time period.
    The proposed amendments also could benefit registrants and other 
soliciting persons by providing them the opportunity to identify any 
factual errors or methodological weaknesses that may underlie relevant 
proxy voting advice before it is disseminated and potentially relied 
upon by clients to make voting determinations. Similarly, by providing 
registrants and other soliciting persons the opportunity to include 
within the advice a link to their response, these parties would be able 
to communicate their views at the same time as the views of the proxy 
voting advice business are presented and in a manner they deem most 
appropriate or effective. Taken together, these factors may give 
assurance to registrants and other soliciting persons that clients of 
proxy voting advice businesses have access to accurate and reliable 
information and to all views related to matters upon which they are 
asked to vote.
    As we discuss in Section III.B.2, some proxy voting advice 
businesses have internal policies and procedures aimed at enabling 
feedback from registrants before their voting advice is issued. To the 
extent that proxy voting advice businesses currently enable feedback 
from registrants, the benefits we describe above would be more limited. 
While some proxy voting advice businesses provide opportunities for 
review and feedback, these existing practices may be inadequate to 
address registrants' or other soliciting persons' concerns and ensure 
that those who make proxy voting decisions receive information that is 
complete and accurate in all material respects. In addition, it does 
not appear that proxy voting advice businesses currently provide all 
registrants and other soliciting persons with an opportunity to review 
proxy voting advice.\248\ The proposed requirements could benefit 
clients of proxy voting advice businesses by standardizing the review 
and feedback process so that all clients would benefit from changes 
that result from a registrant's feedback and also from the ability to 
access a registrant's response if the registrant chooses to provide 
one.
---------------------------------------------------------------------------

    \248\ See supra note 100.
---------------------------------------------------------------------------

    We note that the benefits described above also would be limited to 
the extent registrants already respond to proxy voting advice by filing 
additional definitive proxy materials and those additional definitive 
proxy materials are effective in informing voting determinations. As 
discussed above, however, due to timing considerations, it may be 
difficult for registrants or other soliciting persons to respond 
effectively to proxy voting advice by filing amended proxy 
materials.\249\ We also note that to the extent the 45 and 25 calendar 
day filing thresholds encourage registrants and other soliciting 
persons to file their definitive proxy statements earlier than they

[[Page 66548]]

otherwise would, this could benefit investors generally as they would 
have more time to review the materials and, as discussed below to help 
mitigate potential costs for proxy voting advice businesses.
---------------------------------------------------------------------------

    \249\ See supra Section III.B.2.
---------------------------------------------------------------------------

    Finally, we are proposing to amend Rule 14a-9 to add as an example 
of what could be misleading, if omitted, certain disclosures that are 
relevant to proxy voting advice, specifically disclosures related to 
the proxy voting advice business's methodology, sources of information, 
conflicts of interest or the use of standards that materially differ 
from relevant standards or requirements that the Commission sets or 
approves. There is a risk that, where such disclosures are omitted, 
clients of proxy voting advice businesses may make their voting 
determinations based on incomplete information regarding the basis of 
the proxy voting advice, or upon a misapprehension that a registrant is 
not in compliance with applicable laws or regulations.
    We do not expect the proposed amendment to the list of examples in 
Rule 14a-9 to significantly alter existing disclosure practices, as it 
would largely codify existing Commission guidance on the applicability 
of Rule 14a-9 to proxy voting advice.\250\ To the extent the proposed 
amendment prompts some proxy voting advice businesses to provide 
additional disclosure about the bases for their voting advice, the 
clients of these businesses--and the investors they serve--may benefit 
from receiving additional information that could aid in making voting 
determinations. For example, clients may benefit from more clarity 
about how proxy voting advice business standards or criteria differ 
from existing regulatory requirements. We note, however, that this 
benefit to clients of proxy voting advice businesses would be more 
limited to the extent the clients already are aware of, and incorporate 
in their consideration of proxy voting advice, existing regulatory 
requirements and understand how such requirements differ from the 
standards and criteria applied by proxy voting advice businesses.
---------------------------------------------------------------------------

    \250\ See Commission Interpretation on Proxy Voting Advice, 
supra note 19, at 11-13.
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2. Costs
    We expect that proxy voting advice businesses as well as 
registrants and other soliciting persons would incur direct costs as a 
result of the proposed amendments. We expect clients of proxy voting 
advice businesses and investors may incur indirect costs as well. In 
this section, we analyze these costs in terms of how the proposed 
amendments would change disclosure and engagement practices for proxy 
voting advice businesses relative to the baseline. We note that, to the 
extent that proxy voting advice businesses incur costs associated with 
the risk of a failure to comply with the proposed conditions, these 
costs may be mitigated by the proposed provision specifying that an 
immaterial or unintentional failure to comply with the new conditions 
would not result in a loss of the proxy rule exemptions. Further, to 
the extent that any of the proposed amendments impose direct costs on 
proxy voting advice businesses and to the extent those costs are passed 
along, the proposed amendments could create indirect costs for clients 
of proxy voting advice businesses, including investment advisers and 
other institutional investors, and the underlying investors they serve, 
if applicable.
    First, with respect to the proposed amendments to Rule 14a-1(l), we 
do not expect these amendments to have a significant economic impact 
because they codify already existing Commission interpretations and 
views about the applicability of the federal proxy rules to proxy 
voting advice.
    Second, the proposed conflicts of interest disclosure requirements 
would impose a direct cost on proxy voting advice businesses. For 
example, proxy voting advice businesses would bear any direct costs 
associated with: (i) Reviewing and preparing disclosures describing 
their conflicts; (ii) developing and maintaining methods for tracking 
their conflicts; (iii) seeking legal or other advice; and, (iv) 
updating their voting platforms. Proxy voting advisory businesses that 
are investment advisers are already required to identify conflicts and 
to eliminate or make full and fair disclosure of those conflicts.\251\ 
Further, proxy voting advisory businesses that are retained by 
investment advisers to assist them in discharging their proxy voting 
duties may already provide such conflicts disclosure in connection with 
the investment advisers' evaluation of the capacity and competency of 
the proxy voting advice business. We are unable to provide quantitative 
estimates of these direct costs on proxy voting advice businesses for 
three reasons. The facts and circumstances unique to each proxy voting 
advice business and the nature of its material interests, transactions, 
and relationships will dictate the disclosure it provides. In addition, 
as discussed in Section II.B.1 above, boilerplate language would not be 
sufficient to satisfy proposed Rule 14a-2(b)(9)(i). Under the rule, a 
proxy voting advice business would have to provide conflicts disclosure 
with enough specificity to enable its proxy advisory clients to 
adequately assess the objectivity and reliability of the proxy voting 
advice. As a result, the disclosure provided by the proxy voting advice 
business could differ depending on the circumstances (e.g., depending 
on the scope of services they provide their clients and the subject 
registrant) and be subject to change in the future as both the 
business's and its clients' interests change. Finally, proxy voting 
advice businesses' direct costs will depend on the extent to which 
their current practices and procedures would meet or exceed the 
proposed disclosure requirements.\252\
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    \251\ See Commission Interpretation Regarding Standard of 
Conduct for Investment Advisers, Release No. IA-5248 (June 5, 2019), 
84 FR 33669, at 33671 (July 12, 2019).
    \252\ See supra note 89. We solicit comment and data on the 
extent to which current proxy voting advice business practices and 
procedures would meet or exceed proposed disclosure requirements.
---------------------------------------------------------------------------

    Third, with respect to the proposed requirement that registrants 
and other soliciting persons be given an opportunity to review and 
provide feedback on the proxy voting advice and receive a final notice 
of voting advice, the business would bear direct costs. Specifically, 
such businesses would bear any direct costs associated with: (i) 
Modifying current systems, or developing and maintaining systems to 
track the timing associated with these new requirements; (ii) modifying 
current systems and methods, or developing and maintaining new systems 
and methods to share the proxy voting advice with registrants and other 
soliciting persons; and (iii) delivering draft voting advice to 
registrants and other soliciting persons for their review and feedback. 
While some proxy voting advice businesses may already have systems in 
place to address some or all of these mechanics,\253\ we are not able 
to estimate the costs associated with modifying or developing these 
systems and methods. To the extent proxy voting advice businesses 
already have similar systems in place, any additional direct

[[Page 66549]]

cost may be limited. Because we lack data on the extent to which proxy 
voting advice businesses already have similar systems in place, we are 
unable to quantify this potential cost.
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    \253\ See, e.g., Glass Lewis Letter, supra note 16, at 5-6 
(``Glass Lewis has a resource center on its website designed 
specifically for the issuer community via which public companies, 
their directors and advisors can, among other things: (i) Submit 
company filings or supplementary publicly available information; 
(ii) participate in Glass Lewis' Issuer Data Report (`IDR') program, 
prior to Glass Lewis completing and publishing its analysis to its 
investor clients; and (iii) report a purported factual error or 
omission in a research report, the receipt of which is acknowledged 
immediately by Glass Lewis, then reviewed, tracked and dealt with 
internally prior to responding to the company in a timely 
manner.'').
---------------------------------------------------------------------------

