[Federal Register Volume 86, Number 225 (Friday, November 26, 2021)]
[Proposed Rules]
[Pages 67383-67402]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-25420]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-93595; File No. S7-17-21]
RIN 3235-AM92


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 the Federal proxy rules governing proxy voting 
advice. The Commission is proposing these amendments in light of 
feedback from market participants on those rules and certain 
developments in the market for proxy voting advice. The proposed 
amendments would remove a condition to the availability of certain 
exemptions from the information and filing requirements of the Federal 
proxy rules for proxy voting advice businesses. In addition, the 
proposed amendments would remove a note that provides examples of 
situations in which the failure to disclose certain information in 
proxy voting advice may be considered misleading within the meaning of 
the Federal proxy rules' prohibition on material misstatements or 
omissions. Finally, the release includes a discussion regarding the 
application of that prohibition to proxy voting advice, in particular 
with respect to statements of opinion.

DATES: Comments should be received by December 27, 2021.

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 [email protected]. Please include 
File Number S7-17-21 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 S7-17-21. To help the 
Commission process and review your comments more efficiently, please 
use only one method of submission. The Commission will post all 
submitted comments on its website (http://www.sec.gov/rules/proposed.shtml). Typically, 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 a.m. and 3 p.m. Operating conditions may limit access to 
the Commission's public reference room. All comments received will be 
posted without change. Persons submitting comments are cautioned that 
we do not redact or edit personal identifying information. You should 
submit only information that you wish to make publicly available.
    Studies, memoranda or other substantive items may be added by the 
Commission or staff 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 the Commission's 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: Valian Afshar, Special Counsel, Office 
of Mergers and Acquisitions, Division of Corporation Finance, at (202) 
551-3440, U.S. Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing amendments to 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 part 240], in which these 
rules are published.
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Table of Contents

I. Introduction
II. Discussion of Proposed Amendments
    A. Proposed Amendments to Rule 14a-2(B)(9)
    1. Background
    2. Proposed Amendments
    B. Proposed Amendment to Rule 14a-9
    1. Background
    2. Proposed Amendment
III. Economic Analysis
    A. Economic Baseline
    1. Affected Parties and Current Market Practices
    2. Current Regulatory Framework
    B. Benefits and Costs
    1. Benefits
    2. Costs
    C. Effects on Efficiency, Competition, and Capital Formation
    D. Reasonable Alternatives
    1. Interpretive Guidance or No-Action Relief on Whether Systems 
and Processes Satisfy the 2020 Final Rules
    2. Exempting Certain Parts of PVABs' Proxy Voting Advice from 
Rule 14a-9 Liability
IV. Paperwork Reduction Act
    A. Summary of the Collections of Information
    B. Incremental and Aggregate Burden and Cost Estimates for the 
Proposed Amendments
    1. Impact on Affected Parties
    2. Aggregate Burden Avoided as a Result of the Proposed 
Amendments
    3. Increase in Annual Responses Avoided as a Result of the 
Proposed Amendments
    4. Incremental Change in Compliance Burden for Collection of 
Information
    5. Program Change and Revised Burden Estimates
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 Amendments
    D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    E. Duplicative, Overlapping, or Conflicting Federal Rules
    F. Significant Alternatives
VII. Statutory Authority

I. Introduction

    The Commission recently adopted final rules regarding proxy voting 
advice (the ``2020 Final Rules'') provided by proxy advisory firms, or 
proxy voting

[[Page 67384]]

advice businesses (``PVABs'').\2\ The 2020 Final Rules, among other 
things, did the following:
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    \2\ See Exemptions from the Proxy Rules for Proxy Voting Advice, 
Release No. 34-89372 (Jul. 22, 2020) [85 FR 55082 (Sept. 3, 2020)] 
(``2020 Adopting Release''). For purposes of this release, we refer 
to persons who furnish proxy voting advice covered by 17 CFR 
240.14a-1(l)(1)(iii)(A) (``Rule 14a-1(l)(1)(iii)(A)'') as ``proxy 
voting advice businesses,'' which we abbreviate as ``PVABs.'' See 17 
CFR 240.14a-1(l)(1)(iii)(A). Rule 14a-1(l)(1)(iii)(A) provides that 
the terms ``solicit'' and ``solicitation'' include 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. Id.
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     Amended 17 CFR 240.14a-1(l) (``Rule 14a-1(l)'') to codify 
the Commission's interpretation that proxy voting advice generally 
constitutes a ``solicitation'' subject to the proxy rules.
     Adopted 17 CFR 240.14a-2(b)(9) (``Rule 14a-2(b)(9)'') to 
add new conditions to two exemptions (set forth in 17 CFR 240.14a-
2(b)(1) and (3) (``Rules 14a-2(b)(1) and (3)'')) that PVABs generally 
rely on to avoid the proxy rules' information and filing requirements. 
Those conditions include:
    [cir] New conflicts of interest disclosure requirements in 17 CFR 
240.14a-2(b)(9)(i) (``Rule 14a-2(b)(9)(i)''); and
    [cir] A requirement in 17 CFR 240.14a-2(b)(9)(ii) (``Rule 14a-
2(b)(9)(ii)'') that a PVAB adopt and publicly disclose written policies 
and procedures reasonably designed to ensure that (A) registrants that 
are the subject of proxy voting advice have such advice made available 
to them at or prior to the time such advice is disseminated to the 
PVAB's clients and (B) the PVAB provides its clients with a mechanism 
by which they can reasonably be expected to become aware of any written 
statements regarding its proxy voting advice by registrants that are 
the subject of such advice, in a timely manner before the security 
holder meeting (the ``Rule 14a-2(b)(9)(ii) conditions'').
     Amended the Note to Rule 14a-9, which prohibits false or 
misleading statements, to include specific examples of material 
misstatements or omissions related to proxy voting advice.

The amendments to Rules 14a-1(l) and 14a-9 became effective on November 
2, 2020. The conditions set forth in new Rule 14a-2(b)(9) are set to 
become effective on December 1, 2021.\3\
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    \3\ Id. at 55122. Institutional Shareholder Services, Inc. has 
filed a lawsuit challenging the 2020 Final Rules. See Institutional 
Shareholder Services, Inc. v. SEC, No. 1:19-cv-3275-APM (D.D.C.). 
That case is currently being held in abeyance until the earlier of 
December 31, 2021 or the promulgation of final rule amendments 
addressing proxy voting advice. In addition, on October 13, 2021, 
the National Association of Manufacturers and Natural Gas Services 
Group, Inc. filed a lawsuit arising out of a statement issued by the 
Division of Corporation Finance on June 1, 2021 regarding the 2020 
Final Rules. See National Association of Manufacturers et al. v. 
SEC, No. 7:21-cv-183 (W.D. Tex.); see also infra note 120 
(discussing the Division of Corporation Finance's June 1, 2021 
statement).
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    The 2020 Final Rules were intended to help ensure that investors 
who use proxy voting advice receive more transparent, accurate and 
complete information on which to make their voting decisions.\4\ The 
Commission recognized the ``important and prominent role'' that PVABs 
play in the proxy voting process \5\ and adopted the 2020 Final Rules, 
in part, to address certain concerns that ``registrants, investors, and 
others have expressed . . . about the role of [PVABs].'' \6\ At the 
same time, the Commission endeavored to tailor the 2020 Final Rules to 
avoid imposing undue costs or delays that could adversely affect the 
timely provision of proxy voting advice.\7\
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    \4\ 2020 Adopting Release at 55082.
    \5\ Id. at 55083 (noting that institutional investors and 
investment advisers generally retain PVABs to assist with voting 
determinations on behalf of their clients as well as ``other aspects 
of the voting process, which for certain investment advisers has 
become increasingly complex and demanding over time'').
    \6\ Id. at 55085.
    \7\ Id. at 55082.
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    Since the Commission adopted the 2020 Final Rules, however, 
institutional investors and other clients of PVABs have continued to 
express strong concerns about the rules' impact on their ability to 
receive independent proxy voting advice in a timely manner. 
Furthermore, PVABs have continued to develop industry-wide best 
practices and improve their own business practices to address the 
concerns that were the impetus for the 2020 Final Rules. Accordingly, 
we believe it is appropriate to reassess the 2020 Final Rules, solicit 
further public comment and, where appropriate, recalibrate the rules to 
preserve the independence of proxy voting advice and ensure that PVABs 
can deliver advice in a timely manner without ultimately passing on 
higher costs to their clients. As described in more detail below, we 
are proposing the following changes:
     Amend Rule 14a-2(b)(9) to remove the Rule 14a-2(b)(9)(ii) 
conditions; and
     Amend Rule 14a-9 to remove Note (e) to that rule, which 
sets forth specific examples of material misstatements or omissions 
related to proxy voting advice.

These proposed amendments would not affect the other aspects of the 
2020 Final Rules, which would remain in place and effective as to PVABs 
and their advice. As such, under the proposed amendments, proxy voting 
advice would remain a solicitation subject to the proxy rules. 
Additionally, in order to rely on the exemptions from the proxy rules' 
information and filing requirements set forth in Rules 14a-2(b)(1) and 
(3), PVABs would continue to be subject to Rule 14a-2(b)(9)'s conflicts 
of interest disclosure requirements. Finally, although the proposed 
amendments would remove Note (e) to Rule 14a-9--which was added in the 
2020 Final Rules-- material misstatements or omissions of fact in proxy 
voting advice would remain subject to liability under that rule. In 
this release, however, we discuss the application of Rule 14a-9 to 
proxy voting advice, specifically with respect to a PVAB's statements 
of opinion.\8\
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    \8\ See infra Section II.B.2.
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    The proposed amendments do not represent a wholesale reversal of 
the 2020 Final Rules. Rather, they are intended to be tailored 
adjustments in response to concerns and developments related to 
particular aspects of the 2020 Final Rules. The goal of the proposed 
amendments is to avoid burdens on PVABs that may impede and impair the 
timeliness and independence of their proxy voting advice and subject 
them to undue litigation risks and compliance costs, while 
simultaneously preserving investors' confidence in the integrity of 
such advice. We believe that the proposed amendments, in tandem with 
the unaffected portions of the 2020 Final Rules and other existing 
mechanisms in the proxy system, including certain policies and 
procedures that PVABs have adopted, strike a more appropriate balance.
    We welcome feedback and encourage interested parties to submit 
comments on any or all aspects of the proposed 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 Amendments to Rule 14a-2(b)(9)

1. Background
    The 2020 Final Rules amended Rule 14a-2(b) by adding paragraph 
(9),\9\ which sets forth two conditions that a PVAB must satisfy in 
order to rely on the exemptions in Rules 14a-2(b)(1) and (b)(3) from 
the proxy rules' information

[[Page 67385]]

and filing requirements.\10\ Rule 14a-2(b)(9)(i) requires PVABs to 
provide their clients with certain conflicts of interest disclosures in 
connection with their proxy voting advice.\11\ The Rule 14a-2(b)(9)(ii) 
conditions require that PVABs adopt and publicly disclose written 
policies and procedures reasonably designed to ensure that (A) 
registrants that are the subject of their proxy voting advice have such 
advice made available to them at or prior to the time when such advice 
is disseminated to the PVABs' clients and (B) the PVABs provide their 
clients with a mechanism by which they can reasonably be expected to 
become aware of any written statements regarding their proxy voting 
advice by registrants who are the subject of such advice, in a timely 
manner before the relevant shareholder meeting (or, if no meeting, 
before the votes, consents or authorizations may be used to effect the 
proposed action).\12\
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    \9\ 17 CFR 240.14a-2(b)(9).
    \10\ PVABs have typically relied upon the exemptions in Rules 
14a-2(b)(1) and (b)(3) to provide advice without complying with the 
proxy rules' information and filing requirements. Amendments to 
Exemptions from the Proxy Rules for Proxy Voting Advice, Release No. 
34-87457 (Nov. 5, 2019) [84 FR 66518 (Dec. 4, 2019)] (``2019 
Proposing Release'') at 66525 and n.68. Unless otherwise indicated, 
all comments cited and referenced in this release are to public 
comments on the rules proposed in the 2019 Proposing Release (the 
``2019 Proposed Rules''). Comments on the 2019 Proposed Rules are 
available at https://www.sec.gov/comments/s7-22-19/s72219.htm.
    \11\ 17 CFR 240.14a-2(b)(9)(i).
    \12\ 17 CFR 240.14a-2(b)(9)(ii). The Commission adopted the Rule 
14a-2(b)(9)(ii) conditions, in part, in response to the concerns 
expressed by commenters about the ``advance review and feedback'' 
conditions that the Commission originally proposed. Under the 
advance review and feedback conditions in the 2019 Proposed Rules, a 
PVAB would have had to, as a condition to relying on the exemptions 
in Rules 14a-2(b)(1) and (3), 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 PVAB'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. See 2019 Proposing Release at 66530-35. These 
conditions were among the most contentious features of the 2019 
Proposed Rules and drew a significant number of opposing public 
comments. 2020 Adopting Release at 55103-07. In response, the 
Commission reconsidered its approach and, in the 2020 Final Rules, 
adopted the Rule 14a-2(b)(9)(ii) conditions in place of the advance 
review and feedback conditions. Id. at 55107-08.
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    In addition to those two conditions, Rule 14a-2(b)(9) also sets 
forth two non-exclusive safe harbor provisions in paragraphs (iii) and 
(iv) that, if met, are intended to give assurance to PVABs that they 
have satisfied the conditions of Rules 14a-2(b)(9)(ii)(A) and (B), 
respectively.\13\ Further, Rules 14a-2(b)(9)(v) and (vi) contain 
exclusions from the Rule 14a-2(b)(9)(ii) conditions.\14\ Those rules 
provide that PVABs need not comply with Rule 14a-2(b)(9)(ii) to the 
extent that their proxy voting advice is based on a client's custom 
voting policy or if they provide proxy voting advice as to non-exempt 
solicitations regarding certain mergers and acquisitions or contested 
matters.\15\
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    \13\ 17 CFR 240.14a-2(b)(9)(iii) and (iv).
    \14\ 17 CFR 240.14a-2(b)(9)(v) and (vi).
    \15\ Id.
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    The Commission adopted Rule 14a-2(b)(9)(ii)(A) to facilitate 
effective engagement between PVABs and registrants, help ensure that 
registrants are timely informed of proxy voting advice that bears on 
the solicitation of their shareholders and further the goal of ensuring 
that PVABs' clients have more complete, accurate and transparent 
information to consider when making their voting decisions.\16\ 
Ultimately, the Commission intended that this condition would benefit 
the shareholders on whose behalf PVABs' clients may be voting.\17\ 
Similarly, the Commission adopted Rule 14a-2(b)(9)(ii)(B) as a means of 
providing PVABs' clients with additional information that would assist 
them in assessing and contextualizing proxy voting advice.\18\ The 
Commission intended that this condition would supplement existing 
mechanisms--including registrants' ability to file supplemental proxy 
materials to respond to proxy voting advice that they may know about 
and to alert investors to any disagreements with such advice--so as to 
permit clients, including investment advisers voting shares on behalf 
of other shareholders, to consider registrants' views along with the 
proxy voting advice and before making their voting determinations.\19\ 
This condition reflected the Commission's views that PVABs' clients 
would benefit from more information when considering how to vote their 
proxies and that shareholders should have ready access to information 
to make informed voting decisions.\20\
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    \16\ 2020 Adopting Release at 55109.
    \17\ Id.
    \18\ Id. at 55112-13.
    \19\ Id.
    \20\ Id. at 55113.
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    We continue to believe that these goals are important, but we also 
believe it is appropriate to reassess our policy judgment to adopt the 
Rule 14a-2(b)(9)(ii) conditions. We adopted those conditions, in part, 
in response to investors who expressed concerns regarding the advance 
review and feedback conditions in the 2019 Proposed Rules.\21\ 
Accordingly, we made adjustments to remove the 2019 Proposed Rules' 
advance review condition and replace it with Rule 14a-2(b)(9)(ii)'s 
requirement that PVABs make their advice available to registrants at or 
prior to the time it is disseminated to their clients.\22\ Investors, 
however, have continued to express strong concerns about the Rule 14a-
2(b)(9)(ii) conditions even as modified in the 2020 Final Rules.\23\ 
Notwithstanding our efforts to adopt somewhat more limited and 
principles-based requirements in the 2020 Final Rules, investors have 
asserted that the Rule 14a-2(b)(9)(ii) conditions nevertheless will 
impose increased compliance costs on PVABs and impair the independence 
and timeliness of their proxy voting advice and that such effects are 
not justified or balanced by corresponding investor protection 
benefits.\24\ This investor opposition is

