For a man in battle with Corporate America and the US financial regulator, Gary Retelny is in fine form.

In a two-hour video interview, the chief executive of Institutional Shareholder Services talks about everything from his childhood in Nicaragua to stamp collecting. He also cheerfully but methodically rebuts the many denunciations of the company he has led since 2011.

ISS is the world’s largest proxy adviser, an insipid phrase that belies its importance in global financial markets.

The governance division of ISS makes recommendations on how shareholders should vote at more than 40,000 company meetings a year, advising investors on whether to support a chairman’s re-election, reject a chief executive’s pay package or approve a merger.

Depending on who you speak to, ISS is far too powerful, rife with conflicts of interest and error-prone, or it plays a vital role in helping investors to navigate complex corporate governance matters across their portfolio of stocks.

“We get all kinds of criticism,” says Mr Retelny. “But the criticisms you hear now are incredibly dated.”

Mr Retelny, 61, is well versed in batting off attacks. First, he has spent the past three years defending ISS from an intense and sometimes unbelievable campaign from Corporate America and its lobbyists.

More recently the Securities and Exchange Commission proposed controversial new rules governing proxy advisers last November. The SEC’s consultation period for the rules ends on Monday.

ISS has argued strongly against the proposals, which include forcing proxy advisers to reveal their voting recommendations to a company’s management before they are sent to clients.

Speaking from New York, Mr Retelny is lively, engaging and unfailingly polite, but he does not back down from an argument — something the SEC discovered last year, when ISS decided to sue the regulator. The move drew gasps from the corporate and investment worlds. “That’s punchy,” says an executive at one of the world’s largest asset managers.

The lawsuit is currently paused while the SEC finalises the rules. “But we expect to re-engage, depending on what the final rules are,” says Mr Retelny.

Although ISS has been in business for more than three decades, scrutiny of it and its rival Glass Lewis has intensified in recent years, as big investors increasingly started to pay attention to corporate governance.

At the same time, many large shareholders globally became more willing to vote against management, including at oil majors ExxonMobil and Occidental in 2017, when shareholders backed climate-change resolutions to the frustration of management.

As Mr Retelny sees it, rather than pick a fight with their shareholders, disgruntled companies — annoyed that investors are voting against pay packages or all-male boards have singled out proxy advisers. “We have become a convenient point of attack,” he says.

Then he rattles off a range of facts and figures to counter the complaints about ISS. While the proxy adviser has been accused of publishing error-ridden reports, Mr Retelny says of the 6,498 reports it issued last year in the US, it made 48 material mistakes that led to a correction in its recommendation — an error rate of 0.7 per cent.

“We do make mistakes, but we correct them,” he said.

Another regularly touted criticism is that investors blindly follow ISS’s voting recommendations. But Mr Retelny says 88 per cent of its top clients receive tailored recommendations that are based on the investor’s voting policy rather than ISS’s default report.

He is also quick to defend ISS’s position as the largest proxy adviser, even if he says the company never set out to be the dominant provider.

Mr Retelny says scale matters in the proxy advice business, as asset managers are often invested in thousands of companies around the world.

“We do 40-odd thousand of these [reports] a year. It is quite a logistical undertaking and scale matters very, very much in order to provide the services on a timely basis that clients demand.”

Then there are complaints that ISS has become a de facto governance standard setter, unnecessarily wading into debates around environmental and social topics and taking too prescriptive a view on issues such as executive pay and board competition.

Mr Retelny says ISS only opines on the resolutions for the meeting in its proxy report. “If there is an environmental or social item, we certainly will provide a recommendation because that is what our clients expect of us.”

He also bats off criticism about a conflict of interest at ISS, which has a division that provides advisory services to companies on how to improve governance, while also issuing voting recommendations advice to shareholders in those companies.

Many companies provide different services to different clients, he says, adding that he would not consider selling either part.

In recent weeks, ISS relaunched an initiative called Protect the Voice of Shareholders, its own lobbying effort aimed at “correcting misinformation and educating visitors about the threats posed by proposals under consideration by the SEC”.

The scale of the lobbying against proxy advisers from parts of Corporate America, however, has surprised Mr Retelny. Notably, there was a group called Main Street Investors Coalition that purported to represent ordinary savers, but was financed by big trade organisations.

There was also a series of fake letters to the SEC supporting tough proxy adviser rules. According to a Bloomberg investigation, the letters were signed by so-called main street investors, but were actually penned by an advocacy group.

“It’s something we didn’t expect,” Mr Retelny says. “It’s underhanded, they’re dirty . . . It’s a very concerted effort by a very small group of people backed by a very small group of companies that are fabricating things.”

The SEC is under pressure to finalise the rules in the next few months, ahead of the US presidential election.

Mr Retelny, however, is hopeful there might be a watering down of the proposals. “There are a number of very smart people and thoughtful people at the SEC,” he says.

“I’m optimistic . . . that whatever rules they do issue, they are constructive and helpful to shareholders in essentially doing their job.”

Still, the whole process has been distracting for the chief executive. If the business lobby is hoping for a small, quieter ISS, however, that looks unlikely.

Although ISS is best known for its proxy advice business, this is just one of five different divisions and accounts for about 30 per cent of its revenues.