    The requirement to provide proxy voting advice to registrants and 
other soliciting persons for their review and feedback would increase 
the risk that commercially sensitive information about proxy voting 
advice may be disseminated more broadly. To mitigate this risk, the 
proposed amendments to Rule 14a-2(b)(9) would allow proxy voting advice 
businesses to require that registrants and other soliciting persons 
agree to keep the information confidential as a condition of receiving 
the proxy voting advice. We believe this provision would mitigate 
potential costs to proxy voting advice businesses by allowing them to 
maintain control over the dissemination of their proxy voting advice 
and minimize the risk of unintentional or unauthorized release.
    The proxy voting advice business may also incur costs associated 
with processing and considering the registrant's or other soliciting 
person's feedback and making determinations as to whether changes to 
the proxy voting advice are necessary or appropriate based on such 
feedback. Further, allowing registrants and other soliciting persons 
time to review and provide feedback on voting advice could delay when 
the businesses deliver their advice to clients. This may require proxy 
voting advice businesses to renegotiate their agreements with clients 
to the extent that proxy voting advice businesses may be contractually 
obligated to deliver their advice by specified dates. Alternatively, 
the proxy voting advice businesses may need to expend greater resources 
to ensure delivery by the date on which they would have delivered the 
advice in the absence of the requirement to allow registrants and other 
soliciting persons the opportunity to review and provide feedback on 
the proxy voting advice. These additional costs could be mitigated by 
the proxy voting advice business receiving more time than it otherwise 
would to review the definitive proxy statements as a result of the 
incentives created by the 45 calendar days and 25 calendar days filing 
thresholds in proposed Rule 14a-2(b)(9)(ii). We lack the data necessary 
to quantify this cost. Additionally, allowing a registrant or other 
soliciting person to review and provide feedback on the voting advice 
before the proxy voting advice business provides it to its clients 
could impact perceptions about the independence and objectivity of the 
advice.\254\ This, in turn, could affect the willingness of investment 
advisers and other clients to engage the services of proxy voting 
advice businesses. Although the feedback process may give users of the 
advice more confidence that it is accurate and informed by the issuer's 
review, this consultation process has been noted by some as possibly 
affecting the independence and objectivity of the advice. This possible 
concern may be limited by the fact that the proposed rules would not 
require proxy voting advice businesses to make changes to the voting 
advice based on a registrant's feedback. Proxy voting advisory 
businesses also may develop other practices and policies to assure 
clients of their independence from the registrant.
---------------------------------------------------------------------------

    \254\ See ISS Letter, supra note 9, at 11 (``Although we 
understand that some issuers believe they should have the right to 
review and object to every vote recommendation ISS makes--and in 
some cases, even interject their views into ISS proxy research 
reports--granting issuers such extreme influence over independent 
proxy advice would interfere with a proxy adviser's fiduciary 
responsibility to its clients, and hurt both investors and the 
integrity of the voting process.''); see also 2018 Roundtable 
Transcript, supra note 40, at 232 (comment of Gary Retelny) 
(``[M]any of our clients do not like us sharing our report with 
registrants prior to them seeing it. They want to be the first ones 
to see it. So there is a tension there between sharing the report 
itself with the registrant prior to sending it to the ones that 
actually pay for it. Right?''); Glass Lewis Letter, supra note 16, 
at 8 (``We believe that allowing an issuer to engage with us during 
the solicitation period may lead to discussions about the 
registrant's proxy, thereby providing registrants with an 
opportunity to lobby Glass Lewis for a change in policy or a 
specific recommendation against management. To ensure our research 
is always objective, Glass Lewis takes this added precaution and 
postpones any engagements until after the solicitation period has 
ended . . . .'').
---------------------------------------------------------------------------

    Registrants and other soliciting persons also would incur direct 
costs associated with coordinating with proxy voting advice businesses 
to receive the proxy voting advice, reviewing the proxy voting advice 
within a relatively compressed timeframe, and determining whether to 
offer feedback to the proxy voting advice business regarding factual or 
methodological issues or other matters pertaining to the proxy voting 
advice. Because the extent of the registrant or other soliciting 
person's engagement with the proxy voting advice business would depend 
upon the particular facts and circumstances of the proxy voting advice 
and any issues identified therein, as well as the resources of the 
registrant or other soliciting person, it is difficult to provide a 
quantifiable estimate of these costs.
    To the extent proxy voting advice businesses do not deliver their 
voting advice by the date on which they would have delivered the voting 
advice in the absence of the requirement to allow registrants and other 
soliciting persons the opportunity to review and provide feedback on 
the voting advice, clients of proxy voting advice businesses would 
incur an indirect cost in that they would have less time to consider 
the business's voting advice prior to the proxy vote. This cost may be 
mitigated, however, to the extent that the advice they do eventually 
receive would be based on more accurate, transparent, and complete 
information.
    If registrants and other soliciting persons choose to provide a 
statement regarding the proxy voting advice, registrants and other 
soliciting persons would incur costs of drafting a statement, providing 
a hyperlink (or other analogous electronic medium) to the proxy voting 
advice business, maintaining their statement online, and coordinating 
timing with proxy voting advice businesses for the filing of 
supplementary proxy materials.\255\ We do not have data with respect to 
these costs. The proxy voting advice business would also incur a direct 
cost of including that hyperlink or other analogous electronic 
mechanism. We believe this cost would be small.
---------------------------------------------------------------------------

    \255\ Registrants are not required to respond to proxy voting 
advice nor are required to request that a hyperlink or other 
analogous electronic means be included in the proxy. Presumably, 
registrants would respond to proxy voting advice only when they 
believe doing so would have a net beneficial effect for them.
---------------------------------------------------------------------------

    Finally, the proposed amendments to Rule 14a-9 may impose direct 
costs on proxy voting advice businesses to the extent the proposed 
amendment prompts some proxy voting advice businesses to provide 
additional disclosure about the bases for their voting advice. We 
expect any such costs to be minimal, especially given that most of the 
examples were already included in existing Commission guidance.\256\
---------------------------------------------------------------------------

    \256\ See supra notes 45, 51 and accompanying text.
---------------------------------------------------------------------------

D. Effects on Efficiency, Competition, and Capital Formation

1. Efficiency
    As discussed in Section II.B above, proxy voting advice businesses 
perform a variety of functions for their clients, including analyzing 
and making voting recommendations on matters presented for shareholder 
vote and included in registrants' proxy statements. As an alternative 
to utilizing these services, clients of proxy voting advice businesses 
could instead conduct their

[[Page 66550]]

own analysis and execute votes internally.\257\
---------------------------------------------------------------------------

    \257\ Clients of proxy voting advice businesses may also rely on 
some combination of internal and external analysis.
---------------------------------------------------------------------------

    We believe that, for purposes of general analysis, it is 
appropriate to assume that the cost of analyzing matters presented for 
shareholder vote would not vary significantly with the size of the 
position being voted. Given the costs of analyzing and voting proxies, 
the services offered by proxy voting advice businesses may offer 
economies of scale relative to their clients performing those functions 
themselves. For example, a GAO study found that among 31 institutional 
investors, large institutions rely less than small institutions on the 
research and recommendations offered by proxy voting advice 
businesses.\258\ Small institutional investors surveyed in the study 
indicated they had limited resources to conduct their own 
research.\259\
---------------------------------------------------------------------------

    \258\ See 2007 GAO Report, supra note 9, at 2.
    \259\ Id.
---------------------------------------------------------------------------

    By establishing requirements that promote accuracy and transparency 
in proxy voting advice, the proposed amendments could lead to an 
increased demand for voting advice from proxy voting advice businesses. 
To the extent proxy voting advice businesses offer economies of scale 
relative to their clients performing certain functions themselves, 
increased demand for, and reliance upon, proxy voting advice business 
services could lead to greater efficiencies in the proxy voting 
process. At the same time, as discussed above and below, the proposed 
amendments would impose certain additional costs on proxy voting advice 
businesses. As discussed above, these costs to proxy voting advice 
businesses could reduce compliance costs for their clients. To the 
extent these costs are greater than the related benefits (or vice 
versa) it could lead to decreased (or increased) demand for proxy 
voting advice business services, and there would be fewer (or more) 
efficiencies in the proxy voting process.
2. Competition
    As noted above, the proposed amendment could lead to increased 
demand for proxy voting advice business services. Increased demand for 
their services could, in turn, lead to increased competition among 
proxy voting advice businesses to meet that increased demand. 
Alternatively, the increased demand for advisory services could lead to 
an increase in the number of proxy voting advice businesses in the 
marketplace, also leading to an increase in competition among proxy 
voting advice businesses.
    In addition to potentially increasing demand for voting advice from 
proxy voting advice businesses by establishing requirements that 
promote accuracy and transparency in proxy voting advice, the 
requirements that promote accuracy and transparency in proxy voting 
advice could stimulate competition among proxy voting advice businesses 
with respect to the quality of advice. In particular, clients of proxy 
voting advice businesses may be better able to assess conflicts and the 
accuracy of advice, which could, in turn, cause proxy voting advice 
businesses to compete more on those dimensions.\260\
---------------------------------------------------------------------------