[[Page 67386]]

evidenced by, among other things, the fact that many clients of PVABs, 
predominantly investors, continue to oppose the 2020 Final Rules. 
Others, including PVABs themselves, have expressed similar 
concerns.\25\
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    \21\ Specifically, investors expressed concerns that the 2019 
Proposed Rules' advance review and feedback conditions would 
adversely affect the independence, cost and timeliness of that 
advice. See supra note 12.
    \22\ Although the 2020 Final Rules did not include an advance 
review requirement, we encouraged PVABs that already were providing 
registrants with this opportunity to continue to do so. 2020 
Adopting Release at n.339.
    \23\ See, e.g., Peter Rasmussen, Divided SEC Passes 
Controversial Proxy Advisor Rule, Bloomberg Law (Jul. 29, 2020), 
available at https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-divided-sec-passes-controversial-proxy-advisor-rule (noting 
criticism of the 2020 Final Rules by Nell Minow, Vice Chair of 
ValueEdge Advisors, that the 2020 Final Rules will make proxy voting 
advice ``more expensive and less independent''); Council of 
Institutional Investors, Leading Investor Group Dismayed by SEC 
Proxy Advice Rules (Jul. 22, 2020), available at https://www.cii.org/july22_sec_proxy_advice_rules (``[T]he new rules . . . 
seem to effectively require investment advisors who vote proxies on 
behalf of investor clients to consider and evaluate any response 
from companies to proxy advice before submitting votes. That could 
cause significant delays in the already constricted proxy voting 
process. It also could jeopardize the independence of proxy advice 
as proxy advisory firms may feel pressure to tilt voting 
recommendations in favor of management more often, to avoid critical 
comments from companies that could draw out the voting process and 
expose the firms to costly threats of litigation.''); US SIF, US SIF 
Releases Statement On SEC Vote To Regulate Proxy Advisory Firms 
(Jul. 22, 2020), available at https://www.ussif.org/blog_home.asp?display=146 (``Today's vote is a blow to the 
independence of research provided by proxy advisors to investors. . 
. . The rule will make it more difficult, expensive and time-
consuming for proxy advisors to produce their research.'').
    \24\ See supra note 23. In addition, on June 11, 2021, Chair 
Gensler and members of the Commission staff met with representatives 
from the following organizations: AFL-CIO; AFR; AssuranceMark; 
CalPERS; CalSTRS; CFA Institute; Consumer Federation of America; 
Council of Institutional Investors; CtW Investment Group; Interfaith 
Center on Corporate Responsibility; LACERA; Legal & General; New 
York City Comptroller New York State Common; Segal Marco; 
Shareholder Rights Group; Sinclair Capital; Sustainable Investments 
Institute; T. Rowe Price; The Shareholder Commons; Trillium Asset 
Management; US SIF; and ValueEdge Advisors. During that meeting, the 
representatives from those organizations expressed general 
opposition to the 2020 Final Rules, including with respect to the 
Rule 14a-2(b)(9)(ii) conditions. Those representatives expressed 
concerns about the costs associated with the 2020 Final Rules, 
including the Rule 14a-2(b)(9)(ii) conditions, and the general lack 
of corresponding investor protection-based benefits.
    \25\ See, e.g., John C. Coffee, Jr., Biden and the SEC: Some 
Possible Agendas, The CLS Blue Sky Blog (Dec. 2, 2020), available at 
https://clsbluesky.law.columbia.edu/2020/12/02/biden-and-the-sec-some-possible-agendas/ (describing the 2020 Final Rules as 
``burdensome'' and predicting that they would ``stretch out the 
proxy solicitation process and possibly chill advisers' ability to 
recommend policies disliked by managements''); Kurt Schacht & Karina 
Karakulova, SEC Proxy Rules Pose Threat To Markets, Shareholders, 
Law 360 (Aug. 26, 2020), available at https://www.law360.com/articles/1302091/sec-proxy-rules-pose-threat-to-markets-shareholders 
(``We can only imagine the number of legal challenges, delays and 
inefficiency [that the 2020 Final Rules] introduces to a well-
functioning proxy voting process.''); Institutional Shareholder 
Services FAQs on July 22, 2020, SEC Rules & Supplemental Guidance 
(Aug. 6, 2020), available at http://images.info.issgovernance.com/Web/ISSGovernance/%7B56ad0ea3-5d24-461e-b9c7-4ba8c6327435%7D_20200914_FAQs_SEC_July-22-2020_Rules_Supplemental_Guidance_FINAL.pdf/ (``[I]f the Rules are 
upheld, the current lack of clarity around the timing of any 
potential responses from the issuers may impact the timing of any 
`Alerts' that might be warranted in response to issuers' written 
statements. . . . ISS is currently assessing the changes we need to 
make to our systems, processes, and staffing in order to accommodate 
the new Rules. ISS will be certain to provide advance notice of any 
fees we may need to charge to support the changes required by these 
regulatory actions.''); Institutional Shareholder Services, 
Statement from ISS President & CEO, Gary Retelny, on Today's SEC 
Actions (Jul. 22, 2020), available at https://insights.issgovernance.com/posts/statement-from-iss-president-ceo-gary-retelny-on-todays-sec-actions/ (``Despite seemingly reducing 
the previously contemplated burden on proxy advisers, the new rules 
. . . will hinder investors' ability to vote in a timely, cost-
effective, and objective manner.''); Minerva Analytics, SEC ignores 
investor objections to implement new proxy rules (Jul. 24, 2020), 
available at https://www.manifest.co.uk/sec-ignores-investor-objections-to-implement-new-proxy-rules/ (``Additional layers of 
scrutiny and back-and-forth between proxy advisers, companies and 
investment managers would slow down the system and ultimately 
increase the cost to those paying for the service.'').
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    In addition, we are aware that the largest PVABs have current 
practices that could address some of the concerns underlying the Rule 
14a-2(b)(9)(ii) conditions. On July 1, 2021, the Independent Oversight 
Committee (the ``Oversight Committee'') of the Best Practice Principles 
Group (the ``BPPG'') published its first annual report (the ``2021 
Annual Report'').\26\ The BPPG is an industry group comprised of six 
PVABs, including Glass, Lewis & Co. (``Glass Lewis'') and Institutional 
Shareholder Services, Inc. (``ISS''),\27\ the two largest PVABs in the 
United States.\28\ Shortly after its formation, the BPPG published the 
Best Practice Principles for Providers of Shareholder Voting Research 
and Analysis, which consist of three main principles and accompanying 
guidance that recommends how the principles should be applied.\29\ The 
three principles are (1) service quality, (2) conflicts-of-interest 
avoidance or management and (3) communications policy.\30\
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    \26\ See Best Practice Principles Oversight Committee, Annual 
Report 2021 (Jul. 1, 2021), available at https://bppgrp.info/wp-content/uploads/2021/07/2021-AR-Independent-Oversight-Committee-for-The-BPP-Group-1.pdf (``2021 Annual Report''). The BPPG was formed in 
2014 after the European Securities and Markets Authority requested 
that PVABs engage in a coordinated effort to develop an industry-
wide code of conduct focusing on enhancing transparency and 
disclosure. Id. at 7.
    \27\ Id. The BPPG's six member-PVABs are Glass Lewis, ISS, 
Minerva, PIRC, Proxinvest and EOS at Federated Hermes. Id.
    \28\ 2020 Adopting Release at 55127.
    \29\ 2021 Annual Report at 8.
    \30\ Id. at 33-34.
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    The Oversight Committee--which is comprised of non-PVAB 
stakeholders in proxy voting advice, including representatives from the 
institutional investor, registrant and academic communities--is 
responsible for reviewing the BPPG member-PVABs' compliance with the 
principles.\31\ In the 2021 Annual Report, after reviewing each member-
PVABs' compliance report, the Oversight Committee found all six firms 
met the standards established in the three best practices 
principles.\32\ Notably:
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    \31\ Id. at 7.
    \32\ Stephen Davis, First Independent Report on Proxy Voting 
Advisory Firm Best Practices (Jul. 14, 2021), available at https://corpgov.law.harvard.edu/2021/07/14/first-independent-report-on-proxy-voting-advisory-firm-best-practices/.
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     Glass Lewis provides the subjects of its proxy voting 
advice with its Issuer Data Report (``IDR''), which details the key 
facts underlying Glass Lewis' advice, before that advice is finalized 
and sent to its clients.\33\ Glass Lewis offers the IDR service to 
certain registrants, giving them 48 hours to review the IDR and provide 
suggested updates, which are then reviewed by Glass Lewis' research 
analysts who in turn make relevant updates and then provide high-level 
feedback regarding amendments made.\34\
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    \33\ Glass Lewis, Glass Lewis Statement of Compliance for the 
Period 1 January 2019 through 31 December 2019 (May 2020), available 
at https://bppgrp.info/wp-content/uploads/2021/03/Glass-Lewis-BPP-Statement.pdf (``Glass Lewis Statement of Compliance'') at 7-8.
    \34\ Glass Lewis, Issuer Data Report, available at https://www.glasslewis.com/issuer-data-report/. In the United States, the 
IDR service is available for ``companies listed on the NASDAQ and 
NYSE exchanges'' that register for the service with Glass Lewis and 
``disclose their meeting documents at least 30 days in advance of 
their meeting date.'' Id.
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     In addition to the IDR's advance review opportunity, Glass 
Lewis provides registrants with an opportunity to review and respond to 
its proxy voting advice after it has been disseminated to its clients 
pursuant to its Report Feedback Service (the ``RFS''). Specifically, 
the RFS allows registrants to submit feedback about Glass Lewis' proxy 
voting advice and have that feedback delivered directly to Glass Lewis' 
clients.\35\ Registrants can access Glass Lewis' proxy voting advice at 
the same time it is disseminated to its clients and then, pursuant to 
the RFS, submit to Glass Lewis a statement that responds to and 
expresses disagreements with, or other opinions regarding, such 
advice.\36\ If a registrant submits such a statement, Glass Lewis will 
republish its proxy voting advice with that statement attached and 
linked on the first page of Glass Lewis' report. Glass Lewis' clients 
will receive a notification as soon as the registrant's statement is 
available, and clients that have already downloaded an earlier version 
of the proxy voting advice will be sent an updated version that 
includes the registrant's statement.
---------------------------------------------------------------------------

    \35\ Glass Lewis Statement of Compliance at 24.
    \36\ Glass Lewis, Report Feedback Statement, available at 
https://www.glasslewis.com/report-feedback-statement/.
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     In addition, Glass Lewis has a separate process for 
registrants to report errors or omissions in its proxy voting advice 
and indicates that it reviews any such reported errors or omissions 
``immediately.'' \37\ Glass Lewis states that if its proxy voting 
advice is updated to reflect new disclosure or the correction of an 
error, it notifies all clients that have accessed that advice, or have 
ballots in the system for the meeting tied to that advice, whether or 
not the updates or revisions affected Glass Lewis' voting 
recommendations, as well as the exact nature of those updates and 
revisions.\38\
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    \37\ Glass Lewis, Report an Error or Omission, available at 
https://www.glasslewis.com/report-error/.
    \38\ Id.
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     ISS also detailed in its compliance statement the relevant 
processes it has in place.\39\ Significantly, ISS allows any registrant 
to request a copy of its proxy voting advice free of charge after such 
advice has been disseminated to ISS'

[[Page 67387]]

clients.\40\ Registrants can pre-register to receive proxy voting 
advice, and ISS will send those registrants a notification when such 
advice is available for them to access.\41\
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    \39\ ISS, ISS Compliance Statement (Jan. 11, 2021), available at 
https://bppgrp.info/wp-content/uploads/2021/03/best-practices-principles-iss-compliance-statement-jan-2021-update.pdf (``ISS 
Statement of Compliance'').
    \40\ Id. at 23.
    \41\ ISS, FAQs regarding ISS Proxy Research, available at 
https://www.issgovernance.com/contact/faqs-engagement-on-proxy-research/#1574276867038-b204d1c3-a920.
---------------------------------------------------------------------------