Mr Retelny says he is always on the hunt for new ways to grow the company, which is owned by management and private equity.

“We continue to look for growth opportunities, whether they’re organic or by acquisition, and we expect that to continue certainly in the future,” he says.

He is also on the hunt for stamps, especially relating to Nicaragua. Mr Retelny’s family left the country for the US during Nicaragua’s 1978 socialist revolution.

He has not been back since, but he seeks out envelops bearing the stamps and seals of the co-called Nicaragua route.

The envelopes date from the California gold rush of the 1850s, when Cornelius Vanderbilt set up a transport company to take passengers from the east coast of the US to the west coast, via Nicaragua.

“I specialise in very strange things,” he jokes.

Proposed SEC rules that impose new requirements on proxy advisory firms and raise thresholds for submitting shareholder proposals would undercut shareholder rights and should be reworked, the Council of Institutional Investors said in comment letters being submitted Friday.

“The SEC has failed to make the case for the drastic regulatory schemes it would impose on proxy advisory firms and on shareholders who file resolutions at companies in their portfolios,” said CII Executive Director Ken Bertsch in a statement, calling them “solutions in search of a problem.”

The comment periods on the two proposals end Monday. If finalized, proxy advisory firms would have to disclose more information about their processes and any conflicts of interest and give companies the opportunity to offer revisions.

Proposed changes to the shareholder proposal process include raising the minimum amount of stock held and the time held before shareholders could file resolutions at annual corporate meetings. Shareholders could not aggregate their holdings with others and must be available to meet with the company to discuss the proposal. Thresholds for resubmitting shareholder proposals in subsequent years would also be higher.

The CII comment letters said the proxy firm and shareholder submission proposals “are the most significant attempt by the SEC to limit the voice of shareholders since the Commission was created in 1934,” and called the changes “fundamentally flawed and unnecessary.”

The letters said that the Securities and Exchange Commission has failed to make the case for the drastic regulatory schemes. The SEC’s economic analysis fails to support the proposed changes and the SEC may not even have the authority to regulate proxy advisers as proposed. “We believe this issue ultimately will be decided in court,” one CII comment letter said.

The agency’s investor advisory committee voted Jan. 24 to recommend that SEC officials rework the two proposals.

Daniel Loeb, the activist investor, launched a stinging attack on the Securities and Exchange Commission’s plans to curb the power of shareholder advisory firms, saying the US regulator has been misled by corporate lobbyists that reflect the Washington “swamp at it worst”.

In the latest quarterly letter to investors in his Third Point hedge fund, Mr Loeb said the group was strongly opposed to a proposed SEC rule that would change the balance of power between companies and big proxy adviser firms that recommend how shareholders vote in corporate elections.

The tussle is of particular interest to activists such as Mr Loeb whose campaigns to change company strategy or oust board members rely on winning over other shareholders.

Among other things, the SEC’s proposal would require proxy advisers, such as ISS and Glass Lewis, to submit their advice to companies twice before issuing it to investors.

The proposal has been sharply criticised by asset managers, but applauded by corporate lobbying groups such as the US Chamber of Commerce and the National Association of Manufacturers, who alleged proxy advisers have conflicts of interest and often publish inaccurate information.

Mr Loeb said the SEC’s proposal would disenfranchise shareholders and give companies more ammunition to stop investor advocacy on issues from executive compensation to environmental disclosures.

Additionally, if the proposed rule is finalised, it could subject the proxy advisory groups to “an onslaught of litigation” that could put them out of business.

“It is the Main Street investor who will suffer most if corporate accountability is reduced because recommendations on proxy proposals are effectively neutered by a much-loathed American tactic — the threat of harassing litigation that clogs up courts and undermines free markets,” Third Point said.

“With all there is to do to police markets, why would the SEC adopt a cumbersome and costly solution when no one has demonstrated that a real problem exists?”

Mr Loeb’s attack is expected to be echoed by other activists, such as Elliott Management’s Paul Singer, before an SEC deadline for comment on the proposal on February 3.

If Jay Clayton, SEC chairman, advances the rule to a final vote in the months ahead, he will be doing so over the opposition of religious organisations and companies such as T Rowe Price and Neuberger Berman, who have submitted letters of objection.

When he debuted the proposal in November, Mr Clayton highlighted several letters from ordinary investors who seemed to express concerns about proxy advisers. But Mr Loeb, citing a Bloomberg news report, highlighted the letters’ suspicious origin.

“Someone has been rigging the public debate and trying to mislead the commission,” Mr Loeb wrote in his letter. “These endorsements were actually part of a false letter-writing campaign that had been bought and paid for by corporations. This is the ‘swamp’ at its worst.”

The SEC did not immediately respond to a request for comment.

Hedge fund Third Point on Thursday called on Sony Corp (6758.T) to keep divesting non-core assets and said it opposes the U.S. Securities and Exchange Commission’s proposed rule on proxy advisers.

The firm, run by Daniel Loeb, praised Sony for last year’s strong returns but said it needs to take a hard look at its portfolio, from which it has divested only Olympus.