    \260\ Because disclosure under the proposed amendment occurs 
within the context of private business relationships rather than 
being public disclosure, this effect on competition is limited to 
the extent proxy voting advice business clients would use more than 
one proxy voting advice business.
---------------------------------------------------------------------------

    It is also possible, however, that the proposed amendments could 
have the opposite effect on competition. The proposed amendments would 
cause proxy voting advice businesses to incur certain additional 
compliance costs as discussed in Section II.C.2 above that may or may 
not be offset by a reduction in compliance costs for their clients. It 
is difficult to predict how those costs and benefits would be shared 
among, or between, proxy voting advice businesses and their clients. If 
costs borne by proxy voting advice businesses are large enough to cause 
some businesses to exit the market or potential entrants to stay out of 
the market, the proposed rules could decrease competition. 
Alternatively, if proxy voting advice businesses do try to pass along 
the costs, or some component thereof, to their clients, it is possible 
that those costs would be large enough to cause some clients to develop 
internal functions to assist with proxy voting responsibilities, 
thereby reducing demand for, and potentially competition among, proxy 
voting advice businesses.
    Additionally, it is possible that given certain industry practices, 
the increase in costs could affect proxy voting advice businesses 
differently. For example, we understand that the two largest proxy 
voting advice businesses, ISS and Glass Lewis, have processes in place 
for disclosing certain aspects of their analysis to certain registrants 
prior to making a recommendation to clients. It is possible that the 
costs associated with the proposed amendments could affect certain 
other proxy voting advice businesses more significantly than ISS and 
Glass Lewis.\261\ A differential effect on costs across proxy voting 
advice businesses could, in turn, affect competition within the proxy 
advisory industry. Further, to the extent the costs associated with the 
proposed amendments would disproportionately affect proxy voting advice 
businesses other than ISS and Glass Lewis, the proposed amendments 
could lead to a reduction in competition among proxy voting advice 
businesses.\262\
---------------------------------------------------------------------------

    \261\ We note that one proxy voting advice business commenter 
recommended rulemaking that would provide registrants with a process 
by which they could appeal a proxy voting advice business's voting 
advice. See Letter from Saul Grossel, COO, Egan-Jones (Nov. 14, 
2018), at 2. In particular, the commenter recommended that, 
``issuers should be given the opportunity to review a draft copy of 
reports prior to their release. Id. If issuers disagree with the 
analysis and/or recommendations of the proxy advisor, they should be 
provided the opportunity to state their dissent.'' Id. The fact that 
a proxy voting advice business other than Glass Lewis or ISS 
recommended that registrants should be offered the opportunity to 
review and provide feedback on proxy voting advice may suggest that 
the costs associated with the review and feedback process would not 
disproportionately affect certain proxy voting advice businesses.
    \262\ The 2007 GAO Report addresses several issues related to 
the proxy voting advice industry, including a lack of competition 
within the industry. See 2007 GAO Report, supra note 9, at 13-14 
(``[P]roxy advisory firms must offer comprehensive coverage of 
corporate proxies and implement sophisticated technology to attract 
clients and compete. For instance, institutional investors often 
hold shares in thousands of different corporations and may not be 
interested in subscribing to proxy advisory firms that provide 
research and voting recommendations on a limited portion of these 
holdings. As a result, proxy advisory firms need to provide thorough 
coverage of institutional holdings, and unless they offer 
comprehensive services from the beginning of their operations, they 
may have difficulty attracting clients. . . . The initial investment 
required to develop and implement such technology can be a 
significant expense for firms.'').
---------------------------------------------------------------------------

3. Capital Formation
    In facilitating the ability of clients of proxy voting advice 
businesses to make informed voting determinations, the proposed 
amendments could ultimately lead to improved investment outcomes for 
investors. This in turn could lead to a greater allocation of resources 
to investment. To the extent that the proposed amendments lead to more 
investment, we could expect greater demand for securities, which could, 
in turn, promote capital formation. Additionally, more accurate 
information may improve the efficient allocation of capital. However, 
given the many factors that can influence the rate of capital 
formation, any effect of the proposed amendments on capital formation 
is expected to be small.

[[Page 66551]]

E. Reasonable Alternatives

1. Require Proxy Voting Advice Businesses To Include Full Registrant 
Response in the Businesses' Voting Advice
    Rather than including a hyperlink or any other analogous electronic 
medium directing the recipient of the advice to a written statement 
prepared by the registrant or other soliciting person, we could require 
proxy voting advice businesses to include a full response in the voting 
advice these businesses provide to their clients. Including a 
registrant's full response in the voting advice would benefit clients 
of proxy voting advice businesses by allowing them to avoid the 
additional step of ``clicking through'' to the response. Including a 
full response in the voting advice provided by proxy voting advice 
businesses also could benefit registrants and other soliciting persons 
by having their responses more prominently displayed, depending on 
where in the advice the response is included.
    However, requiring inclusion of the registrant's full response in 
the voting advice provided by proxy voting advice businesses could 
disrupt the ability of such businesses to effectively design and 
prepare their reports in the manner that they and their clients prefer. 
Also, registrants would lose the flexibility to present their views in 
the manner they deem most appropriate or effective.
2. Different Timing for, or Number of, Reviews
    The proposed amendments require a five or three business day review 
and feedback period depending on how many days before the shareholder 
meeting the registrant files its definitive proxy statement. 
Alternatively, we could propose a shorter or longer period. A shorter 
period could hamper the ability of registrants and other soliciting 
persons to engage meaningfully with proxy voting advice businesses 
regarding their advice, whereas a longer period could disrupt the 
ability of proxy voting advice businesses to deliver their voting 
advice to clients in a timely fashion. The proposed period reflects a 
balancing of the ability of registrants and other soliciting persons 
covered by proxy voting advice to review and provide feedback on the 
advice before it is disseminated to the business's clients and the 
challenges typically faced by proxy voting advice businesses to prepare 
and deliver their voting advice to clients within very narrow 
timeframes. We believe the proposed timeframes for registrants and 
other soliciting persons to review and provide feedback on proxy voting 
advice strike an appropriate balance between those two competing 
considerations.
    Also, the proposed amendments would require that a final notice of 
proxy voting advice be provided to allow registrants and other 
soliciting persons two business days to determine whether to provide a 
statement in response to the proxy advice and request that a hyperlink 
to the statement be included in the proxy voting advice. Alternatively, 
we could require that only the review and feedback period be provided, 
with no subsequent final notice of voting advice. Providing only the 
review and feedback period would reduce the potential disruptions for 
proxy voting advice businesses associated with the proposed engagement 
procedures. However, limiting registrants and other soliciting persons 
to the review and feedback period, with no subsequent final notice of 
voting advice also would make it difficult for them to know whether 
proxy voting advice businesses had incorporated their feedback prior to 
disseminating their proxy voting advice to clients. The ability for 
registrants and other soliciting persons to prepare a timely and 
accurate response and to include in a hyperlink (or other analogous 
electronic medium) also would be limited.
3. Public Disclosure of Conflicts of Interest
    The proposed amendments require that proxy voting advice businesses 
include in their advice (and in any electronic medium used to deliver 
the advice) certain conflicts of interest disclosures. We could require 
that those conflicts of interest disclosures be made publicly rather 
than just to clients. Public disclosure of proxy voting advice 
businesses' conflicts of interest could allow beneficial owners to 
assess the conflicts for themselves. While there may be some benefit to 
beneficial owners from having access to this information, this benefit 
may be limited given that many beneficial owners have delegated 
investment management functions to others in the first place and thus 
would not be receiving the advice.
4. Require Additional Mandatory Disclosures in Proxy Voting Advice
    In addition to requiring the proposed conflicts of interest 
disclosures, we could require that proxy voting advice businesses 
include in their proxy voting advice additional disclosures, such as 
disclosure regarding the proxy voting advice business's methodology, 
sources of information, or disclosures regarding the use of standards 
that materially differ from relevant standards or requirements that the 
Commission sets or approves. Proxy voting advice businesses' clients 
may benefit from having consistent disclosure on such matters as they 
assess the voting advice and make decisions regarding their utilization 
of the voting advice. However, such disclosures may not be material or 
necessary to assess proxy voting advice in all instances, and would 
result in increased costs to proxy voting advice businesses. Certain 
information may also comprise proprietary information, disclosure of 
which, depending on the degree required, may result in competitive 
consequences to proxy advisory firm businesses. In light of these 
considerations, the proposed rules would not require such disclosures 
in all instances. However, we have requested comment on whether these 
or other disclosures should be required as a condition to reliance on 
Rue 14a-2(b)(1) or (3) by proxy voting advice businesses.
5. Require Disabling of Pre-Populated and Automatic Voting Mechanisms
    The proposed amendments do not condition the availability of the 
Rules 14a-2(b)(1) and 14a-2(b)(3) exemptions on a proxy voting advice 
business structuring its voting platform to disable the automatic 
submission of votes in instances where a registrant has submitted a 
response to the voting advice. Alternatively, we could require such a 
condition. Or, we could require proxy voting advice businesses to 
disable the automatic submission of votes unless a client of a proxy 
voting advice business clicks on the hyperlink and/or accesses the 
registrant's (or certain other soliciting persons') response, if one 
has been provided. Another alternative would be to require that the 
proxy voting advice business refrain from pre-populating voting choices 
for clients once a registrant or other soliciting person has submitted 
a response.
    Disabling pre-populated or automatic submission of votes where 
registrants or other soliciting persons have submitted responses to 
voting advice could benefit these parties to the extent that it 
increases the likelihood that clients of proxy voting advice businesses 
would review their responses. At the same time, disabling these 
functions could increase costs for proxy voting advice businesses and 
increase the burdens on their clients by requiring those clients to 
devote greater resources to managing the voting process, which may in 
turn also reduce the value of the services of the proxy voting advice 
businesses.