     If a registrant believes that ISS' proxy voting advice 
contains an error, it can notify ISS either via email or through its 
``Help Center'' interface.\42\ ISS states that if it determines that 
there is a material error, it will promptly issue an ``Alert'' to 
update previously issued proxy voting advice.\43\
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    \42\ Id.
    \43\ Id.
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     ISS also stated that it instituted a Feedback Review Board 
(``FRB'') to provide a mechanism to all stakeholders to communicate 
with ISS regarding its proxy voting advice.\44\ The FRB considers 
comments from market constituents regarding the accuracy of ISS' 
research and data, policy application and the general fairness of its 
policies, research and recommendations.\45\ The FRB focuses on higher-
level feedback and does not address registrant-specific or time-
sensitive feedback.\46\
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    \44\ ISS Statement of Compliance at 21.
    \45\ Id.
    \46\ ISS, Feedback Review Board, available at https://www.issgovernance.com/contact/feedback-review-board/ (noting that 
the FRB is ``[a]n ISS body that considers comments from stakeholders 
regarding the general fairness of ISS policies and methodologies as 
well those related to how we operate as a provider of research, 
voting recommendations, corporate ratings, and other solutions and 
services to financial market participants'' and that ``[c]omments 
should not be company specific nor should they be time-sensitive'').
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     Instead, ISS has other processes in place for registrants 
and other market participants to provide feedback on specific proxy 
voting advice (including via the above-described error reporting 
processes). For example, ISS noted that it provides draft reports to 
registrants in certain markets prior to publication.\47\ Notably, ISS 
does not provide draft proxy voting advice to any United States 
registrants.\48\ ISS can, however, choose to engage with registrants 
during the process of formulating its proxy voting advice.\49\ Some of 
that engagement is initiated by ISS, but registrants themselves can 
also request engagement with ISS' proxy research teams.\50\
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    \47\ ISS Statement of Compliance at 23.
    \48\ ISS, FAQs regarding ISS Proxy Research, available at 
https://www.issgovernance.com/contact/faqs-engagement-on-proxy-research/#1574276867038-b204d1c3-a920 (``In the US, as from January 
2021, drafts are no longer provided to U.S. companies including 
those in the S&P500 index.'').
    \49\ ISS Statement of Compliance at 21-23.
    \50\ ISS, FAQs regarding ISS Proxy Research, available at 
https://www.issgovernance.com/contact/faqs-engagement-on-proxy-research/#1574276867038-b204d1c3-a920 (``ISS' proxy research teams 
interact regularly with company representatives, institutional 
shareholders, dissident shareholders, sponsors of shareholder 
proposals, and other parties in order to gain deeper insight into 
many issues and to check material facts relevant to our research. . 
. . Sometimes such dialogue is initiated by ISS, while other times 
it is initiated by the issuer or other stakeholders (including 
shareholders who may or may not be ISS clients).'').
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    Finally, although Egan-Jones, the third major PVAB in the United 
States,\51\ is not a member of the BPPG, it too appears to have adopted 
some policies and procedures that approximate at least a portion of the 
Rule 14a-2(b)(9)(ii) conditions. According to Egan-Jones, it provides a 
number of ways in which registrants can gain access to its reports and 
the models used to create them.\52\ Specifically, Egan-Jones allows 
registrants to obtain and review a copy of its proxy voting advice 
before such advice is disseminated to its clients.\53\ Registrants can 
then notify Egan-Jones of any material errors that they detect in the 
proxy voting advice so as to allow Egan-Jones to correct that 
advice.\54\
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    \51\ 2020 Adopting Release at 55126.
    \52\ Egan-Jones, Egan-Jones Proxy Services Issuer Engagement, 
available at https://www.ejproxy.com/issuers/.
    \53\ Id. (``Issuers may obtain a `draft,' or pre-publication 
copy, of their report in order to review it by submitting a fully 
completed copy of our Draft Request Form to [email protected].'').
    \54\ Id. (``If an issuer believes there is a material error in 
an EJPS report, they should send a detailed email documenting what 
they believe the error to be to [email protected].'').
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2. Proposed Amendments
    We are proposing to amend Rule 14a-2(b)(9) by deleting paragraph 
(ii) and rescinding the Rule 14a-2(b)(9)(ii) conditions. The proposed 
amendments would also delete paragraphs (iii), (iv), (v) and (vi) of 
Rule 14a-2(b)(9), which contain safe harbors and exclusions from the 
Rule 14a-2(b)(9)(ii) conditions.\55\ As discussed above, the Rule 14a-
2(b)(9)(ii) conditions were intended to benefit shareholders by 
improving the overall mix of available information so as to allow them 
to make more informed voting decisions. While the goal of facilitating 
more informed voting decisions remains unchanged, we believe that the 
continued concerns expressed by the investors who rely on proxy voting 
advice to make their voting decisions warrants a reassessment of the 
appropriate means to achieve that goal.
---------------------------------------------------------------------------

    \55\ Given that the other paragraphs of Rule 14a-2(b)(9) would 
all be deleted, the proposed amendments would redesignate the 
conflicts of interest disclosure condition set forth in Rule 14a-
2(b)(9)(i) as Rule 14a-2(b)(9). The substance of that condition, 
however, would otherwise remain unchanged.
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    As part of that reassessment, we have further considered PVABs' 
efforts to develop industry-wide practices, as well as improve their 
own business practices, that could address the concerns underlying the 
Rule 14a-2(b)(9)(ii) conditions. Although these practices differ from 
the Rule 14a-2(b)(9)(ii) conditions, the leading PVABs have adopted 
policies and procedures that provide their clients and registrants with 
some of the opportunities and access to information that would have 
been required pursuant to the Rule 14a-2(b)(9)(ii) conditions. 
Moreover, because PVABs developed these measures themselves, we believe 
they are less likely to adversely affect the independence, cost and 
timeliness of proxy voting advice. And, although they are not the 
primary basis for these proposed amendments, we do find these industry-
wide practices persuasive in these specific circumstances. This 
persuasiveness is due, in part, to the relative salience of a review of 
such industry-wide practices given the small number of PVABs in the 
U.S.
    For example, Glass Lewis' IDR service goes beyond what the Rule 
14a-2(b)(9)(ii) conditions would have required and allows registrants 
the opportunity to review the research and data on which Glass Lewis 
bases its voting recommendations before Glass Lewis disseminates its 
proxy voting advice to its clients. The RFS also operates in a similar 
manner to what the Rule 14a-2(b)(9)(ii) conditions would have required. 
As with the condition in Rule 14a-2(b)(9)(ii)(A), Glass Lewis makes its 
proxy voting advice available to registrants, for a fee, at the time 
such advice is disseminated to its clients. And, similar to the 
condition in Rule 14a-2(b)(9)(ii)(B), Glass Lewis will update its proxy 
voting advice to include a registrant's response to its advice and 
notify its clients of such response.
    ISS also has mechanisms in place that approximate at least a 
portion of the Rule 14a-2(b)(9)(ii) conditions. Specifically, ISS makes 
its proxy voting advice available to registrants at the time such 
advice is disseminated to its clients. Although ISS does not update its 
proxy voting advice to incorporate any response a registrant may have 
to such advice, it does offer its advice to registrants for free. This 
presumably makes it easier for registrants to access ISS' proxy voting 
advice and respond to such advice by publishing and filing additional 
soliciting materials in a more timely manner. Further, ISS provides its

[[Page 67388]]

clients with access to a registrant's EDGAR filings through the 
electronic platform that it uses to deliver its proxy voting advice. 
Because any response by a registrant to proxy voting advice is required 
to be filed with the Commission as additional soliciting materials,\56\ 
we believe that the access that ISS provides to its clients to a 
registrant's response via its electronic platform addresses many of the 
policy concerns underlying the Rule 14a-2(b)(9)(ii) conditions.\57\
---------------------------------------------------------------------------

    \56\ See 17 CFR 240.14a-6(b).
    \57\ This belief is based on our understanding that ISS gives 
its clients the option of receiving push notifications via email 
from its electronic platform that will notify the clients of any 
additional soliciting materials filed by a registrant as to which 
those clients have received proxy voting advice.
---------------------------------------------------------------------------

    We recognize that the mechanisms that these PVABs have in place may 
not perfectly replicate the requirements of the Rule 14a-2(b)(9)(ii) 
conditions or result in the same investor-oriented benefits that those 
conditions were intended to produce. These mechanisms are, in some 
ways, broader than the requirements of the Rule 14a-2(b)(9)(ii) 
conditions.\58\ They also are, in other ways, more limited.\59\ 
Furthermore, although some of the above-described mechanisms were 
developed after the Commission adopted the 2020 Final Rules,\60\ we 
acknowledge that others were in place and considered by the Commission 
at the time it adopted the 2020 Final Rules.\61\ Finally, we recognize 
that although the three major United States-based PVABs have some 
promising mechanisms in place, those mechanisms differ across the three 
PVABs, and, absent the Rule 14a-2(b)(9)(ii) conditions, there is no 
assurance that a new entrant to the PVAB market will adopt similar 
mechanisms or that existing PVABs will maintain them.
---------------------------------------------------------------------------

    \58\ For example, both Glass Lewis, through the IDR service, and 
Egan-Jones allow registrants opportunities to review at least a 
portion of their proxy voting advice before it is disseminated to 
their clients. In addition, although the Rule 14a-2(b)(9)(ii) 
conditions would have applied only to registrants, Glass Lewis makes 
the RFS available to both registrants and shareholder proponents. 
Glass Lewis, Report Feedback Statement, available at https://www.glasslewis.com/report-feedback-statement/ (``Any company or 
shareholder proponent that purchases a Glass Lewis report will now 
automatically have the right to submit an RFS at no extra cost.'').
    \59\ For example, ISS and Egan-Jones' public descriptions of 
their relevant services do not indicate whether they will notify 
their clients of any response to their proxy voting advice by a 
registrant. In addition, although ISS provides a copy of its proxy 
voting advice to registrants for free, it does not allow registrants 
to share that advice with any external parties, including its 
attorneys, proxy solicitors and compensation consultants. ISS, FAQs 
regarding ISS Proxy Research, available at https://www.issgovernance.com/contact/faqs-engagement-on-proxy-research/#1574276867038-b204d1c3-a920 (``Our final, published proxy research 
reports are provided to companies free of charge as a courtesy, 
subject to the following conditions: (i) the reports are only for 
the subject company's internal use by employees of the company, and 
(ii) the company is expressly prohibited from making the report, or 
any part of it, public, or sharing the reports, profiles or login 
credentials with any external parties (including but not limited to 
any external advisors retained by the company such as a law firm, 
proxy solicitor or compensation consultant).''). These restrictions 
may inhibit a registrant's ability to adequately respond to ISS' 
proxy voting advice in a manner that would benefit its shareholders.
    \60\ Notably, the Oversight Committee convened for the first 
time on July 30, 2020 and issued its 2021 Annual Report on July 1, 
2021. See 2021 Annual Report at 10.
    \61\ See 2020 Adopting Release at 55128-29 (describing Glass 
Lewis' IDR service and the RFS and Egan-Jones' advance review 
service).
---------------------------------------------------------------------------

    We have nevertheless decided to reconsider the Rule 14a-2(b)(9)(ii) 
conditions because we share the concerns that PVABs' clients and others 
continue to express about the conditions' potential adverse effects on 
the independence, cost and timeliness of proxy voting advice.\62\ We 
have also taken notice of the efforts by PVABs to develop industry-wide 
standards, including the Oversight Committee's assessment of its 
members' compliance with the BPPG principles in the 2021 Annual Report. 
Notwithstanding our prior policy judgment, we believe there are market-
based incentives for PVABs to adopt and maintain policies and 
procedures that provide some of the same benefits as those of the Rule 
14a-2(b)(9)(ii) conditions without raising the concerns investors have 
expressed about those conditions. We believe that rescinding the Rule 
14a-2(b)(9)(ii) conditions would give PVABs, investors and registrants 
the flexibility to select mechanisms that best serve the needs of 
investors and other stakeholders and adapt to evolving market 
practices. Furthermore, our continued observance of these mechanisms in 
practice, including during the 2021 proxy season, has given us 
additional confidence in their efficacy. Thus, although these 
mechanisms are not the primary basis for the proposed amendments, we do 
consider them to be relevant.
---------------------------------------------------------------------------

    \62\ See supra notes 23-25 and accompanying text.
---------------------------------------------------------------------------

    Because our proposed amendments to Rule 14a-2(b)(9) are based, in 
part, on our evaluation of the current state of the PVAB market, we 
will continue to monitor that market to help ensure that investors are 
adequately protected and have ready access to information that allows 
them to make informed voting decisions. To the extent that there are 
changes in the quality of PVABs' policies and procedures or new 
entrants to the PVAB market that do not adopt policies and procedures 
consistent with best practices, we will reevaluate the state of the 
PVAB market and consider whether further action should be taken.
Request for Comment
    1. Should we amend Rule 14a-2(b)(9) as proposed to rescind the Rule 
14a-2(b)(9)(ii) conditions? Would such a rescission help facilitate the 
provision of timely and independent proxy voting advice? Alternatively, 
rather than rescinding the Rule 14a-2(b)(9)(ii) conditions as proposed, 
should we commit to a retrospective review of the Rule 14a-2(b)(9)(ii) 
conditions after they have become effective? If so, what is the 
appropriate period of time after which we should conduct such review? 
What would be the potential drawbacks of conducting such a 
retrospective review?
    2. Are the existing mechanisms in the proxy system, including the 
role played by the BPPG and the Oversight Committee and the policies 
and procedures that PVABs have in place, sufficient to obviate the need 
for the Rule 14a-2(b)(9)(ii) conditions? Are there other relevant 
existing mechanisms in the proxy system that the Commission should 
consider?
    3. How might we address the risk that PVABs will change their 
policies and procedures to the detriment of investors if we rescind the 
Rule 14a-2(b)(9)(ii) conditions? How might we address the risk that, 
absent the Rule 14a-2(b)(9)(ii) conditions, new entrants to the PVAB 
market will not be properly incentivized to adopt policies and 
procedures that approximate those conditions?
    4. Are there ways that we can mitigate the potential adverse 
effects on proxy voting advice associated with the Rule 14a-2(b)(9)(ii) 
conditions other than by rescinding those conditions?
    5. Have registrants or others relied on the Commission's adoption 
of the Rule 14a-2(b)(9)(ii) conditions? How, and to what extent, should 
any such reliance interests factor into the Commission's determination 
of whether to rescind those conditions?
    6. Should we also reconsider the Supplement to Commission Guidance 
Regarding Proxy Voting Responsibilities of Investment Advisers that the 
Commission issued in connection with the 2020 Final Rules? Because that 
supplemental guidance was prompted, in part, by the Rule 14a-
2(b)(9)(ii) conditions, will the guidance be useful if the Rule 14a-
2(b)(9)(ii) conditions are rescinded? Should the guidance be rescinded 
concurrently with the Rule 14a-2(b)(9)(ii) conditions? Should it 
instead be revised, and, if so, how? Notwithstanding the proposed 
rescission of the Rule 14a-2(b)(9)(ii) conditions, are there aspects of 
the

[[Page 67389]]

supplemental guidance that should be clarified?

B. Proposed Amendment to Rule 14a-9

1. Background
    Before adopting the 2020 Final Rules, the Commission, in August 
2019, issued an interpretation and guidance that clarified the 
application of the Federal proxy rules to the provision of proxy voting 
advice (the ``Interpretive Release'').\63\ In the Interpretive Release, 
the Commission explained that the determination of whether a 
communication is a solicitation for purposes of Section 14(a) of the 
Exchange Act depends upon the specific nature, content and timing of 
the communication and the circumstances under which the communication 
is transmitted.\64\ The Commission stated that PVABs' proxy voting 
advice generally would constitute a solicitation subject to the proxy 
rules.\65\ As a solicitation, proxy voting advice is subject to Rule 
14a-9. Rule 14a-9 ``prohibits any solicitation from containing any 
statement which, at the time and in the light of the circumstances 
under which it is made, is false or misleading with respect to any 
material fact.'' \66\ The rule also requires that solicitations ``must 
not omit to state any material fact necessary in order to make the 
statements therein not false or misleading.'' \67\ The Commission noted 
that although PVABs may rely on exemptions from the proxy rules' 
information and filing requirements, even these exempt solicitations 
remain subject to Rule 14a-9.\68\
---------------------------------------------------------------------------

    \63\ 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)] 
(``Interpretive Release'').
    \64\ Id. at 47417-19.
    \65\ Id.
    \66\ Id. at 47419.
    \67\ Id.
    \68\ Id.
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    In the adopting release for the 2020 Final Rules, the Commission 
codified the guidance set forth in the Interpretive Release that proxy 
voting advice is generally subject to Rule 14a-9.\69\ The 2020 Final 
Rules amended Rule 14a-9 by adding paragraph (e) to the Note to that 
rule. Paragraph (e) sets forth examples of what may, depending on the 
particular facts and circumstances, be misleading within the meaning of 
Rule 14a-9 with respect to proxy voting advice. Specifically, Note (e) 
to Rule 14a-9 provides that the failure to disclose material 
information regarding proxy voting advice, ``such as the [PVAB's] 
methodology, sources of information, or conflicts of interest'' could, 
depending upon particular facts and circumstances, be misleading within 
the meaning of the rule. In adopting these amendments, the Commission 
noted that ``[t]he ability of a client of a [PVAB] to make voting 
decisions is affected by the adequacy of the information it uses to 
formulate such decisions'' and stated that the amendments ``are 
designed to further clarify the potential implications of Rule 14a-9 
for proxy voting advice specifically, and to help ensure that [PVABs'] 
clients are provided with the material information they need to make 
fully informed decisions.'' \70\
---------------------------------------------------------------------------