“Sony has avoided the topic of portfolio optimization, but we continue to believe that Sony’s media and semiconductors franchises can stand alone and create more value independently than together,” the firm wrote in a letter to its investors. A copy was seen by Reuters.

The New York-based hedge fund is among the first, along with Carl Icahn, to oppose the SEC’s proposed rule for proxy advisory firms. The measure is designed to give investors more insight into how firms, including Institutional Shareholder Services and Glass Lewis & Co, formulate their recommendations on issues ranging from proposed mergers to executive pay.

Third Point’s flagship portfolio returned 18.6% last year and its investment bets are closely watched in the investment community, especially as most of last year’s gains were fueled by activist positions, including bets on Sony and Campbell Soup Co (CPB.N).

Pushing corporations to improve operations has helped fuel Third Point’s returns for nearly a decade, the letter said, adding that the strategy was becoming more valuable in a changing market environment.

Third Point began building a stake in Sony last year and called for a spinoff of its semiconductor unit. While praising Sony management for having listened to its ideas, it clearly wants things to move faster.

The fund also praised Campbell Soup Co’s (CPB.N) new Chief Executive Mark Clouse, the man it has said privately it helped recruit, for revitalizing the iconic brand. Third Point took some of its profits and now owns less than 5% of the company, leaving money on the table for new bets.

Third Point’s letter did not discuss any new investment ideas but it called the SEC’s proposed proxy adviser rule an “end run around shareholder rights.”

The rule would give corporations, many of whom have complained about the power and influence of ISS and Glass Lewis for years, the right to review recommendations before they are published.

Under the proposal, proxy advisers could be subject to lawsuits, even if companies had endorsed their recommendations.

The authors are shareholders of R|K Invest Law, PBC, and were formerly lawyers for the SEC’s Office of the General Counsel. Mr. Kirby was previously a principal at Baker McKenzie and K&L Gates. Ms. Roth was previously with Dechert, LLP, served as in-house counsel for Calvert Investments, and authored the first Community Investment Notes as counsel for Calvert Impact Capital.

The SEC Adopts a New Definition of “Solicitation” that Includes Proxy Advisory Services

In August 2019, the Securities and Exchange Commission (“SEC” or “Commission”) expanded existing proxy rules by issuing an interpretive release, essentially creating a new definition of what constitutes a proxy solicitation.[1] The SEC announced that when shareholders hire proxy advisory services to provide information relating to items to be voted on at a company’s annual meeting of shareholders, the advisory firm is itself engaging in a “proxy solicitation.” That conclusion reverses years of interpretation and industry understanding, and conflicts with the regulatory exemption for proxy advisory firms imbedded into the proxy rules themselves.[2]

The SEC Has Issued Proposed Rules Based on the New Definition

The SEC has now proposed to implement its novel definition by restricting the rule’s exemption to advisory firms that provide the publicly-traded corporate issuer with access to the advisory service’s propriety report before the proxy advisory firm sends it to its own clients. The SEC would mandate that the proxy advisory firm provide the issuer with a platform on which the issuer could comment on the advisory service’s report. The rule would also compel proxy advisory services to disclose proprietary information relating to their methodology. The SEC claims that these proposed changes are aimed at curtailing perceived abuses.[3]

The expanded definition of who is deemed to be engaging in a proxy solicitation results in proxy advisory services becoming subject to SEC Rule 14a-9, the proxy antifraud rule. In that regard, an investment advisory service’s proprietary advice to its clients based on public information provided in issuer documents would become subject to regulatory antifraud scrutiny and could be deemed by the SEC to be incomplete and thus materially misleading.

The Proposed Rules Would Restrict Free Speech

By taking these steps, the SEC is attempting to exercise regulatory authority over an aspect of business not expressly reserved to it by Congress. Not only would implementation impose substantial burdens on a service to shareholders already explicitly carved out from the proxy rules, it interferes with a private business relationship.

As such, the very manner in which the proposed rules are designed to be implemented appears to violate the First Amendment. By defining “solicitation” to include the analyses and recommendations provided by proxy advisory services to their clients, the SEC seeks to regulate private discourse between shareholders and the firms they hire to provide analyses based on criteria chosen by the shareholder. The result is to restrict contractual parties from having a free and frank interchange, in this case relating to their proxy voting choices. No statute grants the SEC that authority and – even if there were such a statute – it would likely not withstand First Amendment scrutiny.

It is the free speech issue that we believe merits further analysis and is missing from the SEC’s reasoning in support of its proposed rulemaking.[4] We explore that issue below.

The SEC is Engaging in the Unlawful Regulation of “Viewpoint” Speech

Advisory services analyze publicly-available information (which primarily comes from the issuer’s own disclosure documents), synthesize it to meet specific client requests for information, and provide guidance on how that information relates to a client’s stated investment objectives. Clients then incorporate that analysis into their own evaluation of how to vote on the issues presented at the shareholder meeting. This type of advice to clients is the essence of “viewpoint” speech.