[[Page 66552]]

Alternatively, clients of proxy voting advice businesses may choose not 
to vote, which could make it difficult for registrants to meet quorum 
requirements for their shareholder meetings and cause delays for 
companies and shareholders.
6. Exempt Smaller Proxy Voting Advice Businesses From the Additional 
Conditions to the Exemptions
    As discussed in Section III.C.2, it is possible that given certain 
industry practices, increases in costs resulting from the proposed 
amendments may be different for certain proxy voting advice businesses. 
For example, ISS and Glass Lewis have processes in place for disclosing 
certain aspects of their analysis to certain registrants prior to 
making a recommendation to clients. However, the remaining three proxy 
voting advice businesses, all of which are smaller than ISS and Glass 
Lewis, to our knowledge do not have such processes in place. It is 
possible, then, that the costs associated with the proposed amendments 
could affect those smaller proxy voting advice businesses more than ISS 
and Glass Lewis. To the extent the costs associated with the proposed 
amendments would disproportionately affect proxy voting advice 
businesses other than ISS and Glass Lewis, the proposed amendments 
could lead to a reduction in competition among proxy voting advice 
businesses.
    As a means of addressing the potential adverse effect on 
competition among proxy voting advice businesses, we could exempt 
smaller proxy voting advice businesses from the additional conditions 
to the exemptions in Rules 14a-2(b)(1) and 14a-2(b)(3). Although 
exempting smaller proxy voting advice businesses from the additional 
conditions would reduce the cost of the proposed amendments for such 
businesses, it also would mean that their clients would not realize the 
same benefits in terms of potential improvements in the reliability and 
transparency of the voting advice they receive. This, in turn, could 
put smaller proxy voting advice businesses at a competitive 
disadvantage.
Request for Comment
    Throughout this release, we have discussed the anticipated economic 
effects of the proposed amendments, including their benefits and costs 
and potential effects on efficiency, competition, and capital 
formation. We have used the data currently available in considering the 
effects of the proposed amendments. We request comment on all aspects 
of this initial economic analysis, including on whether the analysis 
has: (1) Identified all benefits and costs, including all effects on 
efficiency, competition, and capital formation; (2) given due 
consideration to each benefit and cost, including each effect on 
efficiency, competition, and capital formation; and (3) identified and 
considered reasonable alternatives to the proposed amendments.
    We request and encourage any interested person to submit comments 
regarding the proposed amendments, our analysis of the potential 
effects of the proposed amendments and other matters that may have an 
effect on the proposed amendments. We request that commenters identify 
sources of data and information with respect to proxy voting in 
general, and the use of proxy voting advice businesses in particular, 
as well as provide data and information to assist us in analyzing the 
economic consequences of the proposed amendments. We are also 
interested in comments on the qualitative benefits and costs we have 
identified and any benefits and costs we may have overlooked. We urge 
commenters to be as specific as possible.
    Comments on the following questions are of particular interest.
     Have we correctly characterized the demand for the 
services of proxy voting advice businesses? What alternatives are 
available, if any, to the advice of proxy voting advice businesses?
     To what extent would the benefits of more reliable and 
complete voting advice being provided to investment advisers and other 
clients of proxy voting advice businesses benefit investors? Please 
provide supportive data to the extent available.
     The benefits of the proposed amendments for institutional 
investors and their clients are linked to the extent to which current 
practices of proxy voting advice businesses would meet the requirements 
of the proposed conditions. Have we correctly characterized the extent 
to which the current practices of proxy voting advice businesses would 
meet such requirements?
     We discuss the possibility that proxy voting advice 
businesses could attempt to mitigate the delay in delivering advice to 
clients caused by registrant and other soliciting persons' review by 
committing additional resources to producing proxy voting advice 
earlier than they do currently. Would proxy voting advice businesses 
take these steps? How costly would it be for proxy voting advice 
businesses to produce proxy voting advice faster than they do 
currently? Please provide supportive data to the extent available.
     We expect that the costs of the proposed review and 
feedback period and final notice of voting advice would be lower for 
proxy voting advice businesses that currently provide registrants with 
a mechanism for reviewing draft documents prior to proxy voting advice 
businesses issuing final drafts to their clients. Are we correct in 
that characterization? If other proxy voting advice businesses would be 
disproportionately affected, to what extent, and how would such effects 
manifest? What, if any, additional measures could help mitigate any 
such disproportionate effects? Please provide supportive data to the 
extent available.
     To what extent might the increased burdens to proxy voting 
advice businesses to comply with the proposed conditions be borne by 
proxy voting advice businesses clients?
     In response to the Commission's recent releases on proxy 
voting responsibilities and proxy voting advice, one commenter argued 
that the Commission's interpretation and guidance \263\ would likely 
create substantially increased costs and unnecessary burdens on the 
process by which proxy voting advice businesses render their 
advice.\264\ According to that commenter, proxy voting advice 
businesses would face increased litigation, staffing and insurance 
costs that could be passed on to their institutional investor clients 
and their underlying retail clients. Would these concerns similarly 
apply to aspects of the proposed amendments, or is this concern 
overstated in that the aspects of the interpretation and guidance that 
are encompassed in the proposed amendments reflect current legal 
obligations regarding solicitation activities?
---------------------------------------------------------------------------

    \263\ See Commission Guidance on Proxy Voting Responsibilities, 
supra note 9; Commission Interpretation on Proxy Voting Advice, 
supra note 19.
    \264\ See Letter from Kenneth A. Bertsch, Executive Director, 
Council of Institutional Investors (Oct. 24, 2019), at 3.
---------------------------------------------------------------------------

     If registrants and other soliciting persons choose to 
provide a statement regarding the proxy voting advice, registrants and 
other soliciting persons would incur costs of drafting a statement, 
providing a hyperlink (or other analogous electronic medium) to the 
proxy voting advice business, maintaining their statement online, and 
coordinating timing with proxy voting advice businesses for the filing 
of supplementary proxy materials. Please provide data with respect to 
these costs.
     To what extent do investors change their votes? To what 
extent do investors change their votes in response to a registrant 
filing additional definitive

[[Page 66553]]

proxy materials? Please provide supportive data to the extent 
available.