    \69\ 2020 Adopting Release at 55121.
    \70\ Id.
---------------------------------------------------------------------------

    Although commenters on the 2019 Proposed Rules expressed concern 
that the changes to Rule 14a-9 could heighten the litigation risk for 
PVABs, the Commission stated that the 2020 Final Rules were not 
intended to change the application or scope of Rule 14a-9 or create a 
new cause of action against PVABs.\71\ The Commission also stated that 
the amendments do ``not make `mere differences of opinion' actionable 
under Rule 14a-9.'' \72\ Instead, the amendments were intended to 
clarify ``what has long been true about the application of Rule 14a-9 
to proxy voting advice and, more generally, proxy solicitations as a 
whole: No solicitation may contain any statement which, at the time and 
in light of the circumstances under which it is made, is false or 
misleading with respect to any material fact, or which omits to state 
any material fact necessary in order to make the statements therein not 
false or misleading.'' \73\
---------------------------------------------------------------------------

    \71\ Id.
    \72\ Id. The Commission also stated that ``differences of 
opinion are not actionable under the final amendment to Rule 14a-
9.'' Id. at n.443.
    \73\ Id.
---------------------------------------------------------------------------

    Despite these Commission statements regarding the intent of the 
2020 Final Rules' amendments to Rule 14a-9, PVABs, their clients and 
other investors continue to express concerns and uncertainty regarding 
the extent of PVABs' liability under Rule 14a-9.\74\ PVABs continue to 
assert that the amendments may increase their litigation risks, thereby 
increasing their costs, which, ultimately, may be passed along to their 
clients.\75\ These parties indicate that those litigation risks could 
also impair the independence and quality of PVABs' proxy voting advice 
if, for example, registrants use the threat of litigation to pressure 
PVABs to make their proxy voting advice more favorable to such 
registrants. Further, PVABs and their clients remain concerned that 
Rule 14a-9 claims may be available for registrants who disagree with 
their proxy voting advice. Such disagreements could pertain not only to 
PVABs' voting recommendations, but also to the specific methodology, 
analysis and information that PVABs use to formulate their 
recommendations.
---------------------------------------------------------------------------

    \74\ See supra notes 23-25 (citing to concerns that investors 
and others have expressed regarding the 2020 Final Rules, including 
the amendment to Rule 14a-9). In addition, because of the large 
similarities between the proposed amendment to Rule 14a-9 in the 
2019 Proposed Rules and the amendment to Rule 14a-9 adopted in the 
2020 Final Rules, we also consider some of the comment letters that 
expressed concerns regarding the proposed amendment to be relevant 
for purposes of evaluating the ongoing concerns regarding Note (e) 
to Rule 14a-9, as adopted. See comment letters from Carl C. Icahn 
(Feb. 7, 2020), Marcie Frost, Chief Executive Officer, CalPERS (Feb. 
3, 2020), Rob Collins, Council for Investor Rights and Corporate 
Accountability (Feb. 3, 2020), Richard B. Zabel, General Counsel and 
Chief Legal Officer, Elliott Management Corporation (Jan. 31, 2020), 
Kevin Cameron, Executive Chair, Glass Lewis (Feb. 3, 2020), and Gary 
Retelny, CEO, ISS (Jan. 31, 2020).
    \75\ Id.
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2. Proposed Amendment
    As explained in the release adopting the 2020 Final Rules, the 
Commission's position is that proxy voting advice is a ``solicitation'' 
and, as such, is subject to Rule 14a-9's prohibition against material 
misstatements and omissions.\76\ We recognize, however, that PVABs, 
their clients and other investors continue to express concerns that the 
2020 Final Rules' amendments to Rule 14a-9 may extend liability to mere 
differences of opinion regarding the proxy voting advice.\77\ These 
differences of opinion could include disagreements regarding the 
substance of a PVAB's voting recommendations (e.g., a registrant's 
disagreement with a PVAB's recommendation that shareholders vote 
against a director nominee recommended by the board) or the appropriate 
analysis, methodology or information that the PVAB should use to 
formulate its voting recommendations (e.g., a disagreement between a 
registrant and a PVAB regarding the appropriate peer companies for a 
particular analysis). These parties have also expressed concerns that a 
PVAB could be liable under Rule 14a-9 solely because it declined to 
accept a registrant's suggested revisions or corrections to its proxy 
voting advice.\78\ In their view, these uncertainties unnecessarily 
increase the litigation risk to PVABs and impair the independence

[[Page 67390]]

of the proxy voting advice that investors use to make their voting 
decisions.
---------------------------------------------------------------------------

    \76\ 2020 Adopting Release at 55093-94.
    \77\ See supra notes 23-25.
    \78\ Id.; see also comment letter from Gary Retelny, CEO, ISS 
(Jan. 31, 2020).
---------------------------------------------------------------------------

    In light of these concerns, we are proposing to delete Note (e) to 
Rule 14a-9. As discussed above, Note (e) sets forth examples of what 
may, depending on the particular facts and circumstances, be misleading 
within the meaning of Rule 14a-9 with respect to proxy voting advice. 
Although Note (e) was intended to clarify the potential implications of 
Rule 14a-9 for proxy voting advice under existing law, it appears 
instead to have unintentionally created a misperception that the 
addition of Note (e) to Rule 14a-9 purported to determine or alter the 
law governing Rule 14a-9's application and scope, including its 
application to statements of opinion.\79\ The proposed deletion of Note 
(e) is intended to address that misperception and thereby reduce any 
resulting uncertainty that could lead to increased litigation risks or 
the threat of litigation and impaired independence of proxy voting 
advice.
---------------------------------------------------------------------------

    \79\ See supra note 74 and accompanying text.
---------------------------------------------------------------------------

    At the same time, we believe it may be helpful to briefly clarify 
our understanding of the limited circumstances in which a PVAB's 
statement of opinion may subject it to liability under Rule 14a-9. A 
PVAB, like any other person engaged in solicitation, may, depending on 
the facts and circumstances, be subject to liability under Rule 14a-9 
for a materially misleading statement or omission of fact, including 
with regard to its methodology, sources of information or conflicts of 
interest. That conclusion would not be altered by virtue of our 
proposed deletion of Note (e). We recognize, however, that the 
formulation of proxy voting advice often requires subjective 
determinations and exercise of professional judgment. We do not 
interpret Rule 14a-9 to subject PVABs to liability for such 
determinations simply because a registrant holds a differing view.
    Our conclusion that Rule 14a-9 liability cannot rest on mere 
differences of opinion is supported by the Supreme Court's decisions in 
Omnicare, Inc. v. Laborers District Council Construction Industry 
Pension Fund \80\ and Virginia Bankshares, Inc. v. Sandberg.\81\ As 
noted above, Rule 14a-9 prohibits misstatements or omissions of 
``material fact.'' In Omnicare, the Court explained that ``a sincere 
statement of pure opinion is not an `untrue statement of material 
fact''' even if the belief is wrong.\82\ Thus, to state a claim under 
Rule 14a-9, it would not be enough to allege that a PVAB's opinions--
regarding, for example, its determination to select a particular 
analysis or methodology to formulate its voting recommendations or the 
ultimate voting recommendations themselves--were wrong.\83\
---------------------------------------------------------------------------

    \80\ 575 U.S. 175 (2015).
    \81\ 501 U.S. 1083 (1991). While Omnicare involved claims 
brought under Section 11 of the Securities Act of 1933, we believe 
its discussion of the circumstances in which a statement of opinion 
may be actionable under that provision applies to Rule 14a-9. See 
Omnicare, 575 U.S. at 185 n.2 (noting that Rule 14a-9 ``bars conduct 
similar to that described in Sec.  11''); see also, e.g., Golub v. 
Gigamon, Inc., 994 F.3d 1102 (9th Cir. 2021) (holding that the 
Omnicare standards apply to claims under Rule 14a-9); Paradise Wire 
& Cable Defined Benefit Pension Plan v. Weil, 918 F.3d 312, 322-23 
(4th Cir. 2019) (applying the Omnicare standards to claims under 
Rule 14a-9).
    \82\ 575 U.S. at 186.
    \83\ Id. at 194.
---------------------------------------------------------------------------

    As the Court explained in Omnicare, there are three ways in which a 
statement of opinion may be actionable as a misstatement or omission of 
material fact. First, every statement of opinion ``explicitly affirms 
one fact: That the speaker actually holds the stated belief.'' \84\ 
Thus, a PVAB may be subject to liability under Rule 14a-9 for a 
statement of opinion that ``falsely describe[s]'' its view as to the 
voting decision that it believes the client should make.\85\ Second, a 
statement of opinion may contain ``embedded statements of fact'' which, 
if untrue, may be a source of liability under Rule 14a-9.\86\ And 
third, ``a reasonable investor may, depending on the circumstances, 
understand an opinion statement to convey facts about how the speaker 
has formed the opinion--or, otherwise put, about the speaker's basis 
for holding that view.'' \87\ A PVAB's statement of opinion may thus 
give rise to liability if it ``omits material facts about the [PVAB's] 
inquiry into or knowledge concerning [the] statement'' and ``those 
facts conflict with what a reasonable investor would take from the 
statement itself.'' \88\
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    \84\ Id. at 184.
    \85\ Id.; see also Virginia Bankshares, 501 U.S. at 1092, 1095. 
For example, if a speaker states the belief that a company has the 
highest market share, while knowing that the company in fact has the 
second highest market share, that statement of belief would be an 
``untrue statement of fact'' about the speaker's own belief.
    \86\ Omnicare, 575 U.S. at 185-86; see also Virginia Bankshares, 
501 U.S. at 1092, 1095. For example, in stating its opinion that 
shareholders should vote for a particular director-candidate, a PVAB 
may support that opinion by reference to that candidate's prior 
professional experience. Those descriptions of the candidate's 
professional experience would be statements of fact potentially 
subject to liability under Rule 14a-9, notwithstanding the context 
in which they were made (i.e., as support for a statement of 
opinion).
    \87\ Omnicare, 575 U.S. at 188.
    \88\ Id. at 189. In Omnicare, the court offered the example of 
``an unadorned statement of opinion about legal compliance: `We 
believe our conduct is lawful.''' Id. at 188. The court noted that 
``[i]f the issuer makes that statement without having consulted a 
lawyer, it could be misleadingly incomplete.'' Id. This example can 
also be applied to a PVAB's proxy voting advice if, for example, it 
makes a statement of opinion regarding the legality of a 
registrant's proposal or corporate action without having consulted a 
lawyer.
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    Omnicare and Virginia Bankshares support our view that neither mere 
disagreement with a PVAB's analysis, methodology or opinions, nor a 
bare assertion that a PVAB failed to reveal the basis for its 
conclusions, would suffice to state a claim under Rule 14a-9. Rather, a 
litigant ``must identify particular (and material) facts'' indicating a 
misstatement or omission of a material fact that renders a PVAB's 
statements misleading in one of the three senses above--which, the 
Supreme Court noted, is ``no small task.'' \89\ As such, a PVAB would 
not face liability under Rule 14a-9 for exercising its discretion to 
rely on a particular analysis, methodology or set of information--while 
relying less heavily on or not adopting alternative analyses, 
methodologies or sets of information, including those advanced by a 
registrant or other party--when formulating its voting recommendations. 
Similarly, a PVAB would not face liability under Rule 14a-9, for 
example, simply because it did not accept a registrant's suggested 
revisions to its proxy voting advice concerning such discretionary 
matters. Instead, a PVAB's potential liability under Rule 14a-9 turns 
on whether its proxy voting advice contains a material misstatement or 
omission of fact.\90\
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    \89\ Id. at 194. We further note that both Omnicare and Virginia 
Bankshares were cases against registrants; we are not aware of any 
enforcement actions or private lawsuits against a PVAB based on 
statements of opinion in connection with proxy voting matters.
    \90\ This release does not address any duties or liabilities 
that a PVAB may have under the Investment Advisers Act of 1940, as 
applicable.
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Request for Comment
    7. Should we amend Rule 14a-9 as proposed to remove Note (e)? 
Should we modify the Note instead of deleting it? If so, how should the 
Note be modified? Rather than rescinding or amending Note (e), should 
we instead commit to conducting a retrospective review of Note (e) 
after a given period of time? If so, what is the appropriate amount of 
time after which we should conduct such review? What would be the 
potential drawbacks of conducting such a retrospective review?
    8. Has the addition of Note (e) to Rule 14a-9 improved the quality 
or integrity of proxy voting advice? Is there a risk

[[Page 67391]]

that PVABs will change their policies and procedures to the detriment 
of investors if the Commission adopts the proposed amendments to Rule 
14a-9? Are there any other adverse consequences associated with the 
removal of Note (e) to Rule 14a-9?
    9. Has the addition of Note (e) to Rule 14a-9 resulted in increased 
litigation for PVABs? Have PVABs experienced an increase in litigation 
costs or credible threats of litigation since the adoption of the 2020 
Final Rules? Have there been any other adverse consequences associated 
with the addition of Note (e) to Rule 14a-9?
    10. We have set forth our understanding of the scope of Rule 14a-9 
liability in the context of proxy voting advice. Are there other ways 
we could address concerns about potential increased litigation risks to 
PVABs and impairment of the independence of proxy voting advice? For 
example, should we amend Rule 14a-9 to codify this understanding? 
Alternatively, should we exempt all or parts of proxy voting advice 
from Rule 14a-9 liability entirely? For example, should we amend Rule 
14a-9 to expressly state that a PVAB would not be subject to liability 
under that rule for its voting recommendations and any subjective 
determinations it makes in formulating such recommendations, including 
its decision to use a specific analysis, methodology or information or 
its decision as to how to respond to any disagreement a registrant may 
have with its proxy voting advice?