As the Supreme Court explained in a ruling addressing the First Amendment, government “has no power to restrict expression because of its message, its ideas, its subject matter, or its content.” Reed v. Town of Gilbert, 576 U.S. _,135 S. Ct. 2218, 2226 (2015) (citation omitted). “[A] speech regulation targeted at specific subject matter is content based even if it does not discriminate among viewpoints within that subject matter.” Id. at 2230. On its face, the proposed SEC regulation seeks to limit discussions between a shareholder and its proxy advisory service where the subject matter is the question of how to vote proxies. The SEC does not otherwise attempt to limit the content of discussions about other topics for which the shareholder and its service provider may be engaged, such as potential compliance with ESG screens. Thus, the SEC’s proposed regulation is aimed at the subject matter of the proxy advisory service. This is content regulation of speech at its most basic level.

Even if one were to accept the SEC’s assertion that the integrity of research provided by proxy advisory services “could be” suspect,[5] what the government may not do is regulate the discussions between shareholders and their service providers. Just this past term, the Supreme Court explained that “viewpoint regulation” goes to the heart of First Amendment protections, striking down the Lanham Act limitation on registration of offensive trademarks: “The government may not discriminate against speech based on the ideas or opinions it conveys.” Iancu v. Brunetti, 588 U.S. _, 139 S. Ct. 2294, 2299 (2019).

When a publicly-traded company issues a statement about its financial affairs or solicits proxies, it generally publishes those statements first by filing them with the SEC – at which point they are deemed public – and then by making those statements widely available through a variety of channels. The information contained in the statement thus becomes part of the public discourse about the company.

When making statements to the public, publicly-traded companies are subject to strict government regulation, including the antifraud provisions relating to the statements made. See, e.g., SEC Exchange Act Rules 10b-5, 13b2-2 and 14a-9.[6] However, once the company’s statements become public, analysts and others are free to evaluate that information together with other publicly-available information and reach their own opinions and factual conclusions about what that information implies, whether good or bad. They also remain free to publicize those conclusions in the public domain or sell them to investment advisers or other interested persons, including voting shareholders.[7] These opinions and conclusions by analysts and proxy advisory firms are covered by the same heightened public discourse First Amendment protections as statements about public figures.[8]

Indeed, the SEC itself recognized these limitations in earlier public statements at the time it first wrote and revised its proxy solicitation rules. For example, the 1992 Commission, explaining of its reluctance to regulate communications among shareholders, acknowledged that “[a] regulatory scheme that inserted the Commission staff and corporate management into every exchange and conversation among shareholders, their advisors and other parties on matters subject to a vote certainly would raise serious questions under the free speech clause of the First Amendment, particularly where no proxy authority is being solicited by such persons.” Regulation of Communications Among Shareholders, Release No. 34-31326 (Oct. 16, 1992) [57 Fed. Reg. 48276, 48279 (Oct. 22, 1992)].

In Attempting to Redefine the Statute, the SEC Has Exceeded its Powers

But, more importantly, the SEC’s recent effort to extend the definition of “proxy solicitation” beyond persons who are actually seeking to procure, withhold or revoke a proxy is an attempt by the SEC to expand its reach beyond any power Congress delegated to the agency.[9] While the SEC is given broad authority to regulate the solicitation of proxies as necessary and appropriate, that power is not unlimited. It may not redefine basic terms in the statute, nor may it seek to regulate an entire industry segment.

The SEC seeks to meet the issue of authority head on by asserting that the term “solicit” in the statute is ambiguous and did not have a sufficiently well-understood meaning when Congress enacted it in 1934. (See Proposed Amendments to Exemptions at 19 and note 48.) That argument seems forced. The term has a commonly-understood meaning, requires no definition as used in Section 14(a), and Congress accordingly did not provide one. It would be presumptuous of the SEC to assume that Congress erred in that respect.

A unanimous Supreme Court recently reversed the SEC for engaging in a similar definitional sleight of hand. In Digital Realty Trust, Inc. v. Somers, 583 U.S. _, 138 S. Ct. 767 (2018), the Court struck down an SEC Rule that sought to define the term “whistleblower” contrary to the unambiguous statutory text. That same fate may well befall the SEC’s effort to redefine the term “solicit” in the proxy rules beyond its well-understood meaning. The SEC does not have the authority to extend the regulation beyond the commonly and long understood meaning of “solicit” as focused on those persons seeking to procure, withhold or revoke a proxy.

By expanding the definition of “solicit,” the SEC seeks to regulate the content of the discussions between a shareholder and its proxy advisory service. This content-based regulation is contrary to modern First Amendment jurisprudence. For that reason, it is likely that a court would refrain from accepting the SEC’s expanded definition when to do so would force the court: (i) to confront the First Amendment constitutional issue of whether Congress has the power to regulate the scope of private discourse among shareholders and their service providers; and, if so, (ii) to consider whether Congress has delegated that power to the SEC to implement by agency rulemaking.

There can be little question that the communication between the proxy advisory service and its client is speech. As stated by the Supreme Court, “the creation and dissemination of information are speech within the meaning of the First Amendment.” Sorrell v. IMS Health Inc., 564 U.S. 552, 570 (2011). What the SEC rules seek to do is regulate those communications by imposing advance burdens on the speaker regardless of the nature of the content of those communications. That is the essence of viewpoint regulation of speech barred by the First Amendment.