IV. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules, schedules, and forms that would be 
affected by the proposed amendments contain ``collection of 
information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\265\ We are submitting the proposed 
amendments to the Office of Management and Budget (``OMB'') for review 
in accordance with the PRA.\266\ The hours and costs associated with 
maintaining, disclosing, or providing the information required by the 
proposed amendments constitute paperwork burdens imposed by such 
collection of information. An agency may not conduct or sponsor, and a 
person is not required to comply with, a collection of information 
unless it displays a currently valid OMB control number. The title for 
the affected collection of information is: ``Regulation 14A (Commission 
Rules 14a-1 through 14a-21 and Schedule 14A)'' (OMB Control No. 3235-
0059).
---------------------------------------------------------------------------

    \265\ 44 U.S.C. 3501 et seq.
    \266\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    We adopted existing Regulation 14A \267\ pursuant to the Exchange 
Act. Regulation 14A and its related schedules set forth the disclosure 
and other requirements for proxy statements, as well as the exemptions 
therefrom, filed by registrants and other soliciting persons to help 
investors make informed voting decisions.\268\ A detailed description 
of the proposed amendments, including the need for the information and 
its proposed use, as well as a description of the likely respondents, 
can be found in Section II above, and a discussion of the expected 
economic effects of the proposed amendments can be found in Section III 
above.
---------------------------------------------------------------------------

    \267\ 17 CFR 240.14a-1 et seq.
    \268\ To the extent that a person or entity incurs a burden 
imposed by Regulation 14A, it is encompassed within the collection 
of information estimates for Regulation 14A. This includes 
registrants and other soliciting persons preparing, filing, 
processing and circulating their definitive proxy and information 
statements and additional soliciting materials, as well as the 
efforts of third parties such as proxy voting advice businesses 
whose voting advice falls within the ambit of the federal rules and 
regulations that govern proxy solicitations.
---------------------------------------------------------------------------

B. Incremental and Aggregate Burden and Cost Estimates for the Proposed 
Amendments

    Below we estimate the incremental and aggregate effect on paperwork 
burden as a result of the proposed amendments. These estimates 
represent the average burden for all respondents, both large and small. 
In deriving our estimates, we recognize that the burdens would likely 
vary among individual respondents based on a number of factors, 
including the nature and conduct of their business. Compliance with the 
proposed amendments would be mandatory for proxy voting advice 
businesses relying on the exemptions in Rules 14a-2(b)(1) or (b)(3). 
Utilization of the procedures specified in proposed Rule 14a-
2(b)(9)(iii) would be voluntary for registrants and other soliciting 
persons. Information maintained, disclosed, or provided in connection 
with the proposed amendments may be subject to confidentiality 
agreements between the proxy voting advice businesses and any 
soliciting persons that choose to take advantage of the proposed 
procedures. There is no specified retention period for any information 
maintained, disclosed, or provided pursuant to the proposed amendments.
    We believe that the proposed amendments would increase the number 
of responses to the existing collection of information for Regulation 
14A. Although we do not expect registrants and other eligible 
soliciting persons to file any different number of proxy statements as 
a result of our amendments, we do anticipate that the number of 
additional soliciting materials filed under Rule 14a-12 may increase in 
proportion to the number of times that registrants and other soliciting 
persons choose to provide a statement in response to a proxy voting 
advice business's proxy voting advice under proposed Rule 14a-
2(b)(9)(iii). For purposes of this PRA, we estimate that there would be 
an additional 174 annual responses to the collection of information as 
a result of the proposed amendments.\269\
---------------------------------------------------------------------------

    \269\ See supra notes 141, 142 and the accompanying discussion 
in the release. Because a registrant's or other soliciting person's 
decision to utilize proposed Rule 14a-2(b)(9)(iii) will be entirely 
voluntary, it is difficult to predict how frequently such parties 
will choose to avail themselves of this provision and prepare a 
response to proxy voting advice. For purposes of this PRA estimate, 
we use as our baseline the number of times firms filed additional 
definitive proxy materials in response to proxy voting advice in 
calendar years 2016 (99), 2017 (77) and 2018 (84), discussed in 
Section III.B.2 infra and reflected in Table 2 in that section. We 
then assume, given the relative convenience of the hyperlink 
mechanism in proposed Rule 14a-2(b)(9)(iii) and the opportunity to 
reach shareholders before their votes are cast, that a greater 
number of registrants and soliciting persons would utilize proposed 
Rule 14a-2(b)(9)(iii) than have historically filed additional 
soliciting materials. For purposes of this PRA analysis, we estimate 
that at least three times as many registrants and other soliciting 
persons will choose to prepare responses to proxy voting advice and 
request that their hyperlink be provided to the recipients of the 
advice pursuant to proposed Rule 14a-2(b)(9)(iii) than otherwise 
would choose to file additional soliciting materials. As a result, 
we would expect that three times as many required filings under Rule 
14a-12 would be made. Taking the average of the Rule 14a-12 filings 
made in years 2016, 2017, 2018 (87), we multiply by a factor of 
three (300%) for an estimate of 261 Rule 14a-12 filings, or an 
increase of 174 annual responses to the Regulation 14A collection of 
information.
---------------------------------------------------------------------------

    In addition to an increase in the number of annual responses, we 
expect that the proposed amendments would change the estimated burden 
per response. The burden estimates were calculated by estimating the 
number of parties we anticipate would expend time, effort, and/or 
financial resources to generate, maintain, retain, disclose or provide 
information in connection with the proposed amendments and then 
multiplying by the estimated amount of time, on average, such parties 
would devote in response to the proposed amendments. The following 
table summarizes the calculations and assumptions used to derive our 
estimates of the aggregate increase in burden corresponding to the 
proposed amendments.

           PRA Table 1--Calculation of Increase in Burden Hours Resulting From the Proposed Amendments
----------------------------------------------------------------------------------------------------------------
                                                                                 Affected parties
                                                                 -----------------------------------------------
                                                                   Proxy voting                        Other
                                                                      advice        Registrants     soliciting
                                                                    businesses                        persons
                                                                             (A)             (B)             (C)
----------------------------------------------------------------------------------------------------------------
Number of Respondents...........................................           \a\ 5       \b\ 1,897          \c\ 32
Burden Increase: Hours Per Respondent...........................         \d\ 500          \e\ 10          \e\ 10

[[Page 66554]]

 
Column Total \f\................................................           2,500          18,970             320
                                                                 -----------------------------------------------
Aggregate Increase in Burden Hours..............................  [Column A] + [Column B] + [Column C] = 21,790.
----------------------------------------------------------------------------------------------------------------
\a\ Represents the estimated number of proxy voting advice businesses that would be subject to the proposed
  amendments to Rule 14a-2(b). We are aware only of five such businesses at this time.
\b\ Using 5,690 registrants that filed proxy materials with the Commission during calendar year 2018 as the
  upper bound (see Section III.B.1.c. and note 222 supra), we estimate that an average of one-third, or
  approximately 1,897, would be the subject of proxy voting advice each year, and therefore impacted by the
  proposed amendments to Rule 14a-2(b).
\c\ See supra Section III.B.1.c. & note 224. According to our estimates, 95 other soliciting persons filed proxy
  materials with the Commission during calendar year 2018. Because it is unlikely that all 95 solicitations were
  the subject of proxy voting advice, we have assumed for purposes of this analysis that only one-third, or
  approximately 32, should be considered in our calculation of aggregate burden.
\d\ This estimate, which is an average of the burden expected to be incurred by each proxy voting advice
  business, is intended to be inclusive of all burdens reasonably anticipated to be associated with the
  business's compliance with the conditions of proposed Rule 14a-2(b)(9), including, for example, identification
  and preparation of disclosure concerning conflicts of interest required by proposed Rule 14a-2(b)(9)(i) and
  communication with registrants and other eligible soliciting persons. Our assumption is that the burden would
  be greatest in the first year after adoption, as the businesses incorporate the new requirements into their
  existing practices and procedures. We estimate that the burden would be 1,000 hours in the first year and 250
  hours in each of the following years for a three-year average of 500 burden hours.
\e\ In addition to proxy voting advice businesses, we anticipate that registrants and other soliciting persons
  would incur some additional paperwork burden as a result of the proposed amendments. For example, if they
  choose to respond to the proxy voting advice,\270\ these parties would likely incur some burden in preparing
  and communicating their responses. Nevertheless, we do not anticipate the corresponding burden would be
  significant in most cases, particularly when averaged among all affected parties. Therefore, we have estimated
  that registrants and other soliciting persons would each incur, on average, an increase of ten additional
  burden hours each year.
\f\ Derived by multiplying the number of respondents in each column by either the burden per response or the
  estimated aggregate burden increase, whichever was applicable.

    The table below illustrates the incremental change to the total 
annual compliance burden in hours and in costs\271\ as a result of the 
proposed amendments. The table sets forth the percentage estimates we 
typically use for the burden allocation for each response.
---------------------------------------------------------------------------

    \270\ See supra note 255.
    \271\ Our estimates assume that 75% of the burden is borne by 
the company and 25% is borne by outside counsel at $400 per hour. We 
recognize that the costs of retaining outside professionals may vary 
depending on the nature of the professional services, but for 
purposes of this PRA analysis, we estimate that such costs would be 
an average of $400 per hour. This estimate is based on consultations 
with several registrants, law firms, and other persons who regularly 
assist registrants in preparing and filing reports with the 
Commission.