III. Economic Analysis

    We are proposing amendments to Exchange Act Rule 14a-2(b)(9) to 
rescind the Rule 14a-2(b)(9)(ii) conditions. The purpose of these 
proposed amendments is to address concerns about the potential adverse 
effects of the 2020 Final Rules on the independence, cost and 
timeliness of proxy voting advice, while still achieving many of the 
intended benefits of the 2020 Final Rules with respect to the quality 
of the advice provided to PVABs' clients. We also are proposing an 
amendment to Exchange Act Rule 14a-9 to remove paragraph (e) of the 
Note to that rule. The purpose of this proposed amendment is to avoid 
any misperception that the addition of Note (e) to Rule 14a-9 purported 
to determine or alter the law governing that rule's application and 
scope, including its application to statements of opinion.
    The discussion below addresses the economic effects of the proposed 
amendments, including their anticipated costs and benefits, as well as 
the likely effects of the amendments on efficiency, competition and 
capital formation.\91\ We also analyze the potential costs and benefits 
of reasonable alternatives to the proposed amendments. Where 
practicable, we have attempted to quantify the economic effects of the 
proposed amendments; however, in most cases, we are unable to do so 
because either the necessary data is unavailable or certain effects are 
not quantifiable. Below, we request comment on our analysis of these 
effects as well as data that could help us quantify these effects.
---------------------------------------------------------------------------

    \91\ Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)] directs 
the Commission, when engaging in rulemaking where it is required to 
consider or determine whether an action is necessary or appropriate 
in the public interest, to consider, in addition to the protection 
of investors, whether the action will promote efficiency, 
competition, and capital formation. Further, Section 23(a)(2) of the 
Exchange Act [17 U.S.C. 78w(a)(2)] requires the Commission when 
making rules under the Exchange Act, to consider the impact that the 
rules would have on competition, 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.
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A. 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, PVABs, investment advisers and other clients 
of PVABs, as well as current industry practices used by these entities 
in connection with the preparation, distribution and use of proxy 
voting advice.
    The adopting release for the 2020 Final Rules provided an overview 
of the role of PVABs in the proxy process, including a discussion of 
existing economic research on PVABs and the quality of proxy voting 
advice they provide.\92\
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    \92\ See 2020 Adopting Release.
---------------------------------------------------------------------------

1. Affected Parties and Current Market Practices
a. Proxy Voting Advice Businesses
    As of November 2021, to our knowledge, the proxy voting advice 
industry in the United States consists of three major firms: ISS, Glass 
Lewis and Egan-Jones.
     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.\93\ 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).\94\ As of April 2020, ISS had nearly 2,000 
employees in 30 locations, and covered approximately 44,000 shareholder 
meetings in 115 countries, annually.\95\ ISS states that it executes 
about 10.2 million ballots annually on behalf of those clients 
representing 4.2 trillion shares.\96\ 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.\97\
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    \93\ See U.S. Gov't Accountability Office, GAO-17-47, Report to 
the Chairman, Subcommittee on Economic Policy, Committee on Banking, 
Housing, and Urban Affairs, U.S. Senate, Corporate Shareholder 
Meetings: Proxy Advisory Firms' Role in Voting and Corporate 
Governance Practices, 6 (2016), available at https://www.gao.gov/assets/690/681050.pdf (``2016 GAO Report'').
    \94\ Id.
    \95\ See About ISS, available at https://www.issgovernance.com/about/about-iss.
    \96\ See About ISS, https://www.issgovernance.com/about/about-iss.
    \97\ See Form ADV filing for ISS, available at: https://adviserinfo.sec.gov/IAPD/content/ViewForm/crd_iapd_stream_pdf.aspx?ORG_PK=111940 (last accessed April 23, 
2020) (``ISS Form ADV filing''). See also 2016 GAO Report at 9.
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     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.\98\ As of April 2020, Glass Lewis had more than 380 
employees worldwide that provide services to more than 1,300 clients 
that collectively manage more than $35 trillion in assets.\99\ Glass 
Lewis states that it covers more than 20,000 shareholder meetings 
across approximately 100 global markets annually.\100\ Glass Lewis is 
not registered with the Commission in any capacity.
---------------------------------------------------------------------------

    \98\ Id. at 7.
    \99\ See Glass Lewis Company Overview, available at https://www.glasslewis.com/company-overview/.
    \100\ Id.
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     Egan-Jones was established in 2002 as a division of Egan-
Jones Ratings Company.\101\ 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.\102\ As of September 
2016, Egan-Jones' proxy research or voting clients mostly consisted of 
mid- to large-sized mutual funds,\103\ and the firm

[[Page 67392]]

covered approximately 40,000 companies.\104\ Egan-Jones Ratings Company 
(Egan-Jones' parent company) is registered with the Commission as a 
Nationally Recognized Statistical Ratings Organization.\105\
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    \101\ See 2016 GAO Report at 7.
    \102\ Id.
    \103\ Id.
    \104\ 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.
    \105\ 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.
---------------------------------------------------------------------------

    Of the three PVABs identified, ISS and Glass Lewis are the largest 
and most often used for proxy voting advice.\106\ We do not have access 
to general financial information for ISS, Glass Lewis and Egan-Jones 
such as annual revenues, earnings before interest, taxes, depreciation 
and amortization and net income. We also do not have access to client-
specific financial information or more general or aggregate information 
regarding the economics of the PVABs.
---------------------------------------------------------------------------

    \106\ See 2016 GAO Report 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 letters in response to the SEC Staff Roundtable 
on the Proxy Process from Center on Executive Compensation (Mar. 7, 
2019) (noting that there are ``two firms controlling roughly 97% of 
the market share for such services''); Society for Corporate 
Governance (Nov. 9, 2018) (``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. . . . .'').
---------------------------------------------------------------------------

    As part of our consideration of the baseline for the proposed 
amendments, we focus on the industry practice that is particularly 
relevant for the proposed amendments to Rule 14a-2(b)(9): The PVABs' 
procedures for engagement with registrants. As mentioned above, all 
three major PVABs have certain policies, procedures and disclosures in 
place intended to assure clients that the proxy voting advice they 
receive will be based on accurate, transparent and complete 
information.\107\ In some cases, PVABs seek input from registrants to 
further these objectives. Glass Lewis and Egan-Jones offer registrants 
some form of pre-release review of at least some of their proxy voting 
advice reports, or the data used in their reports. ISS does not provide 
draft proxy voting advice to any United States registrants, but it 
engages with registrants during the process of formulating its proxy 
voting advice. Also, all three PVABs offer registrants access to proxy 
voting advice after it is distributed to clients, in some cases for a 
fee, and offer mechanisms by which registrants can provide feedback on 
such advice. In the 2021 Annual Report, after reviewing each member-
PVAB's compliance report, the Oversight Committee found that ISS and 
Glass Lewis met the standards established in the three best practices 
principles, which include communication with and feedback from 
registrants.\108\
---------------------------------------------------------------------------

    \107\ See supra Section II.A.1.
    \108\ See supra Section II.A.1.
---------------------------------------------------------------------------

    Additionally, it is our understanding that some PVABs currently 
provide their clients with notifications of and links to filings by 
registrants that are the subject of proxy voting advice in their online 
platforms.\109\ These notifications and links provide a means by which 
clients may access additional definitive proxy materials that 
registrants may file in response to proxy voting advice.
---------------------------------------------------------------------------

    \109\ See supra note 57.
---------------------------------------------------------------------------

b. Clients of Proxy Voting Advice Businesses as Well as Underlying 
Investors
    Clients that use PVABs for proxy voting advice will be affected by 
the proposed amendments. In turn, investors and other groups on whose 
behalf these clients make voting determinations will be affected. One 
of the three major PVABs--ISS--is registered with the Commission as an 
investment adviser and, as such, provides annually updated disclosure 
with respect to its types of clients on Form ADV. Table 1 below reports 
client types as disclosed by ISS.\110\
---------------------------------------------------------------------------

    \110\ See ISS Form ADV filing (describing clients classified as 
``Other'' as ``Academic, vendor, other companies not able to 
identify as above'').

                Table 1--Number of Clients by Client Type
                         [As of March 28, 2020]
------------------------------------------------------------------------
                                                              Number of
                     Type of client \a\                      clients \b\
------------------------------------------------------------------------
Banking or thrift institutions.............................          195
Pooled investment vehicles.................................          300
Pension and profit sharing plans...........................          170
Charitable organizations...................................          110
State or municipal government entities.....................           10
Other investment advisers..................................          960
Insurance companies........................................           40
Sovereign wealth funds and foreign official institutions...           10
Corporations or other businesses not listed above..........           70
Other......................................................          225
                                                            ------------
  Total....................................................        2,095
------------------------------------------------------------------------
\a\ The table excludes client types for which ISS indicated either zero
  clients or fewer than five clients.
\b\ 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), it
  may indicate that it has fewer than five clients rather than reporting
  the number of clients.

    Table 1 illustrates the types of clients that utilize the services 
of one of the largest PVABs. For example, while investment advisers 
(``Other investment advisers'' in Table 1) constitute a 46 percent 
plurality of clients for ISS, other types of clients include pooled 
investment vehicles (14 percent) and pension and profit sharing plans 
(eight percent). Other users of the services offered by ISS include 
corporations, charitable organizations and insurance companies.\111\ 
Certain of these users of PVABs' services make voting determinations 
that affect the interests of a wide array of individual investors, 
beneficiaries and other constituents.
---------------------------------------------------------------------------

    \111\ Id.
---------------------------------------------------------------------------

c. Registrants
    Registrants also will 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 with respect to those registrants are 
subject to the Federal proxy rules.\112\ In addition, there are certain 
other companies that do not have a class of equity securities 
registered under Section 12 of the Exchange Act that 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.\113\
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    \112\ Foreign private registrants are exempt from the Federal 
proxy rules under Rule 3a12-3(b) of the Exchange Act. See 17 CFR 
240.3a12-3. Furthermore, we are not aware of any asset-backed 
registrants that have a class of equity securities registered under 
Section 12 of the Exchange Act. Most asset-backed registrants are 
registered under Section 15(d) of the Exchange Act and thus are not 
subject to the Federal proxy rules. Nine asset-backed registrants 
obtained a class of debt securities registered under Section 12 of 
the Exchange Act as of December 2018. As a result, these asset-
backed registrants are not subject to the Federal proxy rules.
    \113\ Under Rule 20a-1 of the Investment Company Act, registered 
management investment companies must 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 with respect to a 
security registered pursuant to Section 12 of the Exchange Act. See 
17 CFR 270.20a-1. Additionally, ``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.
---------------------------------------------------------------------------

    We note that because registrants are owned by investors, effects on 
registrants as a result of the proposed amendments will accrue to 
investors. Among the investors in a given registrant, there may be 
individual investors or groups of investors that may want to influence 
the direction that the registrant should pursue. Those individual 
investors or groups of investors could be clients of PVABs. Separately, 
because of the principal-agent relationship between investors

[[Page 67393]]

and management in a corporation, there may exist conflicts between 
management of the registrant and investors. It is possible that some 
investors may use PVABs' advice as part of their decision-making 
process on a particular matter presented for shareholder approval for 
which management's interests may not be aligned with those of investors 
in general.
    As of December 31, 2020, we estimate that approximately 5,400 
registrants had a class of securities registered under Section 12 of 
the Exchange Act.\114\ As of the same date, there were approximately 86 
companies that did not have a class of securities registered under 
Section 12 of the Exchange Act that filed proxy materials.\115\ As of 
September 30, 2021, there were 14,062 registered management investment 
companies that were subject to the proxy rules: (i) 13,347 open-end 
funds, out of which 2,497 were Exchange Traded Funds (``ETFs'') 
registered as open-end funds or open-end funds that had an ETF share 
class; (ii) 701 closed-end funds; and (iii) 14 variable annuity 
separate accounts registered as management investment companies.\116\ 
As of June 2021, we identified 99 Business Development Companies 
(``BDCs'') that could be subject to the proposed amendments.\117\ The 
summation of these estimates yields 19,647 companies that may be 
affected by the proposed amendments.\118\
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    \114\ We are able to estimate the number of registrants with a 
class of securities registered under Section 12 of the Exchange Act 
by reviewing all Forms 10-K and 10-K amendments filed during 
calendar year 2018 with the Commission. After reviewing all forms, 
we then count 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 
registrants that filed both Forms 20-F and 40-F, as well as asset-
backed registrants that filed Forms 10-D and 10-D/A during calendar 
year 2018 with the Commission are excluded from this estimate. This 
estimate excludes BDCs that filed Form 10-K or an amendment in 2020.
    \115\ We identify these issuers as those that: (1) Are subject 
to the reporting obligations of Exchange Act Section 15(d), but do 
not have a class of equity securities registered under Exchange Act 
Section 12(b) or 12(g); and (2) have filed any proxy materials 
during calendar year 2020 with the Commission. Additionally, we are 
considering the following proxy materials in our analysis: DEF14A; 
DEF14C; DEFA14A; DEFC14A; DEFM14A; DEFM14C; DEFR14A; DEFR14C; 
DFAN14A; N-14; PRE 14A; PRE 14C; PREC14A; PREM14A; PREM14C; PRER14A; 
PRER14C. Form N-14 can be a registration statement and/or proxy 
statement. We also manually review all Forms N-14 filed during 
calendar year 2020 with the Commission, excluding any Forms N-14 
that are exclusively registration statements from our estimates. To 
identify registrants 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 2020 with the Commission. We then count 
the number of unique registrants that identify themselves as subject 
to Section 15(d) reporting obligations with no class of equity 
securities registered under Section 12(b) or Section 12(g).
    \116\ We estimate the number of unique registered management 
investment companies based on Forms N-CEN filed between December 
2020 and September 2021 with the Commission. Open-end funds are 
registered on Form N-1A, while 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.
    \117\ BDCs are entities that have been issued an 814-reporting 
number. Our estimate includes 82 BDCs that filed Form 10-K in 2020, 
as well as 17 BDCs that were not traded.
    \118\ The 19,647 potentially affected registrants is the sum of: 
(a) 5,400 registrants with a class of securities registered under 
Section 12 of the Exchange Act; (b) 86 registrants without a class 
of securities registered under Section 12 of the Exchange Act that 
filed proxy materials; (c) 14,062 registered management investment 
companies; and (d) 99 BDCs.
---------------------------------------------------------------------------

    The above estimates are an upper bound of the number of potentially 
affected companies because not all of these registrants may file proxy 
materials related to a meeting for which a PVAB issues proxy voting 
advice in a given year. Out of the 19,647 potentially affected 
registrants mentioned above, approximately 5,350 filed proxy materials 
with the Commission during calendar year 2020.\119\ Out of the 5,350 
registrants, 4,500 (84 percent) were Section 12 or Section 15(d) 
registrants and the remaining 850 (16 percent) were registered 
management investment companies.
---------------------------------------------------------------------------

    \119\ See 2020 Adopting Release at n.544 (setting forth details 
on the estimation of companies that filed proxy materials with the 
Commission during calendar year 2018).
---------------------------------------------------------------------------

2. Current Regulatory Framework
    On July 22, 2020, the Commission adopted the 2020 Final Rules. The 
2020 Final Rules:
     Amended Rule 14a-1(l) to codify the Commission's 
interpretation that proxy voting advice generally constitutes a 
``solicitation'' subject to the proxy rules.
     Adopted Rule 14a-2(b)(9) to add new conditions to two 
exemptions (set forth in Rules 14a-2(b)(1) and (3)) that PVABs 
generally rely on to avoid the proxy rules' information and filing 
requirements. Those conditions include:
    [cir] New conflicts of interest disclosure requirements; and
    [cir] The Rule 14a-2(b)(9)(ii) conditions.
     Amended the Note to Rule 14a-9, which prohibits false or 
misleading statements, to include specific examples of material 
misstatements or omissions related to proxy voting advice. 
Specifically, Note (e) provides that the failure to disclose material 
information regarding proxy voting advice, ``such as the [PVAB's] 
methodology, sources of information, or conflicts of interest'' could, 
depending upon particular facts and circumstances, be misleading within 
the meaning of the rule.
    The changes to the definition of ``solicitation'' and to Rule 14a-9 
became effective on November 2, 2020. The conditions set forth in Rule 
14a-2(b)(9) will become effective on December 1, 2021.

B. Benefits and Costs

    In the following sections, we discuss the specific benefits and 
costs of the proposed amendments.
1. Benefits
    The main benefit for PVABs from our proposed rescission of the Rule 
14a-2(b)(9)(ii) conditions would be the reduction of the initial or 
ongoing \120\ direct costs associated with modifying their current 
systems and methods, or developing and maintaining new systems and 
methods, to satisfy the requirement of Rule 14a-2(b)(9)(ii)(A) that 
PVABs adopt and publicly disclose written policies and procedures 
reasonably designed to ensure that registrants that are the subject of 
proxy voting advice have such advice made available to them at or prior 
to the time such advice is disseminated to PVABs' clients. 
Additionally, the proposed amendments would reduce the direct costs of 
satisfying the requirement of Rule 14a-2(b)(9)(ii)(B) that PVABs adopt 
and publicly disclose written policies and procedures reasonably 
designed to ensure that PVABs provide clients with a mechanism by which 
they can reasonably be expected to become aware of a registrant's 
written statements about the proxy voting advice in a timely manner 
before the shareholder meeting.