The SEC’s Proposals Go Beyond Mandating Disclosure of Conflicts

The analysis does not change if the proxy advisory service is offered by a registered investment adviser. The courts have long recognized the limits that the First Amendment places on the regulatory reach of the Investment Advisers Act of 1940 (“Advisers Act”). See SEC v. Lowe, 472 U.S. 181 (1985), and SEC v. Wall Street Publishing, Inc., 851 F.3d 365 (D.C. Cir. 1988). The Advisers Act regulates the disclosure of conflicts of interest and fraudulent practices by an investment adviser, but it may not regulate the content of speech by the investment adviser to its client. In its interpretive release and related rule proposal, the SEC is going far beyond mandating disclosure of conflicts of interest or proscribing fraud. Instead, the SEC is improperly attempting to regulate the content of speech.

The SEC’s attempt to overreach is not somehow “cured” because the securities laws apply to a highly-regulated industry. The First Amendment does not distinguish among types of businesses. Rather, the analysis of whether the SEC’s proposed regulation violates the First Amendment is subject to “strict scrutiny,” and requires that the agency’s regulatory choices as to content regulation be the least intrusive of any alternative. See Reed v. Town of Gilbert, 135 S. Ct. at 2231-32. The SEC’s proposed regulations do not appear to meet this test. Demanding disclosure of methodology and making proxy advisory firms give prior notice of the content of their advice is perhaps the most intrusive rather than the least intrusive alternative that could have been chosen by the Commission.

This First Amendment inquiry is fundamentally the same whether the question is analyzed under traditional First Amendment principles, or under the narrower commercial speech standard. “Commercial speech that is not false or deceptive and does not concern unlawful activities … may be restricted only in the service of a substantial governmental interest, and only through means that directly advance that interest.” Zauderer v. Office of Disc. Counsel, 471 U.S. 626, 638 (1985). There is no factual basis for the notion that every communication between a proxy advisory firm and its client is potentially false or deceptive speech. At best the rule seeks to prevent possible incomplete communications between them, which is hardly a sound foundation for regulation of even commercial speech. There are less intrusive means available to guard against potential false or deceptive disclosures.

There is No Legitimate Government Interest for the Proposed Rules

Nor do the proposed rules advance a substantial governmental interest. Instead, they advance the interests of the publicly-traded companies. The proposed rules interfere with communications between shareholders and their service providers. That is First Amendment protected activity for which the SEC offers no cogent justification.

The SEC previously recognized the benefit of leaving those discussions unfettered by regulation: “The purpose of the proxy rules themselves are better served by promoting free discussion, debate and learning among shareholders and interested persons, than by placing restraints on that process to ensure that management has the ability to address every point raised in the exchange of views.”[10] Its current releases offer no compelling argument as to why its earlier pronouncement is no longer valid.

That a shareholder seeks assistance in determining how a particular shareholder proposal in the already-filed proxy statement squares with the shareholder’s individual investment policies and objectives is outside the scope of the SEC’s role. In the context of the First Amendment analysis, there is no legitimate government interest in requiring any sort of disclosure by the proxy advisory service of the content of its analysis.

The SEC Should Abandon Its Attempt to Regulate Proxy Advisory Services

The SEC is the watchdog for the investor – not for the publicly-traded company. The Commission should continue to respect its boundaries as it has in the past, and will hopefully, with the guidance of its staff and public input, set aside these proposals as beyond any legitimate governmental interest. We see no justification, let alone the strict scrutiny required under the First Amendment, for regulation of proxy advisory services.

[1] See Release No. 34-86721, Commission Interpretation and Guidance Regarding the Applicability of the Proxy Rules to Proxy Voting Advice, available at: https://www.sec.gov/rules/interp/2019/34-86721.pdf (effective September 10, 2019).

[2] See Rule 14a-2(b)(3), 17 C.F.R. § 14a-2(b)(3).

[3] See Release No. 34-87457, Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice (Nov. 5, 2019), available at: https://www.sec.gov/rules/proposed/2019/34-87457.pdf (“Proposed Amendments to Exemptions”).

[4] In that connection, we will not address the argument that the new definition violates the Administrative Procedure Act (“APA”). That allegation has been well-articulated in a lawsuit filed against the SEC by Institutional Shareholder Services, a firm that – among its many products – provides proxy advisory services. ISS v. SEC, No. 19-cv-03275 (D.D.C., filed October 31, 2019). In its complaint, ISS alleges that the SEC “interpretive guidance” issued in August 2019 is, in effect, a rule of general applicability adopted in violation of the notice and comment requirements of the APA. ISS also takes issue with the SEC’s claim that ISS’s advice to clients could ever reasonably be considered a proxy solicitation, even were the SEC properly to undertake a rulemaking initiative. On January 17, 2020, the court granted an unopposed motion to hold the case in abeyance until the earlier of January 1, 2021 or the promulgation of final rules. (Docket No. 14.)