           PRA Table 2--Calculation of Increase in Burden Hours Resulting From the Proposed Amendments
----------------------------------------------------------------------------------------------------------------
   Number of     Total  increase      Increase in
   estimated        in  burden     burden hours  per      Increase in         Increase in         Increase in
   responses          hours            response         internal hours    professional hours  professional costs
(A) [dagger]                (B)                   (C) =(D) = (B) x 0.75    (E) = (B) x 0.25    (F) = (E) x $400
                 [dagger][dagger
                              ]
----------------------------------------------------------------------------------------------------------------
         5,760           21,790                 4.0              16,478               5,493          $2,197,200
                                  [dagger][dagger][d
                                             agger]
----------------------------------------------------------------------------------------------------------------
[dagger] This number reflects an estimated increase of 174 annual responses to the existing Regulation 14A
  collection of information. See supra note 269. The current OMB PRA inventory estimates that 5,586 responses
  are filed annually.
[dagger][dagger] Calculated as the sum of annual burden increases estimated for proxy voting advice businesses
  (2,500 hours), registrants (18,970 hours), and other soliciting persons (320 hours). See supra PRA Table 1.
[dagger][dagger][dagger] The estimated increases in Columns (C), (D), and (E) are rounded to the nearest whole
  number.

    Finally, the table that follows summarizes the requested paperwork 
burden that will be submitted to OMB for review in accordance with the 
PRA, including the estimated total reporting burdens and costs, under 
the proposed amendments.

                                                              PRA Table 3--Requested Paperwork Burden Under the Proposed Amendments
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                               Current burden                            Program change                                     Revised burden
                                                 -----------------------------------------------------------------------------------------------------------------------------------------------
                                                    Current      Current                     Number of   Increase in    Increase in
                                                     annual       burden     Current cost     affected     internal    professional    Annual responses      Burden hours         Cost burden
                                                   responses      hours         burden       responses      hours          costs
                                                         (A)          (B)               (C) (D)    minus>    minus>
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Reg. 14A........................................       5,586      551,101     $73,480,012        5,760       16,478      $2,197,200               5,760             567,579         $75,677,212
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 From Column (A) in PRA Table 2.
 From Column (D) in PRA Table 2.
 From Column (F) in PRA Table 2.


[[Page 66555]]

    Given the number of variables that are highly specific to the 
unique circumstances of each proxy voting advice business, the matter 
for which they have been engaged to provide advice, and the course of 
that engagement, our ability to predict the magnitude of corresponding 
costs and burdens with any precision is limited. Therefore, we 
encourage public commenters to consider our assessment and provide 
additional information and, where available, data that would be helpful 
in deriving our estimates for purposes of the Paperwork Reduction Act.
Request for Comment
    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order 
to:
     Evaluate whether the proposed collections of information 
are necessary for the proper performance of the functions of the 
Commission, including whether the information would have practical 
utility;
     Evaluate the accuracy and assumptions and estimates of the 
burden of the proposed collection of information;
     Determine whether there are ways to enhance the quality, 
utility, and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of 
the collection of information on those who respond, including through 
the use of automated collection techniques or other forms of 
information technology; and
     Evaluate whether the proposed amendments would have any 
effects on any other collection of information not previously 
identified in this section.
    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
these burdens. Persons submitting comments on the collection of 
information requirements should direct their comments to the Office of 
Management and Budget, Attention: Desk Officer for the U.S. Securities 
and Exchange Commission, Office of Information and Regulatory Affairs, 
Washington, DC 20503, and send a copy to, Vanessa A. Countryman, 
Secretary, U.S. Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549-1090, with reference to File No. S7-22-19. 
Requests for materials submitted to OMB by the Commission with regard 
to the collection of information should be in writing, refer to File 
No. S7-22-19 and be submitted to the U.S. Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 
20549-2736. OMB is required to make a decision concerning the 
collection of information between 30 and 60 days after publication of 
this proposed rule. Consequently, a comment to OMB is best assured of 
having its full effect if the OMB receives it within 30 days of 
publication.

V. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\272\ the Commission must advise OMB as to 
whether the proposed amendments constitute a ``major'' rule. Under 
SBREFA, a rule is considered ``major'' where, if adopted, it results or 
is likely to result in:
---------------------------------------------------------------------------

    \272\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

     An annual effect on the U.S. economy of $100 million or 
more (either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment, or 
innovation.
    We request comment on whether the proposed amendments would be a 
``major rule'' for purposes of SBREFA. In particular, we request 
comment on the potential effect of the proposed amendments on the U.S. 
economy on an annual basis; any potential increase in costs or prices 
for consumers or individual industries; and any potential effect on 
competition, investment or innovation. Commenters are requested to 
provide empirical data and other factual support for their views to the 
extent possible.

VI. Initial Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (``RFA'') \273\ requires the 
Commission, in promulgating rules under Section 553 of the 
Administrative Procedure Act, to consider the impact of those rules on 
small entities. The Commission has prepared this Initial Regulatory 
Flexibility Analysis (``IRFA'') in accordance with Section 603 of the 
RFA.\274\ It relates to the proposed amendments to: The proxy 
solicitation exemptions in Rule 14a-2(b); the definition of 
``solicitation'' in Rule 14a-1(l); and the prohibition on false or 
misleading statements in solicitations in Rule 14a-9 of Regulation 14A 
under the Exchange Act.
---------------------------------------------------------------------------

    \273\ 5 U.S.C. 601 et seq.
    \274\ 5 U.S.C. 603.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, the Proposed Action

    The purpose of the proposed amendments to Rule 14a-2(b) is to help 
ensure that investors who rely on the advice of proxy voting advice 
businesses receive more accurate, transparent, and complete information 
on which to make their voting decisions, in a manner that does not 
impose undue costs or delays that could adversely affect the timely 
provision of proxy voting advice. The proposed amendments are designed 
to enhance the accuracy and reliability of the proxy voting advice 
available to investors at the time they are casting votes, as well as 
disclosures about any interests or relationships that may have 
materially affected the voting advice. In addition, the proposed 
amendment to Rule 14a-1(l) would codify the Commission's interpretation 
that, as a general matter, proxy voting advice constitutes a 
solicitation subject to the federal proxy rules, which would provide 
more clear notice of the applicability of the protections afforded 
under these rules to those who receive proxy voting advice from persons 
marketing their expertise as a provider of such advice, separately from 
other forms of investment advice, and sell such advice for a fee. 
Finally, the proposed amendment to Rule 14a-9 would amend the list of 
examples of what may be misleading within the meaning of the rule in 
order to help ensure that the recipients of proxy voting advice are 
provided the information they need to make fully informed decisions and 
to clarify the potential implications of Rule 14a-9. The reasons for, 
and objectives of, these proposed amendments are discussed in more 
detail in Sections I and II above.

B. Legal Basis

    We are proposing the rule and form amendments contained in this 
document under the authority set forth in Sections 3(b), 14, 16, 23(a), 
and 36 of the Securities Exchange Act of 1934, as amended.

C. Small Entities Subject to the Proposed Rules

    The proposed amendments are likely to affect some small entities; 
specifically, those small entities that are either: (i) Proxy voting 
advice businesses (i.e., persons who provide proxy voting advice that 
falls within the definition of a ``solicitation'' under Rule 14a-
1(l)(iii)(A), as proposed); and (ii) registrants or other eligible 
persons under proposed Rule 14a-2(b)(9) conducting solicitations 
covered by proxy voting advice.
    The RFA defines ``small entity'' to mean ``small business,'' 
``small organization,'' or ``small governmental

[[Page 66556]]

jurisdiction.'' \275\ For purposes of the RFA, under our rules, an 
issuer of securities or a person, other than an investment company or 
an investment adviser, is a ``small business'' or ``small 
organization'' if it had total assets of $5 million or less on the last 
day of its most recent fiscal year.\276\ An investment company, 
including a business development company,\277\ is considered to be a 
``small business'' if it, together with other investment companies in 
the same group of related investment companies, has net assets of $50 
million or less as of the end of its most recent fiscal year.\278\ An 
investment adviser generally is a small entity if it: (1) Has assets 
under management having a total value of less than $25 million; (2) did 
not have total assets of $5 million or more on the last day of the most 
recent fiscal year; and (3) does not control, is not controlled by, and 
is not under common control with another investment adviser that has 
assets under management of $25 million or more, or any person (other 
than a natural person) that had total assets of $5 million or more on 
the last day of its most recent fiscal year.\279\ We estimate that 
there are 1,171 issuers that file with the Commission, other than 
investment companies and investment advisers, that may be considered 
small entities.\280\ In addition, we estimate that, as of December 
2018, there were 114 registered investment companies that would be 
subject to the proposed amendments that may be considered small 
entities.\281\ Finally, we estimate that, as of September 30, 2019, 
there were 575 investment advisers that may be considered small 
entities.\282\ As discussed above, three of the five major firms that 
comprise the proxy advisory industry are registered investment 
advisors.\283\
---------------------------------------------------------------------------