[[Page 67394]]

As set forth in the 2020 Final Rules, to be eligible for the safe 
harbor in Rule 14a-2(b)(9)(iv), a PVAB could provide: (i) Notice on its 
electronic client platform that the registrant has filed, or has 
informed the PVAB that it intends to file, additional soliciting 
materials (and include an active hyperlink to those materials on EDGAR 
when available); or (ii) notice through email or other electronic means 
that the registrant has filed, or has informed the PVAB that it intends 
to file, additional soliciting materials (and include an active 
hyperlink to those materials on EDGAR when available). Both mechanisms 
for informing clients could involve initial set-up costs as well as 
ongoing costs.
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    \120\ The compliance date for the Rule 14a-2(b)(9)(ii) 
conditions is December 1, 2021. On June 1, 2021, the Division of 
Corporation Finance issued a statement that it would not recommend 
enforcement action based on the Interpretive Release or the 2020 
Final Rules during the period in which the Commission is considering 
further regulatory action in this area. Division of Corporation 
Finance, Statement on Compliance with the Commission's 2019 
Interpretation and Guidance Regarding the Applicability of the Proxy 
Rules to Proxy Voting Advice and Amended Rules 14a-1(1), 14a-2(b), 
14a-9, U.S. Securities and Exchange Commission, available at https://www.sec.gov/news/public-statement/corp-fin-proxy-rules-2021-06-01. 
This staff statement does not alter the December 1, 2021 compliance 
date for the Rule 14a-2(b)(9)(ii) conditions, and thus we recognize 
that PVABs may have already incurred certain costs to modify their 
systems or otherwise ensure that the conditions of the exemption are 
met. Even so, the elimination of these conditions would eliminate 
any ongoing costs or other costs of the conditions that have not yet 
been incurred. To the extent a PVAB has not yet incurred any direct 
costs from the Rule 14a-2(b)(9)(ii) conditions, the proposed 
amendments would eliminate or avoid potential future costs.
---------------------------------------------------------------------------

    To the extent PVABs already have similar systems in place to meet 
the requirements of Rules 14a-2(b)(9)(ii)(A) and (B), any benefits from 
the proposed amendments may be limited.\121\ For purposes of the 
Paperwork Reduction Act of 1995 (``PRA''),\122\ in the adopting release 
for the 2020 Final Rules, we estimated that each PVAB would incur 2,845 
burden hours to satisfy Rule 14a-2(b)(9)(ii)(A) and 2,845 burden hours 
to satisfy Rule 14a-2(b)(9)(ii)(B).\123\ Also for purposes of our PRA 
analysis, we estimated that each PVAB would incur a burden of between 
50 and 5,690 hours per year associated with securing an acknowledgment 
or other assurance that the proxy voting advice will not be 
disclosed.\124\ We believe that the proposed amendments would eliminate 
these PRA burdens.
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    \121\ See supra Section II.A.1.
    \122\ 44 U.S.C. 3501 et seq.
    \123\ See 2020 Adopting Release at Section V.B.1.
    \124\ See 2020 Adopting Release at Section V.B.1.
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    Additionally, while all three major PVABs currently offer 
registrants access to their proxy voting advice, in some circumstances 
they may charge a fee to registrants for such access.\125\ Once the 
Rule 14a-2(b)(9)(ii) conditions become effective, the requirement to 
share full reports with registrants under Rule 14a-2(b)(9)(ii) may 
result in a PVAB providing access to proxy voting reports at no charge 
to registrants to the extent that the PVAB relies on the safe harbor 
provided in Rule 14a-2(b)(9)(iii) to satisfy the condition in Rule 14a-
2(b)(9)(ii)(A).\126\ This would cause such a PVAB to lose fees it 
otherwise would have earned from selling proxy voting advice to 
registrants. By eliminating the Rule 14a-2(b)(9)(ii) conditions (and, 
therefore, the need to rely on the Rule 14a-2(b)(9)(iii) safe harbor), 
the proposed amendments could allow PVABs to charge registrants for 
access to the proxy voting reports, thus increasing their revenues.
---------------------------------------------------------------------------

    \125\ See 2020 Adopting Release at Section IV.B.1.a.ii.
    \126\ To rely on the safe harbor in Rule 14a-2(b)(9)(iii), a 
PVAB must provide registrants with a copy of the proxy voting advice 
at no charge.
---------------------------------------------------------------------------

    The proposed amendments may also benefit other parties. PVABs may 
pass through a portion of the costs of modifying, developing or 
maintaining systems to meet the Rule 14a-2(b)(9)(ii) conditions to 
their clients through higher fees for proxy voting advice. Eliminating 
such costs could therefore be beneficial to clients of PVABs.
    Some commenters on the 2019 Proposed Rules suggested that the 
proposal could negatively affect PVABs' independence: Because of the 
ability of registrants to review and provide feedback on proxy voting 
advice in advance of its dissemination to PVABs' clients (and 
potentially lobby PVABs for changes to recommendations), the 2019 
Proposed Rules could have diminished PVABs' willingness to recommend 
votes against management, thus substantially diminishing the 
independent information available to investors and impeding investors' 
ability to monitor company management.\127\ The 2020 Final Rules did 
not include a registrant advance review and feedback process, and 
instead implemented a principles-based approach, in an effort to 
address such concerns. However, notwithstanding these changes, clients 
of PVABs have continued to express strong concerns about the adverse 
effects of the amendments on the independence of proxy voting advice. 
To the extent that the proposed amendments eliminate the possibility of 
such alleged adverse effects, they would benefit PVABs, their clients 
and investors in general.
---------------------------------------------------------------------------

    \127\ See comment letters from Fiona Reynolds, Chief Executive 
Officer, Principles for Responsible Investment (Feb. 3, 2020) and 
ISS.
---------------------------------------------------------------------------

    Lastly, we do not expect the proposed deletion of paragraph (e) to 
the Note to Rule 14a-9 to generate any significant benefits other than 
avoiding any misperception that the 2020 Final Rules' addition of that 
paragraph purported to determine or alter the law governing Rule 14a-
9's application and scope, including its application to statements of 
opinion. Notwithstanding this proposed deletion, a PVAB may still be 
subject to liability under Rule 14a-9, depending on the facts and 
circumstances, for a materially misleading statement or omission of 
fact, including with regard to its methodology, sources of information 
or conflicts of interest. Thus, we expect that this proposed amendment 
would not have any significant economic effect.
2. Costs
    The proposed amendments may impose costs on the clients of PVABs--
and thereby ultimately the investors they serve--by potentially 
reducing the overall mix of information available to those clients as 
they assess proxy voting advice and make determinations about how to 
cast votes. Requiring timely notice to registrants of proxy voting 
advice could allow registrants to more effectively determine whether 
they wish to respond to the recommendation by publishing additional 
soliciting materials and to do so in a timely manner before 
shareholders cast their votes. Registrants may wish to do so for a 
variety of reasons, including, for example, because they have 
identified what they perceive to be factual errors or methodological 
weaknesses in a PVAB's analysis or because they have a different or 
additional perspective with respect to the advice. In either case, 
clients of PVABs, and registrants' investors in general, may benefit 
from the availability of additional information upon which to base 
their voting decisions. Clients of PVABs often must make voting 
decisions in a compressed time period. Timely access to registrant 
responses to proxy voting advice could facilitate a client's evaluation 
of the advice by highlighting disagreements regarding facts and data, 
differences of opinion or additional perspectives before the client 
casts its votes. To the extent that the proposed amendments reduce this 
type of information and it is valuable to investors, the proposed 
amendments may make it more costly for investors to obtain such 
information and to make timely voting decisions. Additionally, to the 
extent that a PVAB relies on the safe harbor Rule 14a-2(b)(9)(iii), 
which requires PVABs to provide registrants with their proxy voting 
advice for free, the proposed amendments may cause some registrants to 
incur costs in the form of fees or the purchase of additional PVAB 
services in order to obtain and respond to proxy voting advice. Such 
costs will ultimately be borne by investors.
    We note, however, that some PVABs currently have internal policies 
and procedures aimed at enabling feedback from certain registrants 
before they issue voting advice.\128\ Additionally, the above-described 
efforts by PVABs to develop industry-wide standards, such

[[Page 67395]]

as the BPPG's principles and the Oversight Committee's role in 
assessing compliance with such standards, could address some of the 
concerns underlying the Rule 14a-2(b)(9)(ii) conditions. Thus, if PVABs 
already provide accurate and complete proxy voting advice to their 
clients, this potential cost associated with the proposed amendments 
may not be significant. Moreover, because PVABs developed these 
internal policies and measures themselves, we believe they are less 
likely to adversely affect the independence, cost and timeliness of 
proxy voting advice than measures they would adopt to satisfy the Rule 
14a-2(b)(9)(ii) conditions.
---------------------------------------------------------------------------

    \128\ See, e.g., comment letters from Kevin Cameron, Executive 
Chair, Glass Lewis (Feb. 3, 2020) and ISS.
---------------------------------------------------------------------------

    Lastly, we do not expect the proposed deletion of Note (e) to Rule 
14a-9 to create any significant costs for PVABs. Given that this 
proposed amendment would not alter a PVAB's liability under Rule 14a-9, 
we would expect that its economic impact would be minimal.

C. Effects on Efficiency, Competition, and Capital Formation

    As discussed in Section III.A above, PVABs perform a variety of 
functions for their clients, including analyzing and making voting 
recommendations on matters presented for shareholder votes and included 
in registrants' proxy statements. As an alternative to utilizing these 
services, clients of PVABs could instead conduct their own analyses and 
execute votes using internal resources.\129\ Given the costs of 
analyzing and voting proxies, the services offered by PVABs may offer 
economies of scale relative to their clients performing those functions 
themselves. For example, a GAO study found that among 31 institutions, 
including mutual funds, pension funds and asset managers, large 
institutions rely less than small institutions on the research and 
recommendations offered by PVABs.\130\ Small institutional investors 
surveyed in the study indicated they had limited resources to conduct 
their own research.\131\
---------------------------------------------------------------------------

    \129\ Clients of PVABs may also rely on some combination of 
internal and external analysis.
    \130\ See U.S. Gov't Accountability Office, GAO-07-765, Report 
to Congressional Requesters, Corporate Shareholder Meetings: Issues 
Relating to the Firms that Advise Institutional Investors on Proxy 
Voting, 2 (2007), available at https://www.gao.gov/new.items/d07765.pdf (``2007 GAO Report''). See generally comment letter from 
Business Roundtable (Feb. 3, 2020) (stating that because many 
institutional investors face voting on a large number of corporate 
matters every year but lack personnel and resources for managing 
such activities, they outsource tasks to proxy advisors). See also 
letters in response to the SEC Staff Roundtable on the Proxy Process 
from BlackRock (Nov. 16, 2018) (stating that ``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 (Jan. 2, 2019) 
(stating that 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'').
    \131\ See 2007 GAO Report at 2. See also letters in response to 
the SEC Staff Roundtable on the Proxy Process from Ohio Public 
Retirement (Dec. 13, 2018) (``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.''); Transcript of 
Roundtable on the Proxy Process at 194 (comments of Mr. Scot 
Draeger, stating that: ``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.'').
---------------------------------------------------------------------------

    To the extent the 2020 Final Rules increase compliance costs and 
litigation-risk costs for PVABs which could be passed on to clients, 
the proposed amendments could reverse those increases along with any 
decrease in demand for PVABs' advice they may have caused. To the 
extent PVABs offer economies of scale relative to their clients 
performing certain functions themselves, increased demand for, and 
reliance upon, PVABs' services could lead to greater efficiencies in 
the proxy voting process.
    To the extent that the Rule 14a-2(b)(9)(ii) conditions impair the 
independence of PVABs or reduce the diversity of thought in the market 
for proxy voting advice (e.g., by PVABs erring on the side of caution 
in complex or contentious matters), the proposed elimination of those 
conditions could reverse those effects, thus leading to advice from 
PVABs that is more accurate, useful and valuable to their clients. If 
clients perceive the proposed amendments as positively affecting PVABs' 
objectivity and independence, this could lead to an increase in demand 
for proxy voting advice and potentially greater efficiencies in the 
proxy voting process.\132\
---------------------------------------------------------------------------

    \132\ As noted above, we do not have financial data about PVABs, 
including financial data by services provided or by client type. 
This makes these assessments on a quantitative basis difficult.
---------------------------------------------------------------------------

    If the proposed amendments reduce costs for PVABs, this could 
increase competition for proxy voting advice compared to the current 
baseline, which includes the effect of the 2020 Final Rules. In 
particular, if costs associated with the 2020 Final Rules are passed on 
to clients, the reduction of these costs because of the proposed 
amendments could encourage some investors to retain the services of 
PVABs, which could reduce the use of internal resources for voting. 
Also, if the proposed amendments improve the independence of PVABs and 
thus increase the quality of proxy voting advice, this could cause 
PVABs to compete more on this dimension. Lastly, reduction in 
compliance costs and litigation-risk costs, if large enough, may 
encourage entry into the market for proxy voting advice, increasing the 
competition among PVABs.\133\ However, given the fact that prior to the 
adoption of the 2020 Final Rules there were only three major PVABs in 
the United States, we do not expect that the proposed amendments would 
significantly increase the likelihood of new entry into this market.
---------------------------------------------------------------------------

    \133\ See comment letter from Sarah Wilson, CEO, Minerva 
Analytics (Feb. 22, 2020). In its comment letter, Minerva, a PVAB in 
the U.S. market prior to 2010, stated that the threat of litigation 
for ``errors'' is a factor influencing its views on whether to 
reenter the U.S. market. Id.
---------------------------------------------------------------------------

    If the proposed amendments facilitate the ability of clients of 
PVABs to make informed voting determinations, this 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. Overall, 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.
    Lastly, we do not expect the proposed deletion of Note (e) to Rule 
14a-9 to have any significant economic effect on efficiency, 
competition and capital formation.