We also do not address the separate question of whether the agency re-interpretation of an existing longstanding regulation is entitled to judicial deference. See Auer v. Robbins, 519 U. S. 452 (1997). See also Bowles v. Seminole Rock & Sand Co., 325 U. S. 410 (1945). The Auer doctrine was narrowed by the decision last term in Kisor v. Wilkie, 588 U.S. _, 139 S. Ct. 2400 (2019). As the Court explained, the doctrine does not apply to the extent the agency regulation is not “genuinely ambiguous” and the agency’s interpretation is “reasonable.” Id. at 2415-16. One can certainly question whether there is any genuine ambiguity over the question of whether the communication to a client at the client’s request about a proxy voting question is the type of communication intended to be covered under Section 14(a) and whether that interpretation is “reasonable.”

[5] Proposed Amendments to Exemptions at 39.

[6] 17 C.F.R. §§ 240.10b-5, 240.13b2-2 and 14a-9.

[7] Depending on the forum in which those conclusions are published, they may subject the author to regulatory oversight.

[8] See New York Times v. Sullivan, 376 U.S. 254 (1964) (proof of actual malice required in defamation action by public figure defendant). See, e.g., Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749 (1985) (extending NY Times to credit information reporter); Bose v. Corp. v. Consumers Union of United States, Inc., 466 U.S. 485 (1984) (extending NY Times to reviewer of consumer product).

[9] The SEC enacted Rule 14a-1(l)(1)(iii) in its current form in 1956. That subsection specifies that a “solicitation” includes “[t]he furnishing of a form of proxy or other communication to security holders under circumstances reasonably calculated to result in the procurement, withholding or revocation of a proxy.” 17 C.F.R. § 240.14a-1(l)(1)(iii).

[10] Regulation of Communications Among Shareholders, Id. at 48279.

The SEC should rethink proposed rules that impose new requirements on proxy advisory firms and raise thresholds for submitting shareholder proposals, members of the agency’s investor advisory committee said Friday.

A divided committee voted 10-to-5 to support a recommendation of the group’s investor-as-owner subcommittee that SEC officials rework the two proposals and in the meantime address more pressing issues such as “proxy-plumbing” reforms, including ways to correctly count votes and universal proxies.

The planned rules “may collectively shift the balance in a manner that does not serve investor interests (and) as currently framed will not reliably achieve their stated goals, because the system is in need of more basic reform, and because it is necessary to establish a link between the actions and clearly identified problems,” the group’s recommendation said.

Committee members supporting the recommendation also would like to see the SEC consider “reasonable alternatives” to address the issues raised, including ways to correct errors made by proxy advisers and adjustments to shareholder proposal thresholds.

“We do believe the commission could improve conflict of interest disclosure for proxy advisers. Right now, they simply haven’t laid out (the case),” said John Coates, John F. Cogan Jr., professor of law and economics at Harvard Law School and research director of the Center on the Legal Profession.

In addition to making proxy plumbing a higher priority, the committee recommended that SEC officials “do a better job of analyzing the issues” that led to the two proposed rule- makings, including following SEC guidance on cost-benefit analysis. “The current draft proposals lack what we would like to see added as basic components, such as a statement of the market failure that is creating a need for regulation,” Mr. Coates said during a committee telephone conference call.

The comment periods on the two proposals end Feb. 3.

If finalized, proxy advisory firms would have to disclose more information about their processes and any conflicts of interest, and give companies the opportunity to offer revisions. Proposed changes to the shareholder proposal process include raising the minimum amount of stock held and the time held before shareholders could file resolutions at annual corporate meetings. Shareholders could not aggregate their holdings with others and must be available to meet with the company to discuss the proposal. Thresholds for resubmitting shareholder proposals in subsequent years would also be higher.

The senior Democratic member of the US Securities and Exchange Commission has warned that shareholders’ ability to influence corporate boardroom decisions is under threat in comments ahead of his departure next month.

Robert Jackson, whose exit has been expected after his term officially ended in June last year, told the Financial Times that updates to shareholder advisory and voting regulations “could make it harder for investors to speak their mind going forward”.

“There is a movement afoot more generally to exclude investors from the ability to talk to the board of directors to determine the future path of American capitalism,” he said in an interview. “I’m hopeful that my colleagues will reconsider.”

The changes, proposed last November by a vote of 3-2 along party lines, have been among the most controversial of Jay Clayton’s tenure as SEC chairman. Mr Jackson’s departure will leave only one Democrat on the commission, giving the Republicans to Mr Clayton’s right greater sway on enforcement matters and business-friendly regulations.

Mr Jackson took office in January 2018. The White House has not yet named his successor, but it is expected to nominate Caroline Crenshaw, an adviser to Mr Jackson, according to a source familiar with the matter. Her confirmation is uncertain, however, given deep political divisions in the Senate as US president Donald Trump’s impeachment hearing begins next week.

Although he criticised recent deregulatory efforts, including on proposed rules that expanded small investors’ ability to buy private securities, Mr Jackson complimented Mr Clayton’s willingness to work with Democrats. “I have won some, I have lost more, but I have always been heard,” said Mr Jackson, who will be returning to New York University to teach law.

He pointed to the SEC’s changes to rules on exchange traded funds, including guardrails around leveraged versions of the financial products, as an area where the commission had worked successfully across party lines. Mr Jackson also welcomed the tougher approach to stock market trading fees the SEC has taken.

And he said the commission’s crackdown on cryptocurrency fraud had been a clear success. “I commend Jay Clayton for doing something very hard, which is getting out in front of an emerging issue and making sure investors got protected,” he said.