    \275\ 5 U.S.C. 601(6).
    \276\ See Exchange Act Rule 0-10(a) [17 CFR 240.0-10(a)].
    \277\ Business development companies are a category of closed-
end investment company that are not registered under the Investment 
Company Act [15 U.S.C. 80a-2(a)(48) and 80a-53-64].
    \278\ See Investment Company Act Rule 0-10(a) [17 CFR 270.0-
10(a)].
    \279\ See Advisers Act Rule 0-7(a) [17 CFR 275.0-7(a)].
    \280\ This estimate is based on staff analysis of issuers, 
excluding co-registrants, with EDGAR filings of Form 10-K, 20-F and 
40-F, or amendments, filed during the calendar year of January 1, 
2018 to December 31, 2018. The data used for this analysis were 
derived from XBRL filings, Compustat, and Ives Group Audit 
Analytics.
    \281\ This estimate is derived from an analysis of data obtained 
from Morningstar Direct as well as data filed with the Commission 
(Forms N-Q and N-CSR) for the second quarter of 2018.
    \282\ Based on SEC-registered investment adviser responses to 
Items 5.F. and 12 of Form ADV.
    \283\ See supra Section III.B.1.b (Economic Analysis).
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    If adopted, the proposed amendments would apply to small entities 
to the same extent as other entities, irrespective of size. Therefore, 
we expect that the nature of any benefits and costs associated with the 
proposed amendments would be similar for large and small entities. 
Accordingly, we refer to the discussion of the proposed amendments' 
economic effects on all affected parties, including small entities, in 
Section III above.\284\ Consistent with that discussion, we anticipate 
that the economic benefits and costs likely would vary widely among 
small entities based on a number of factors, including the nature and 
conduct of their businesses, which makes it difficult to project the 
economic impact on small entities with precision.\285\ Compliance with 
the proposed amendments may require the use of professional skills, 
including legal skills.
---------------------------------------------------------------------------

    \284\ In particular, we discuss the estimated benefits and costs 
of the proposed amendments on affected parties in Section III.C. 
(Economic Analysis) above. We also discuss the estimated compliance 
burden associated with the proposed amendments for purposes of the 
PRA in Section IV (Paperwork Reduction Act) above.
    \285\ See supra Section III.C.2. (Economic Analysis).
---------------------------------------------------------------------------

    As a general matter, however, we recognize that any costs of the 
proposed amendments borne by the affected entities, such as those 
related to compliance with the proposed amendments, or the 
implementation or restructuring of internal systems needed to adjust to 
the proposed amendments, could have a proportionally greater effect on 
small entities, as they may be less able to bear such costs relative to 
larger entities. For example, as discussed in Section III.B.2, ISS and 
Glass Lewis, currently the two largest proxy voting advice businesses, 
have existing processes in place for identifying and disclosing 
conflicts of interest to their clients, as well as providing some 
registrants access to versions of the businesses' proxy voting advice 
prior to making a recommendation to clients. If competing proxy voting 
advice businesses do not have such processes in place, they could be 
disproportionately affected by the proposed amendments. In particular, 
any small entities that provide proxy voting advice services, to the 
extent that their existing practices and procedures would not satisfy 
the conditions of proposed Rule 14a-2(b)(9), would incur additional 
compliance costs and, consequently, may be more likely than larger 
proxy voting advice businesses to exit the market for such services or 
less able to enter the market in the first place.
    We anticipate that any costs resulting from the proposed amendments 
would primarily relate to proposed Rule 14a-2(b)(9) and, as such, 
predominantly affect the proxy advice voting businesses that would be 
required to comply with Rule 14a-2(b)(9) in order to rely on the 
exemptions in Rule 14a-2(b)(1) or (b)(3).\286\ These businesses would 
likely incur costs to ensure that their internal practices, procedures, 
and systems are sufficient to meet the conflicts of interest disclosure 
and review and feedback requirements under proposed Rule 14a-2(b)(9). 
The magnitude of such costs would depend on the extent to which the 
businesses are already meeting or exceeding these proposed 
requirements. However, we believe that, at most, there are currently 
only a limited number of proxy voting advice businesses that meet the 
definition of small entity for purposes of the RFA.\287\ Accordingly, 
we do not expect the proposed amendments would have a significant 
economic impact on a substantial number of such businesses. However, we 
request comment on the number of proxy voting advice businesses that 
would be small entities subject to the proposed amendments.
---------------------------------------------------------------------------

    \286\ We do not expect that the proposed amendments to Rule 14a-
1(l) and Rule 14a-9 will have a significant economic impact on 
affected parties, including any small entities, because they codify 
already-existing Commission positions on the applicability of these 
rules to proxy voting advice.
    \287\ As discussed supra, at note 190, we understand that the 
proxy voting advice industry in the United States consists of five 
major firms. At this time, we do not know of any proxy voting advice 
businesses that would be considered small entities as defined by the 
RFA, but acknowledge that there may be some such firms providing 
proxy voting advice of which we are unaware.
---------------------------------------------------------------------------

    As discussed in Section III.C.2., we do not expect that registrants 
or other soliciting persons that are small entities would incur 
significant costs as a result of the proposed amendments, although it 
is difficult to provide a quantifiable estimate of such costs. We 
request comment on how to quantify the impact on small entities that, 
while not directly subject to the proposed amendments, may be affected 
by the proposal.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    We believe that the proposed amendments would not duplicate, 
overlap, or conflict with other federal rules.

[[Page 66557]]

F. Significant Alternatives

    The RFA directs us to consider alternatives that would accomplish 
our stated objectives, while minimizing any significant adverse impact 
on small entities. In connection with the proposed amendments, we 
considered the following alternatives:
     Establishing different compliance or reporting 
requirements that take into account the resources available to small 
entities;
     Exempting small entities from all or part of the 
requirements;
     Using performance rather than design standards; and
     Clarifying, consolidating, or simplifying compliance and 
reporting requirements under the rules for small entities.
    We do not believe that establishing different compliance or 
reporting requirements for small entities in connection with our 
proposed amendments would accomplish the objectives of this rulemaking 
or minimize significant adverse impacts on small entities. The proposed 
amendments are intended to help ensure that investors who rely on the 
advice of proxy voting advice businesses receive accurate, transparent, 
and materially complete information on which to make their voting 
decisions. Our objective of improving the quality of proxy voting 
advice would not be as effectively served if we were to establish 
different conditions for smaller proxy voting advice businesses that 
wish to rely on the exemptions in Rules 14a-2(b)(1) or (b)(3). For 
similar reasons, we do not believe that exempting smaller proxy voting 
advice businesses from all or part of the proposed amendments would 
accomplish our objectives.\288\
---------------------------------------------------------------------------

    \288\ See also supra Section III.E.6. Exempting smaller proxy 
voting advice businesses from the additional conditions of Rules 
14a-2(b)(1) and (3) would reduce the cost of the proposed amendments 
for such businesses, but it also would mean that their clients would 
not realize the same benefits in terms of potential improvements in 
the reliability and transparency of the voting advice they receive. 
This, in turn, could put smaller proxy voting advice businesses at a 
competitive disadvantage.
---------------------------------------------------------------------------

    The proposed amendments generally would use design standards to 
assure clients of proxy voting advice businesses that all entities 
providing such advice are following a consistent approach to their 
disclosures of conflicts of interest and the review and feedback 
requirements for proxy voting advice. If the goal is accurate and 
reliable proxy voting advice, using design rather than performance 
standards minimizes the degree of uncertainty that proxy voting advice 
businesses and their clients would have regarding whether such 
businesses are in full compliance with the rules and could help to 
bolster their confidence in the quality of voting advice they receive. 
However, while we generally have used design standards for the proposed 
amendments, we have included features that are intended to minimize the 
disruption to proxy voting advice businesses, such as requiring the 
inclusion of a hyperlink to a response by the registrant or certain 
other soliciting persons. Such features would also provide greater 
flexibility to registrants and other soliciting persons, including 
small entities, in providing their response.
    In proposing these amendments, we have undertaken to provide rules 
that are clear and simple for all affected parties. We do not believe 
that further clarification, consolidation, or simplification for small 
entities is necessary.
Request for Comment
    We encourage the submission of comments with respect to any aspect 
of this IRFA. In particular, we request comments regarding:
     How the proposed amendments can achieve their objective 
while lowering the burden on small entities;
     The number of small entity companies that may be affected 
by the proposed amendments;
     The existence or nature of the potential effects of the 
proposed amendments on small entities discussed in the analysis; and
     How to quantify the effects of the proposed amendments.
    Commenters are asked to describe the nature of any effect and 
provide empirical data supporting the extent of that effect. Comments 
will be considered in the preparation of the Final Regulatory 
Flexibility Analysis, if the proposed rules are adopted, and will be 
placed in the same public file as comments on the proposed amendments 
themselves.

VII. Statutory Authority

    We are proposing the rule amendments contained in this release 
under the authority set forth in Sections 3(b), 14, 16, 23(a), and 36 
of the Securities Exchange Act of 1934, as amended.