D. Reasonable Alternatives

1. Interpretive Guidance or No-Action Relief on Whether Systems and 
Processes Satisfy the 2020 Final Rules
    Alternatives to rescinding the Rule 14a-2(b)(9)(ii) conditions that 
could reduce compliance costs and independence concerns for PVABs 
include the Commission issuing interpretive guidance or the staff 
providing no-action relief regarding whether the systems and processes 
that PVABs have in place satisfy the 2020 Final Rules. The benefit of 
either of these approaches is that they could reduce PVABs' initial or 
ongoing costs of complying with the 2020 Final Rules if the Commission 
were to determine that their current systems and processes already 
satisfy the conditions in Rule 14a-2(b)(9), at least to the extent 
PVABs

[[Page 67396]]

have not already made modifications to their existing business models. 
To the extent PVABs' existing systems and processes satisfy the Rule 
14a-2(b)(9)(ii) conditions, these approaches could also mitigate 
concerns that the independence of the advice could become impaired by 
making clear that modifications are not required. The potential cost of 
these alternatives is that, to the extent that PVABs' current systems 
and processes do not satisfy the 2020 Final Rules, they may not 
eliminate potential costs or concerns associated with the requirements 
of Rule 14a-2(b)(9).
2. Exempting Certain Parts of PVABs' Proxy Voting Advice From Rule 14a-
9 Liability
    Rather than, or in addition to, deleting Note (e) to Rule 14a-9, 
the Commission could amend Rule 14a-9 to exempt certain portions of 
proxy voting advice from Rule 14a-9 liability. For example, the 
Commission could amend Rule 14a-9 to expressly state that a PVAB would 
not be subject to liability under that rule for any subjective 
determinations it makes in formulating its recommendations, including 
its decision to use a specific analysis, methodology or information. 
The benefit of this alternative would be that it may give PVABs 
additional comfort that they will not be subject to liability under 
Rule 14a-9 on the basis of mere disagreement over their analysis, 
methodology or sources of information. The main cost of this 
alternative is that it may lower the overall quality of the advice that 
PVABs provide, and thus negatively affect the voting decisions of 
institutional investors and investment advisers, and ultimately the 
other investors they serve. In addition, creating such an exemption 
from Rule 14a-9 liability that differs from existing law may generate 
additional uncertainty and litigation.
Request for Comment
    11. Have we correctly characterized the benefits and costs for 
PVABs from the proposed amendments? Are there any other benefits and 
costs that should be considered? Please provide supportive data to the 
extent available.
    12. Have we correctly characterized the benefits and costs for 
institutional investors, their clients and registrants from the 
proposed amendments? Are there any other related benefits and costs 
that should be considered? Please provide supportive data to the extent 
available.
    13. We assume that the proposed amendments would strengthen the 
independence of PVABs. Are we correct in that characterization? Please 
provide supportive data to the extent available.
    14. Have we correctly characterized the effects on efficiency, 
competition and capital formation from the proposed amendments? Are 
there any effects that should be considered? 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 PRA. We are 
submitting the proposed amendments to the Office of Management and 
Budget (``OMB'') for review in accordance with the PRA.\134\ 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).
---------------------------------------------------------------------------

    \134\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    We adopted existing Regulation 14A \135\ 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.\136\ 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.
---------------------------------------------------------------------------

    \135\ 17 CFR 240.14a-1 et seq.
    \136\ 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 PVABs whose proxy 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. Most, if not all, of the 
effect on paperwork burden as a result of the proposed amendments would 
come from the rescission of Rule 14a-2(b)(9)(ii) and would be expected 
to reduce the burden from Rule 14a-2(b)(9). However, because Rule 14a-
2(b)(9) has not yet become effective, that rule has not yet resulted in 
any paperwork burden, and there is nothing yet to reduce. Our proposed 
amendments to Rule 14a-2(b)(9), therefore, would not have any effect on 
the current paperwork burden as of the date of this release. 
Nonetheless, as Rule 14a-2(b)(9) is scheduled to become effective on 
December 1, 2021, to fully analyze the impact of the proposed 
amendments, for purposes of this PRA analysis, we instead set forth the 
estimated amount of paperwork burden that the parties affected by Rule 
14a-2(b)(9) would avoid as a result of our proposed amendments to Rule 
14a-2(b)(9), including our proposed rescission of the Rule 14a-
2(b)(9)(ii) conditions.
1. Impact on Affected Parties
    As discussed above in Section III.A.1, there are a variety of 
parties that may be affected, directly or indirectly, by the proposed 
amendments. These include PVABs; the clients to whom PVABs provide 
proxy voting advice; investors and other groups on whose behalf the 
clients of PVABs make voting determinations; registrants who are 
conducting solicitations and are the subject of proxy voting advice; 
and the registrants' shareholders, who ultimately bear the costs and 
benefits to the registrant associated with the outcome of voting 
matters covered by proxy voting advice.
    Of these parties, we expect that PVABs would avoid some additional 
paperwork burden as a result of the proposed amendments.\137\ As 
discussed

[[Page 67397]]

further below, we believe that any avoidance of an incremental increase 
in burdens would be attributable primarily to the rescission of Rule 
14a-2(b)(9)(ii). With respect to the proposed amendment to Rule 14a-9, 
we do not expect the economic impact of this amendment will be 
significant because it would not change existing law and, therefore, 
would not change respondents' legal obligations.\138\ Moreover, any 
impact arising from this proposed amendment is not expected to 
materially change the average PRA burden hour estimates associated with 
Regulation 14A. Thus, we have not made any adjustments to our PRA 
burden estimates in respect of the proposed amendment to Rule 14a-9.
---------------------------------------------------------------------------

    \137\ The PRA requires that we estimate ``the total annual 
reporting and recordkeeping burden that will result from the 
collection of information.'' [5 CFR 1320.5(a)(1)(iv)(B)(5)] A 
``collection of information'' includes any requirement or request 
for persons to obtain, maintain, retain, report or publicly disclose 
information [5 CFR 1320.3(c)]. OMB's current inventory for 
Regulation 14A, therefore, is an assessment of the paperwork burden 
associated with such requirements and requests under the regulation, 
and this PRA is an assessment of changes to such inventory expected 
to result from these proposed amendments. While other parties, such 
as the clients of PVABs, may have benefits and costs associated with 
the proposed amendments (see supra Section III.B.), only PVABs and 
registrants will avoid any additional paperwork burden as a result 
of the proposed amendments.
    \138\ The proposed amendment to Rule 14a-9 may relieve PVABs of 
direct costs to the extent Note (e) to that rule prompted some PVABs 
to provide additional disclosure about the bases for their proxy 
voting advice. However, we expect any such costs would be minimal 
because the adoption of that Note did not represent a change to 
existing law, nor did it broaden the concept of materiality or 
create a new cause of action. See 2020 Adopting Release at n.685. 
Similarly, we expect that any avoidance of incremental burdens 
associated with our proposed amendment to Rule 14a-9 would be 
minimal because our proposed rescission of Note (e) to Rule 14a-9 is 
not intended to alter that rule's application to proxy voting 
advice. See supra Section II.B.2.
---------------------------------------------------------------------------

a. Proxy Voting Advice Businesses
    We expect that PVABs would avoid increased paperwork burden as a 
result of our proposed amendments to Rule 14a-2(b)(9), which, when 
effective,\139\ will apply to anyone relying on the exemptions in Rules 
14a-2(b)(1) or (b)(3) who furnishes proxy voting advice covered by Rule 
14a-1(l)(1)(iii)(A). The amount of burdens that PVABs would avoid 
depends on a number of factors that are firm-specific and highly 
variable, which makes it difficult to provide reliable quantitative 
estimates.\140\
---------------------------------------------------------------------------

    \139\ See supra note 3 and accompanying text.
    \140\ See generally the discussion in Section III.B.1 supra 
concerning the difficulty in providing quantitative estimates of the 
benefits to PVABs associated with the proposed amendments.
---------------------------------------------------------------------------

    There are two components of the proposed amendments to Rule 14a-
2(b)(9) that we expect to result in an avoidance of increased burdens. 
First, under Rule 14a-2(b)(9)(ii)(A), PVABs are required to adopt and 
publicly disclose written policies and procedures reasonably designed 
to ensure that registrants that are the subject of the proxy voting 
advice have such advice made available to them at or prior to the time 
such advice is disseminated to the PVABs' clients. Second, under Rule 
14a-2(b)(9)(ii)(B), PVABs are required to adopt and publicly disclose 
written policies and procedures reasonably designed to ensure that 
PVABs provide their clients with a mechanism by which they can 
reasonably be expected to become aware of a registrant's written 
statements about the proxy voting advice in a timely manner before the 
shareholder meeting. The proposed amendments would rescind both of 
these rules, thereby relieving PVABs of the obligation to comply with 
these requirements. The proposed amendments would also rescind the non-
exclusive safe harbors (set forth in Rules 14a-2(b)(9)(iii) and (iv)) 
that PVABs may use to satisfy the principle-based requirements in Rule 
14a-2(b)(9)(ii). We address each of these components in turn.
    In the release adopting the 2020 Final Rules, we estimated that 
PVABs would incur an annual incremental paperwork burden to comply with 
Rules 14a-2(b)(9)(ii), (iii) and (iv) as follows:

------------------------------------------------------------------------
                                            PVAB estimated incremental
            New requirement                  annual compliance burden
------------------------------------------------------------------------
Rule 14a-2(b)(9)(ii)(A)--Notice to       Increase in paperwork burden
 Registrants and Rule 14a 2(b)(9)(iii)    corresponding to:
 Safe Harbor.
------------------------------------------------------------------------
The PVAB has adopted and publicly        To the extent that the PVAB's
 disclosed written policies and           current practices and
 procedures reasonably designed to        procedures are not already
 ensure that registrants who are the      sufficient:
 subject of proxy voting advice have     [cir] Developing new or
 such advice made available to them at    modifying existing systems,
 or prior to the time the advice is       policies and methods, or
 disseminated to clients of the PVAB.     developing and maintaining new
Safe Harbor--The PVAB has written         systems, policies and methods
 policies and procedures that are         to ensure that it has the
 reasonably designed to provide a         capability to timely provide
 registrant with a copy of the PVAB's     each registrant with
 proxy voting advice, at no charge, no    information about its proxy
 later than the time it is disseminated   voting advice necessary to
 to the PVAB's clients. Such policies     satisfy the requirement in
 and procedures may include conditions    Rule 14a-2(b)(9)(ii)(A) and/or
 requiring that:.                         the safe harbor in Rule 14a-
(A) The registrant has filed its          2(b)(9)(iii).
 definitive proxy statement at least 40  [cir] If applicable, obtaining
 calendar days before the security        acknowledgments or agreements
 holder meeting date (or if no meeting    with respect to use of any
 is held, at least 40 calendar days       information shared with the
 before the date the votes, consents,     registrant; and
 or authorizations may be used to        [cir] Delivering copies of
 effect the proposed action); and.        proxy voting advice to
                                          registrants
                                         We estimate the increase in
                                          paperwork burden to be 8,535
                                          hours per PVAB, consisting of
                                          2,845 hours for system updates
                                          and 5,690 hours for
                                          acknowledgments regarding
                                          sharing information.
        (B) The registrant has
         acknowledged that it will only
         use the copy of the proxy
         voting advice for its internal
         purposes and/or in connection
         with the solicitation and it
         will not be published or
         otherwise shared except with
         the registrant's employees or
         advisers.
------------------------------------------------------------------------
Rule 14a-2(b)(9)(ii)(B)--Notice to       Increase in paperwork burden
 Clients of Proxy Voting Advice           corresponding to:
 Businesses and Rule 14a-2(b)(9)(iv)
 Safe Harbor.
------------------------------------------------------------------------

[[Page 67398]]

 
The PVAB has adopted and publicly        To the extent that the PVAB's
 disclosed written policies and           current practices and
 procedures reasonably designed to        procedures are not already
 ensure that the PVAB provides clients    sufficient:
 with a mechanism by which they can      Developing new or modifying
 reasonably be expected to become aware   existing systems, policies and
 of any written statements regarding      methods, or developing and
 proxy voting advice by registrants who   maintaining new systems,
 are the subject of such advice, in a     policies and methods capable
 timely manner before the shareholder     of:
 meeting.                                [cir] Tracking whether the
Safe harbor--The PVAB has written         registrant has filed
 policies and procedures that are         additional soliciting
 reasonably designed to inform clients    materials;
 who receive the proxy voting advice     [cir] Ensuring that PVABs
 when a registrant that is the subject    provide clients with a means
 of such voting advice notifies the       to learn of a registrant's
 proxy voting advice business that it     written statements about proxy
 intends to file or has filed             voting advice in a timely
 additional soliciting materials with     manner that satisfies the
 the Commission setting forth the         requirement in Rule 14a-
 registrant's statement regarding the     2(b)(9)(ii)(B) and/or the safe
 voting advice, by:.                      harbor in Rule 14a-
(A) Providing notice to its clients on    2(b)(9)(iv).
 its electronic client platform that     If relying on the safe harbor
 the registrant intends to file or has    in Rule 14a-2(b)(9)(iv)(A) or
 filed such additional soliciting         (B), the associated paperwork
 materials and including an active        burden would include the time
 hyperlink to those materials on EDGAR    and effort required of the
 when available; or.                      PVAB to:
(B) The PVAB providing notice to its     [cir] Provide notice to its
 clients through email or other           clients through the PVAB's
 electronic means that the registrant     electronic client platform or
 intends to file or has filed such        email or other electronic
 additional soliciting materials and      medium, as appropriate, that
 including an active hyperlink to those   the registrant intends to file
 materials on EDGAR when available..      or has filed additional
                                          soliciting materials setting
                                          forth its views about the
                                          proxy voting advice; and
                                         [cir] include a hyperlink to
                                          the registrant's statement on
                                          EDGAR.
                                         We estimate the increase in
                                          paperwork burden to be 2,845
                                          hours per PVAB.
                                        --------------------------------
    Total..............................  11,380 hours per PVAB.
------------------------------------------------------------------------

    Altogether, we estimated an annual total increase of 34,140 hours 
\141\ in compliance burden to be incurred by PVABs that would be 
subject to Rules 14a-2(b)(9)(ii), (iii) and (iv). Accordingly, we 
expect that our proposed amendments would allow PVABs to avoid these 
burdens that they would otherwise be subject to, absent the proposed 
amendments, once Rule 14a-2(b)(9) becomes effective.
---------------------------------------------------------------------------

    \141\ This represented the annual total burden increase expected 
to be incurred by PVABs (as an average of the yearly burden 
predicted over the three-year period following adoption of the 2020 
Final Rules) and was intended to be inclusive of all burdens 
reasonably anticipated to be associated with compliance with the 
Rule 14a-2(b)(9)(ii) conditions. The Commission is aware of three 
PVABs in the U.S. (i.e., Glass Lewis, ISS and Egan-Jones) whose 
activities fall within the scope of proxy voting advice constituting 
a solicitation under amended Rule 14a-1(l)(1)(iii)(A). We estimated 
that each of these would have a burden of 11,380 hours per year 
associated with Rules 14a-2(b)(9)(ii), (iii) and (iv). See 2020 
Adopting Release at n.700. We recognized that there could be other 
PVABs, including both smaller firms and firms operating outside the 
U.S., which may also be subject to those rules. However, we expected 
such a number to be small. Accordingly, rather than increasing our 
estimate of the number of affected PVABs beyond the three discussed 
above, we increased our annual total burden estimate by 500 hours to 
account for those businesses. However, that 500 hour increase also 
accounted for the burden imposed by Rule 14a-2(b)(9)(i), which is 
not affected by the proposed amendments. Because we did not 
indicate, in the adopting release for the 2020 Final Rules, what 
portion of that 500 hour increase would be attributable to the 
various conditions in Rule 14a-2(b)(9), we do not include that 500 
hour increase in this PRA analysis in order to avoid overestimating 
the amount of burden that PVABs would be relieved of as a result of 
the proposed amendments.
---------------------------------------------------------------------------

b. Registrants
    In addition to PVABs, we anticipate that registrants would avoid 
increased paperwork burden as a result of our proposed amendment to 
Rule 14a-2(b)(9). In the adopting release for the 2020 Final Rules, we 
noted that registrants could, as a result of the adoption of Rule 14a-
2(b)(9), experience increased burdens associated with coordinating with 
PVABs to receive the proxy voting advice, reviewing the proxy voting 
advice and preparing and filing supplementary proxy materials in 
response to the proxy voting advice, if they choose to do so. Because 
Rule 14a-2(b)(9) does not require registrants to engage with PVABs or 
take any action in response to proxy voting advice, we stated that we 
expected a registrant would bear additional paperwork burden only if it 
anticipated the benefits of engaging with the PVABs would exceed the 
costs of participation. We noted that these costs would vary depending 
upon the particular facts and circumstances of the proxy voting advice 
and any issues identified therein, as well as the resources of the 
registrant, which made it difficult to provide a reliable quantifiable 
estimate of these costs.
    Notwithstanding those difficulties, we estimated an average 
increase of 50 hours per registrant in connection with the amendments 
for a total annual increase of 284,500 hours, assuming that a 
registrant's annual meeting of shareholders is covered by at least two 
of the three major PVABs in the United States, and the registrant has 
opted to review both sets of proxy voting advice and file additional 
soliciting materials in response.\142\ Accordingly, we expect that by 
eliminating the Rule 14a-2(b)(9)(ii) conditions, our proposed 
amendments would result in a corresponding reduction of potential 
paperwork burdens that those registrants would have otherwise been 
expected to incur once Rule 14a-2(b)(9) becomes effective.
---------------------------------------------------------------------------

    \142\ We also noted that such burden increase would be offset 
against any corresponding reduction in burden resulting from the 
registrant forgoing other methods of responding to the proxy voting 
advice (such as investor outreach) that the registrant determines 
are no longer necessary or are less preferable in light of Rule 14a-
2(b)(9).
---------------------------------------------------------------------------

2. Aggregate Burden Avoided as a Result of the Proposed Amendments
    Table 1 summarizes the calculations and assumptions used in the 
adopting release for the 2020 Final Rules to derive our estimates of 
the aggregate increase in burden for all affected parties corresponding 
to the Rule 14a-2(b)(9)(ii) conditions.