The relative comity at the SEC has been in marked contrast to other parts of Trump-era Washington, where agencies such as the Consumer Financial Protection Bureau have been significantly roiled by Trump appointees.

Mr Clayton, whose term expires in 2021, is expected to leave the SEC after the presidential election in November. An independent, he had faced pressure last year from Senate Republicans to move more quickly to implement changes desired by conservatives.

In a statement, Mr Clayton applauded Mr Jackson’s work at the agency.

“I thank Rob for his many constructive comments and questions,” Mr Clayton said.

• Agency got dozens of comments backing proxy firm proposal following video
• Video comes after allegations advocacy group for seniors sent suspicious letters

The YouTube video encourages “real Americans” to urge Securities and Exchange Commission Chairman Jay Clayton to clamp down on proxy advisory firms that, they say, are imposing a liberal agenda on corporate America.

“We’re seeing abortion, climate change, sanctuary cities, gun control,” Holly Turner, a frequent guest on Fox News, says on the video, sitting next to her conservative-activist husband, Chris Turner. “These are all issues now that these companies are being forced to deal with.”

The SEC has received more than three dozen comment letters backing a proposal targeting proxy firms since the Turners posted the seven-minute advocacy tutorial on YouTube on Jan. 3. At least two letters reference the video, which has more than 700 views, and several more recall some of the language in it.

The video, and response to it, comes after Clayton said he was looking into allegations that the 60 Plus Association, an advocacy group for seniors, helped write and send questionable comments supporting new rules for proxy firms such as Institutional Shareholder Services Inc. and Glass, Lewis & Co.

The firms advise institutional investors how to vote on proposals made by shareholders at public companies’ annual meetings. Those proposals have increasingly covered such issues as climate change and gun control, though no companies in the Russell 3000 index voted on proposals focusing on abortion or immigration last year, Bloomberg data shows.

Clayton cited some of the letters from the 60 Plus campaign while announcing proposed rules, but some people whose names were on the letters said they didn’t send them, Bloomberg News reported. The SEC has also gotten messages from certain email addresses that sent a different templated letter indicating the email address’s owner didn’t submit it. Those almost 5,000 letters, which appear to be organized by an environmental group, oppose related rules to curb shareholder activism.

A representative for Clayton declined to comment on the Turners’ video. The Turners didn’t respond to repeated requests for comment via email and calls to their office. ISS declined to comment on the video. Glass Lewis didn’t return a request for comment.

‘Everyday Americans’

Letters submitted since the video posted have been signed by teachers, veterans, and retirees, many of whom identify as conservatives. Some don’t mention proxy advisers.

Melissa Sharpley, who cited the video in a letter to the SEC, told Bloomberg Law she knows Chris Turner, and he alerted her to the issue. The 80-year-old retiree from Raleigh, N.C., said she then sent the video to friends and other people she knows.

“They suggested sending it to everyday Americans,” Sharpley said.

Thomas Terramani, who also wrote to the agency, couldn’t remember how he came across the video, but said it was informative.

“I never would have known how to contact the SEC,” the 54-year-old physician from San Diego told Bloomberg Law.

Turner Video

Holly Turner, an attorney, previously worked for the Trump administration as a regulatory reform officer at the Small Business Administration. She has appeared a number of times for discussions on Fox News and in other news outlets, including a Bloomberg podcast. Chris Turner sits on the board of the American Conservative Union.

The Turners run Stampede Consulting, which conducts what its website calls grassroots campaigns for conservative candidates and causes. The Republican National Committee is among the firm’s customers, according to Federal Election Commission records.

Nell Minow, a shareholder advocate who used to work at ISS and in the federal government, called the video “insane.”

“This is just another example of bad actors taking well-intentioned systems put in place for democracy and abusing them,” said Minow, vice chair of ValueEdge Advisors, which works with institutional investors on corporate governance.

The UK’s largest pension fund has added its voice to those expressing concern about rule changes proposed by the US securities regulator that affect the shareholder voting process.

In a letter submitted last week to the Securities and Exchange Commission (SEC), the £70.1bn (€78.2bn) Universities Superannuation Scheme (USS) criticised a proposed requirement that proxy advisors share advance copies of voting recommendations with companies before passing them on to the investors that are their clients.

“In our view, any Commission regulation that has the potential to compromise the independence of the research produced by proxy advisors and impinge upon the agency relationship with institutional investors would be detrimental to the execution of shareholder rights and would be incompatible with SEC’s historic role of investor protection,” wrote Patrick O’Hara, senior responsible investment analyst at USS.

Large US institutional investors have been concerned about the SEC’s actions with regard to the shareholder voting process for some time, and O’Hara expressed USS’s support for the views set out in an October letter from the Council of Institutional Investors (CII), a US asset owner association, and a coalition of investors including major US pension funds such as CalPERS and CalSTRS.

A group of large Dutch and Nordic pension investors has also backed this letter, expressing “strong” support for the views it contained.

“It is important to remind the SEC that as asset owners we take the final decision on how to vote,” added senior representatives of APG, MN and PGGM in the Netherlands, and of Swedish buffer funds AP1, AP2, AP3 and AP4.