List of Subjects in 17 CFR Part 240

    Brokers, Confidential business information, Fraud, Reporting and 
recordkeeping requirements, Securities.

Text of Proposed Rule Amendments

    In accordance with the foregoing, the Securities and Exchange 
Commission proposes to amend title 17, chapter II of the Code of 
Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS UNDER THE SECURITIES 
EXCHANGE ACT OF 1934

0
1. The authority citation for part 240 continues to read as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et 
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5521(e)(3); 18 U.S.C. 
1350, Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
    Sections 240.14a-1, 240.14a-3, 240.14a-13, 240.14b-1, 240.14b-2, 
240.14c-1, and 240.14c-7 also issued under secs. 12, 15 U.S.C. 781, and 
14, Pub. L. 99-222, 99 Stat. 1737, 15 U.S.C. 78n;
* * * * *
0
2. Amend Sec.  240.14a-1 by revising paragraph (l)(1)(iii) and adding 
paragraph (l)(2)(v) to read as follows:


Sec.  240.14a-1  Definitions.

* * * * *
    (l) Solicitation. (1) * * *
    (iii) The furnishing of a form of proxy or other communication to 
security holders under circumstances reasonably calculated to result in 
the procurement, withholding or revocation of a proxy, including:
    (A) Any proxy voting advice that makes a recommendation to a 
security holder as to its vote, consent, or authorization on a specific 
matter for which security holder approval is solicited, and that is 
furnished by a person that markets its expertise as a provider of such 
proxy voting advice, separately from other forms of investment advice, 
and sells such proxy voting advice for a fee.
    (B) [Reserved]
    (2) * * *
    (v) The furnishing of any proxy voting advice by a person who 
furnishes such advice only in response to an unprompted request.
0
3. Amend Sec.  240.14a-2 by:
0
a. Revising paragraph (b)(1) introductory text and (b)(3) introductory 
text; and
0
b. Adding paragraph (b)(9).
    The revisions and addition read as follows:

[[Page 66558]]

Sec.  240.14a-2  Solicitations to which Sec.  240.14a-3 to Sec.  
240.14a-15 apply.

* * * * *
    (b) * * *
    (1) Except as provided in paragraph (b)(9) of this section, any 
solicitation by or on behalf of any person who does not, at any time 
during such solicitation, seek directly or indirectly, either on its 
own or another's behalf, the power to act as proxy for a security 
holder and does not furnish or otherwise request, or act on behalf of a 
person who furnishes or requests, a form of revocation, abstention, 
consent or authorization. Provided, however, That the exemption set 
forth in this paragraph shall not apply to * * *
* * * * *
    (3) Except as provided in paragraph (b)(9) of this section, the 
furnishing of proxy voting advice by any person (the ``advisor'') to 
any other person with whom the advisor has a business relationship, if: 
* * *
* * * * *
    (9) Paragraphs (b)(1) and (b)(3) of this section shall not be 
available to a person furnishing proxy voting advice covered by Sec.  
240.14a-1(l)(1)(iii)(A) (``proxy voting advice business'') unless all 
of the conditions in the following paragraphs (i), (ii), and (iii) are 
satisfied:
    (i) The proxy voting advice business includes in its proxy voting 
advice and in any electronic medium used to deliver the proxy voting 
advice prominent disclosure of:
    (A) Any material interests, direct or indirect, of the proxy voting 
advice business (or its affiliates) in the matter or parties concerning 
which it is providing the advice;
    (B) Any material transaction or relationship between the proxy 
voting advice business (or its affiliates) and the registrant, another 
soliciting person, shareholder proponent, or affiliates of any of the 
foregoing (as determined using publicly available information) 
connected with the matter covered by the proxy voting advice;
    (C) Any other information regarding the interest, transaction, or 
relationship of the proxy voting advice business (or its affiliates) 
that is material to assessing the objectivity of the proxy voting 
advice in light of the circumstances of the particular interest, 
transaction, or relationship; and
    (D) Any policies and procedures used to identify, as well as the 
steps taken to address, any such material conflicts of interest arising 
from such interest, transaction, or relationship.
    (ii) The proxy voting advice business provides the registrant or 
any other person conducting a solicitation (other than a solicitation 
exempt under Sec.  240.14a-2) covered by its proxy voting advice, prior 
to the distribution of that advice to its clients:
    (A)(1) A copy of such proxy voting advice that the proxy voting 
advice business intends to deliver to its clients for a review and 
feedback period of no less than five business days, if the registrant 
or other soliciting person has filed its definitive proxy statement at 
least 45 calendar days before the security holder meeting date, or if 
no meeting is held, at least 45 calendar days before the date the 
votes, consents or authorizations may be used to effect the proposed 
action; or
    (2) A copy of such proxy voting advice that the proxy voting advice 
business intends to deliver to its clients for a review and feedback 
period of no less than three business days, if the registrant or other 
soliciting person has filed its definitive proxy statement less than 45 
calendar days, but at least 25 calendar days, before the security 
holder meeting date, or if no meeting is held, less than 45 calendar 
days, but at least 25 calendar days, before the date the votes, 
consents or authorizations may be used to effect the proposed action; 
and
    (B) No earlier than the expiration of the period described in 
paragraph (A)(1) or (A)(2) of this section, as applicable, and no later 
than two business days prior to delivery of the proxy voting advice to 
its clients, a final notice of voting advice which must include a copy 
of such proxy voting advice that the proxy voting advice business will 
deliver to its clients, including any revisions to such advice made by 
the proxy voting advice business after the review and feedback period 
provided pursuant to paragraph (A)(1) or (A)(2) of this section, as 
applicable.
    Note 1 to paragraph (b)(9)(ii): Once the two business day period 
specified in paragraph (B) of this section has expired, the proxy 
voting advice business will be under no further obligation to provide 
the registrant or any other soliciting person with additional 
opportunities to review its proxy voting advice with respect to the 
same meeting.
    Note 2 to paragraph (b)(9)(ii): A proxy voting advice business may 
require the registrant or other soliciting person, as applicable, to 
enter into an agreement to maintain the confidentiality of any 
materials it receives pursuant to paragraph (b)(9)(ii) of this section 
and refrain from publicly commenting on those materials, provided that 
the terms of such confidentiality agreement:
    (A) Shall be no more restrictive than similar types of 
confidentiality agreements the proxy voting advice business requires of 
the recipients of the proxy voting advice; and
    (B) Shall cease to apply once the proxy voting advice business 
provides its advice to one or more recipients. The proxy voting advice 
business is not required to comply with paragraph (b)(9)(ii) of this 
section if the registrant or other soliciting person does not enter 
into such an agreement.
    (iii) If requested by the registrant or any other person conducting 
a solicitation (other than a solicitation exempt under Sec.  240.14a-2) 
prior to expiration of the period described in paragraph (b)(9)(ii) of 
this section, the proxy voting advice business shall include in its 
proxy voting advice and in any electronic medium used to deliver the 
proxy voting advice an active hyperlink or any other analogous 
electronic medium that leads to the registrant's or other soliciting 
person's, as applicable, statement regarding the proxy voting advice.
    Note to paragraphs (b)(9)(ii) and (b)(9)(iii): A proxy voting 
advice business will be under no obligation to comply with the 
provisions of paragraphs (b)(9)(ii) and (b)(9)(iii) of this section if 
the registrant or other soliciting person has not filed its definitive 
proxy statement at least 25 calendar days before the security holder 
meeting date (or if no meeting is held, at least 25 calendar days 
before the date the votes, consents or authorizations may be used to 
effect the proposed action).
    (iv) An immaterial or unintentional failure of a proxy voting 
advice business to comply with one or more conditions of Sec.  240.14a-
2(b)(9) will not result in the loss of such proxy voting advice 
business's ability to rely on the exemptions in paragraphs (b)(1) and 
(b)(3) of this section, so long as:
    (A) The proxy voting advice business made a good faith and 
reasonable effort to comply; and
    (B) To the extent that it is feasible to do so, the proxy voting 
advice business uses reasonable efforts to substantially comply with 
the condition as soon as practicable after it becomes aware of its 
noncompliance.
* * * * *
0
4. Amend Sec.  240.14a-9 by adding paragraph e. to the Note to read as 
follows:


Sec.  240.14a-9  False or misleading statements.

* * * * *
    Note: * * *
    e. Failure to disclose material information regarding proxy voting 
advice covered by Sec.  240.14a-1(l)(1)(iii)(A), such as the proxy 
voting

[[Page 66559]]

advice business's methodology, sources of information, conflicts of 
interest or use of standards that materially differ from relevant 
standards or requirements that the Commission sets or approves.
* * * * *

    By the Commission.

    Dated: November 5, 2019.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2019-24475 Filed 12-3-19; 8:45 am]
BILLING CODE 8011-01-P