[[Page 67399]]



     PRA Table 1--Calculation of Aggregate Increase in Burden Hours Resulting From the Rule 14a-2(b)(9)(ii)
                                                   Conditions
----------------------------------------------------------------------------------------------------------------
                                                                              Affected parties
                                                           -----------------------------------------------------
                                                               Proxy voting advice
                                                                    businesses                Registrants
                                                                                  (A)                        (B)
----------------------------------------------------------------------------------------------------------------
Burden Hour Increase......................................                     34,140                    284,500
                                                           -----------------------------------------------------
Aggregate Increase in Burden Hours........................   [Column Total (A)] + [Column Total (B)] = [318,640]
----------------------------------------------------------------------------------------------------------------

    Accordingly, we expect that our proposed amendments would allow the 
affected parties to avoid these estimated burden hours that they would 
otherwise be subject to, absent the proposed amendments, once Rule 14a-
2(b)(9) becomes effective.
3. Increase in Annual Responses Avoided as a Result of the Proposed 
Amendments
    We believe that the proposed amendments would avoid an increase in 
the number of annual responses \143\ to the existing collection of 
information for Regulation 14A. In the adopting release for the 2020 
Final Rules, we stated that we do not expect registrants to file any 
different number of proxy statements as a result of those rules. We did 
state, however, that we anticipated that the number of additional 
soliciting materials filed under 17 CFR 240.14a-6 may increase in 
proportion to the number of times that registrants choose to provide a 
statement in response to a PVAB's proxy voting advice as contemplated 
by Rule 14a-2(b)(9)(ii)(B) or the safe harbor under Rule 14a-
2(b)(9)(iv). For purposes of the PRA analysis in that release, we 
estimated that there would be an additional 783 annual responses to the 
collection of information as a result of the 2020 Final Rules.\144\ 
Accordingly, we expect that our proposed amendments would result in an 
avoidance of such an increase in the number of additional annual 
responses to the collection of information for Regulation 14A.
---------------------------------------------------------------------------

    \143\ For purposes of the Regulation 14A collection of 
information, the number of annual responses corresponds to the 
estimated number of new filings that will be made each year under 
Regulation 14A, which includes filings such as DEF 14A; DEFA14A; 
DEFM14A; and DEFC14A. When calculating PRA burden for any particular 
collection of information, the total number of annual burden hours 
estimated is divided by the total number of annual responses 
estimated, which provides the average estimated annual burden per 
response. The current inventory of approved collections of 
information is maintained by the Office of Information and 
Regulatory Affairs (``OIRA''), a division of OMB. The total annual 
burden hours and number of responses associated with Regulation 14A, 
as updated from time to time, can be found at https://www.reginfo.gov/public/do/PRAMain.
    \144\ 2020 Adopting Release at n.707.
---------------------------------------------------------------------------

4. Incremental Change in Compliance Burden for Collection of 
Information
    PRA Table 2 below illustrates our estimated incremental change to 
the total annual compliance burden for the Regulation 14A collection of 
information in hours and in costs \145\ as a result of the Rule 14a-
2(b)(9)(ii) conditions, as calculated in the PRA analysis for the 2020 
Final Rules. The table sets forth the percentage estimates we typically 
use for the burden allocation for each response.
---------------------------------------------------------------------------

    \145\ Our estimates in the adopting release for the 2020 Final 
Rules assumed that 75% of the burden would be borne by the company 
and 25% would be borne by outside counsel at $400 per hour. We 
recognized that the costs of retaining outside professionals may 
vary depending on the nature of the professional services, but for 
purposes of the PRA analysis, we estimated that such costs would be 
an average of $400 per hour. This estimate was based on 
consultations with several registrants, law firms and other persons 
who regularly assist registrants in preparing and filing reports 
with the Commission. See 2020 Adopting Release at n.708.

              PRA Table 2--Increase in Burden Hours Resulting From the Rule 14a-2(b)(9)(ii) Conditions as Reflected in the 2020 Final Rules
--------------------------------------------------------------------------------------------------------------------------------------------------------
   Number of estimated    Total increase in burden  Increase in burden hours    Increase in internal          Increase in              Increase in
        responses                   hours                 per response                  hours              professional hours       professional costs
(A) [dagger]              (B) [dagger][dagger]                         (C) = (B)/((D) = (B) x 0.75          (E) = (B) x 0.25         (F) = (E) x $400
--------------------------------------------------------------------------------------------------------------------------------------------------------
               6,369                   318,640      [dagger][dagger][dagger]               238,980                    79,660              $31,864,000
                                                                      50
--------------------------------------------------------------------------------------------------------------------------------------------------------
[dagger] This number reflects an estimated increase of 783 annual responses to the existing Regulation 14A collection of information as a result of the
  Rule 14a-2(b)(9)(ii) conditions. See supra text accompanying note 144. The adopting release for the 2020 Final Rules indicated that 5,586 responses
  are filed annually. 2020 Adopting Release at 55151.
[dagger][dagger] Calculated as the sum of annual burden increases estimated for PVABs (34,140 hours) and registrants (284,500 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.

Accordingly, we expect that our proposed amendments would allow the 
affected parties to avoid these estimated burden hours and costs that 
they would otherwise be subject to, absent the proposed amendments, 
once Rule 14a-2(b)(9) becomes effective.
5. Program Change and Revised Burden Estimates
    PRA Table 3 summarizes the estimated change to the total annual 
compliance burden of the Regulation 14A collection of information, in 
hours and in costs, as a result of the Rule 14a-2(b)(9)(ii) conditions, 
as calculated in the PRA analysis for the 2020 Final Rules.

[[Page 67400]]



                 PRA Table 3--Paperwork Burden Under the Rule 14a-2(b)(9)(ii) Conditions as Reflected in the 2020 Final Rules--Reg. 14A
--------------------------------------------------------------------------------------------------------------------------------------------------------
                  Current burden                                     Program change                                     Revised burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Increase in
Current annual  Current burden     Current cost      Increase in     Increase in      professional        Annual        Burden hours       Cost burden
   responses         hours            burden          responses    internal hours        costs           responses
(A)                      (B)                  (C)    (D)     minus>       minus>
--------------------------------------------------------------------------------------------------------------------------------------------------------
       5,586         551,101        $73,480,012             783         238,980        $31,864,000           6,369            790,081      $105,344,012
--------------------------------------------------------------------------------------------------------------------------------------------------------
 See Column (A) in PRA Table 2 noting an estimated increase of 783 annual responses to the Regulation 14A collection of information as a
  result of the Rule 14a-2(b)(9)(ii) conditions.
 See Column (D) in PRA Table 2.
 From Column (F) in PRA Table 2.

Accordingly, we expect that our proposed amendments would allow the 
affected parties to avoid these estimated burden hours and costs that 
they would otherwise be subject to, absent the proposed amendments, 
once Rule 14a-2(b)(9) becomes effective.
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 
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. S7-17-21. 
Requests for materials submitted to OMB by the Commission with regard 
to the collection of information should be in writing, refer to File 
No. S7-17-21 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''),\146\ 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:
---------------------------------------------------------------------------

    \146\ 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'') \147\ 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.\148\ It relates to the proposed amendments to the proxy 
solicitation exemptions in Rule 14a-2(b) and the prohibition on false 
or misleading statements in solicitations in Rule 14a-9 of Regulation 
14A under the Exchange Act.
---------------------------------------------------------------------------

    \147\ 5 U.S.C. 601 et seq.
    \148\ 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)(9) is to 
address concerns about the potential adverse effects of the 2020 Final 
Rules on the independence, cost and timeliness of proxy voting advice, 
while still achieving many of the intended benefits of the 2020 Final 
Rules with respect to the quality of the advice provided to clients. In 
addition, the purpose of the proposed amendment to Rule 14a-9 is to 
avoid any misperception that the addition of Note (e) to Rule 14a-9 
purported to determine or alter the law governing Rule 14a-9's 
application and scope, including its application to statements of 
opinion. 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, 23(a) and 
36 of the Securities Exchange Act of 1934, as amended.

C. Small Entities Subject to the Proposed Amendments

    The proposed amendments are likely to affect some small entities; 
specifically, those small entities that are

[[Page 67401]]

either: (i) PVABs; or (ii) registrants conducting solicitations covered 
by proxy voting advice.
    The RFA defines ``small entity'' to mean ``small business,'' 
``small organization,'' or ``small governmental jurisdiction.'' \149\ 
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.\150\ 
An investment company, including a business development company,\151\ 
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.\152\ 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.\153\ We estimate that there are 660 issuers that file with the 
Commission, other than investment companies and investment advisers, 
that may be considered small entities.\154\ In addition, we estimate 
that, as of June 2021, there were 70 registered investment companies 
that would be subject to the proposed amendments that may be considered 
small entities.\155\ Finally, we estimate that, as of June 2021, there 
were 548 investment advisers that may be considered small 
entities.\156\ As discussed above, one of the three major PVABs in the 
United States--ISS--is a registered investment advisor.\157\
---------------------------------------------------------------------------

    \149\ 5 U.S.C. 601(6).
    \150\ See Exchange Act Rule 0-10(a) [17 CFR 240.0-10(a)].
    \151\ 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].
    \152\ See Investment Company Act Rule 0-10(a) [17 CFR 270.0-
10(a)].
    \153\ See Advisers Act Rule 0-7(a) [17 CFR 275.0-7(a)].
    \154\ This estimate is based on staff analysis of issuers 
potentially subject to the final amendments, excluding co-
registrants, with EDGAR filings on Form 10-K, or amendments thereto, 
filed during the calendar year of January 1, 2020 to December 31, 
2020, or filed by September 1, 2021, that, if timely filed by the 
applicable deadline, would have been filed between January 1 and 
December 31, 2020. This analysis is based on data from XBRL filings, 
Compustat, Ives Group Audit Analytics, and manual review of filings 
submitted to the Commission.
    \155\ 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 2021.
    \156\ Based on SEC-registered investment adviser responses to 
Items 5.F. and 12 of Form ADV.
    \157\ See supra Section III.B.1.
---------------------------------------------------------------------------

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.\158\ 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.\159\ Compliance with 
the proposed amendments may require the use of professional skills, 
including legal skills.
---------------------------------------------------------------------------

    \158\ In particular, we discuss the estimated benefits and costs 
of the proposed amendments on affected parties in Section III.B. 
supra. We also discuss the estimated compliance burden associated 
with the proposed amendments for purposes of the PRA in Section IV 
supra.
    \159\ See supra Section III.C.
---------------------------------------------------------------------------

    As a general matter, however, we recognize that any costs of the 
proposed amendments borne by the affected entities 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, the proposed amendments to Rule 14a-
2(b)(9) could potentially reduce the overall mix of information 
available to PVABs' clients as they assess proxy voting advice and make 
determinations about how to cast votes. Further, as noted in Section 
III.C, small institutions tend to rely more heavily on PVABs' proxy 
voting advice than larger institutions because those smaller 
institutions have more limited resources to conduct their own research. 
As such, to the extent the proposed amendments to Rule 14a-2(b)(9) 
reduce the overall mix of information available to PVABs' clients in 
connection with PVABs' proxy voting advice, the costs associated by 
such reduction would be borne disproportionately by smaller 
institutions. That said, as discussed in Section III.B.2, we expect 
that any such costs imposed on PVABs' clients would be mitigated to the 
extent that PVABs currently have internal policies and procedures aimed 
at enabling feedback from certain registrants before they issue proxy 
voting advice. However, we request comment on the extent to which 
PVABs' current internal policies and procedures would mitigate any 
costs imposed on PVABs' clients as a result of the proposed amendments 
to Rule 14a-2(b)(9).
    We do not expect that PVABs or registrants would incur significant 
costs as a result of the proposed amendments to Rule 14a-2(b)(9). 
However, we request comment on how PVABs and registrants may be 
affected by the proposed amendments.
    Finally, as discussed in Section III.B.2. above, we do not expect 
the proposed amendment to Rule 14a-9 would create any significant 
costs. However, we request comment on how the proposed amendment may 
affect PVABs, their clients and registrants.

E. Duplicative, Overlapping, or Conflicting Federal Rules

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

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.
    The purpose of these proposed amendments is to address concerns 
about the potential adverse effects of the 2020 Final Rules on the 
independence, cost and timeliness of proxy voting advice, while still 
achieving many of the intended benefits of the 2020 Final Rules with 
respect to the quality of the advice provided to PVABs' clients. The 
proposed amendments do not impose any compliance or reporting

[[Page 67402]]

requirements; rather, they would remove certain conditions for PVABs of 
all sizes, including small entities. Our objectives would not be served 
by establishing different compliance or reporting requirements for 
small entities, exempting small entities from all or part of the 
requirements, or clarifying, consolidating or simplifying compliance 
and reporting requirements for small entities. Similarly, because the 
proposed amendments do not set forth any standards, our objectives 
would not be served by establishing performance rather than design 
standards.

VII. Statutory Authority

    We are proposing the rule amendments contained in this release 
under the authority set forth in Sections 3(b), 14, 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 general 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, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(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.
* * * * *
0
2. Amend Sec.  240.14a-2 by revising paragraph (b)(9) to read as 
follows:


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

* * * * *
    (b) * * *
    (9) Paragraphs (b)(1) and (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 the 
proxy voting advice business includes in its proxy voting advice or in 
an electronic medium used to deliver the proxy voting advice prominent 
disclosure of:
    (i) Any information regarding an 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
    (ii) 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.


Sec.  240.14a-9  [Amended]

0
3. Amend Sec.  240.14a-9 by removing paragraph e. of the Note.

    By the Commission.

    Dated: November 17, 2021.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-25420 Filed 11-24-21; 8:45 am]
BILLING CODE 8011-01-P


