August 21, 2019 / 2:08 PM / 4 months ago

U.S. markets regulator proposes new guidelines on shareholder advisers

WASHINGTON, Aug 21 (Reuters) - The U.S. Securities and Exchange Commission on Wednesday proposed new guidance that aims to clarify how investors and advisory firms that vote on their behalf should cast their votes in corporate elections on issues like pay and diversity.

The guidance, which expands previous 2014 guidance on voting in corporate ballots, addresses some of the grievances U.S. corporations have long had about so-called proxy advisers, such as mistakes in reports the advisers issue on specific companies and conflicts of interest in their business models.

Proxy advisers recommend how investors should vote in corporate elections and cast ballots on behalf of some asset managers. The role of proxy advisers has gained more attention in recent years as they have grown more influential on charged corporate issues like gun rights and climate change.

Corporate trade groups complain their recommendations are conflicted and have been lobbying lawmakers and regulators to rein them in. The SEC’s new guidance could set the agency up for a clash with investors who worry the SEC may diminish their voting rights.

The guidance lays out the considerations for investors when they retain a proxy adviser, including assessing the firm’s conflicts of interests and potential mistakes in reports, SEC officials said.

It also reinforces an “anti-fraud” provision for proxy advisers that bars omissions or misstatements in their reports or recommendations, according to the officials, who asked not to be named as the guidance had not yet been published.

The guidance also clarifies that clients, or asset owners such as pension funds, can instruct their investment managers to avoid voting on certain matters, the officials said. Critics of proxy advisory firms say that investors have wrongly believed they must cast a vote for every share they own, leading investors to rely too much on the firms.

The SEC also plans to issue new rules on proxy advisers, the officials said, signaling the firms could face further scrutiny. (Reporting by Jessica DiNapoli in New York and Katanga Johnson in Washington; Editing by Steve Orlofsky Editing by Michelle Price and Steve Orlofsky)

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