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.