On July 22, 2020, the SEC adopted amendments to the proxy rules under the Securities Exchange Act of 1934 that are intended to enhance the accuracy and transparency of information provided by proxy advisory firms to investors and investment advisers that vote proxies on behalf of their clients. The amendments, which were adopted largely as proposed, codify the SEC’s interpretation that proxy voting advice generally constitutes a solicitation within the meaning of the proxy rules, thereby subjecting proxy voting advice to the antifraud provisions of the proxy rules and, unless an exemption is available, to the information and filing requirements under the proxy rules. The amendments also added certain conditions to the exemptions on which proxy advisory firms typically rely that will require proxy advisory firms to comply with certain procedural and disclosure requirements, including requirements to disclose conflicts of interest.

Pursuant to the amendments, the definition of “solicitation” in Rule 14a-1 has been revised to expressly cover proxy voting recommendations from proxy advisory firms. As a result, the antifraud provisions of Rule 14a-9 expressly apply to such proxy voting recommendations. In that regard, Rule 14a-9 was amended to specify that the failure to disclose material information regarding proxy voting advice, including a proxy advisory firm’s methodology, sources of information and conflicts of interest, constitutes a false or misleading statement in violation of that rule.

Furthermore, as a solicitation, the information and filing requirements of the proxy rules will apply to any proxy voting recommendation provided by proxy advisory firms unless an exemption is available. In that regard, new Rule 14a-2(b)(9) adds certain conditions to the availability of the exemptions on which proxy advisory firms typically rely that are intended to promote the SEC’s goal of providing investors and investment advisers who use proxy voting advice with more transparent, accurate and complete information on which to make their voting decisions. Specifically, the amended conditions will require proxy advisory firms to disclose information about material conflicts of interest in connection with the provision of any proxy voting advice. Second, proxy advisory firms will also be required to adopt and disclose policies and procedures that provide for a mechanism whereby the company that is the subject of proxy voting advice—that is, the company that is soliciting shareholders to vote on a matter with respect to which the proxy advisory firm provides a recommendation—can receive the proxy advisory firm’s recommendation no later than the time it is provided to clients that rely on that advice and whereby those clients can be made aware if the company responds to the proxy advisory firm’s recommendation in writing. This requirement is intended to give companies a chance to react and respond to any proxy advisory firm’s recommendation with respect to a matter subject to a shareholder vote, including if the company disagrees with that recommendation or believes that the recommendation is based on incorrect or incomplete information.

Proxy advisory firms are required to comply with the amendments to Rule 14a-2(b)(9) by December 1, 2021. The amendments to Rule 14a-1, codifying the SEC’s interpretation that proxy voting advice generally constitutes a solicitation, and to the antifraud provisions of Rule 14a-9 do not have a transition period and take effect upon the effective date of the final rule—60 days after publication in the Federal Register.

The SEC’s adopting release is available here.