“We have developed detailed custom voting policies and proxy advisors provide independent research that feeds into our independent decision making process,” they wrote in a comment submitted last month.

Kempen Capital Management, another Dutch investor, also registered concerns about the rules, calling on the SEC to reconsider them.

Unveiled in November, the SEC’s proposed rule amendments, and the lead-up to them, are complex and controversial.

For example, the CII has argued that there is scant evidence for claims of errors in proxy advisors’ voting recommendations, which champions of the SEC’s proposals have made. Most of the alleged errors are cases where the company disagrees with the analysis and methodologies, it argues.

The association recently appealed for dispute resolution services regarding its request for copies of SEC staff analysis and related documents pertaining to a presentation of data on proxy advisor errors included in the SEC’s November proposal.

Konstantin Sergakis, professor of capital markets law and corporate governance at the University of Glasgow, said the objectives of the proposed reform were laudable but that the SEC’s proposals “frame the dialogue with investee companies in a formalistic, stringent and counter-producive fashion”, which would reduce their overall utility and efficiency.

The proposals would have negative implications for competition in a market that was already “largely” dominated by two firms, according to the academic.

Shareholder resolution ESG brake

USS also registered its concerns about proposed changes to a rule governing shareholder resolutions, citing their role with regard to environmental, social and governance (ESG) matters.

“We consider that such shareholder resolutions have played an important role in encouraging better corporate disclosure on material ESG issues and if finalised, the SEC’s proposed amendments […] would in many cases hinder discussion of emerging ESG issues,” wrote senior analyst O’Hara.

A group of 15 of the most frequent filers of shareholder proposals this week argued that the SEC’s “dramatic” proposed rule changes would undermine shareholders’ rights to hold companies accountable for “risk mitigation and crisis management”.

“The proposed rule changes would make the path of investor engagement steeper and more convoluted, adding unnecessary costs and red tape, and making it more difficult for investors to foster sustainability, risk management, and governance improvements at their companies,” wrote Sanford Lewis, director of the Shareholder Rights Group in a letter to the SEC.

“It would block the most established and effective path for improving ESG disclosure and performance of the market.”

The regulator’s proposed rule changes would increase the stock ownership requirements for submitting a resolution and increase the level of support the proposal must have received in order for it to be resubmitted in subsequent years.

The Shareholder Rights Group is made up of smaller US asset managers such as Arjuna Capital and Boston Common Asset Management, which have a strong sustainability stance.

The deadline for feedback to the SEC is 3 February, which several institutional investors have said does not give enough time.

The Council of Institutional Investors (CII) is finding itself frustrated in its efforts to obtain SEC information about alleged errors committed by proxy advisory firms that is being used to help support proposed regulation of those firms.

The investor group in November filed a Freedom of Information Act (FOIA) request seeking the information at issue. Then on December 31 it appealed for dispute resolution services ‘with regard to the lack of response to the… request, which we interpret as constructive denial of the request.’

According to CII executive director Ken Bertsch, the group had not received a response from the agency as of Tuesday afternoon, although a meeting is expected to take place with SEC officials in the coming days to discuss the matter.

Specifically, CII is seeking SEC staff analysis and related materials regarding a table in the proposal that lists figures for what is described as the ‘number of instances registrants indicated particular concerns with respect to the proxy voting advice.’

In the FOIA request, CII director of research Glenn Davis writes: ‘Allegations of errors in shareholder meeting reports delivered to investor clients by proxy advisory firms (PAFs) are a major prong of the SEC’s… basis for proposing new and sweeping regulatory burdens on PAFs, including a system to guarantee that the subjects of PAF reports can access and add content to time-sensitive PAF reports before they become available to PAF clients, many of whom are CII members.

‘Given that registrants are the subjects of PAF reports, the need is clear for independent analysis by SEC staff of registrant allegations of errors in PAF reports. The preparation and presentation of the table, entitled Registrant Concerns Identified in Additional Definitive Proxy Materials, likely involved at least some level of SEC staff analysis to confirm the veracity of errors alleged by registrants.’

The SEC in November proposed amendments to its rules governing proxy solicitations that officials wrote would ‘enhance the quality of the disclosure about material conflicts of interest that proxy voting advice businesses provide their clients.’ It would also allow issuers to review and give feedback on proxy voting advice.

In addition, CII and almost 70 of its members – including CalPERS, CalSTRS, the New York State and New York City comptrollers, Ceres, Elliott Management and Trillium Asset Management – in November requested that the SEC extend the comment period on the proposal from 60 days, which ends on February 3, to 120 days. They requested the same for another proposal seeking changes to Rule 14a-8, which governs the process for determining which shareholder proposals wind up in a company’s proxy statement.

‘The two concurrent proposed rules individually, and collectively, if adopted, would result in the most significant changes to the voting rights of shareowners in decades,’ Bertsch writes in the letter seeking an extension. ‘The proposals are complex, a combined 320 pages in length, and include 345 individual questions for commentators. The proposals explicitly and repeatedly request that commentators provide supporting data. To the extent possible, we intend to be responsive to this request in comment letters.’

An SEC spokesperson did not have immediate comment on the FOIA and comment extension requests.