Proxy voting

Sara Crovitz talks to press re. new SEC guidance on proxy advisers

Sara Crovitz, member of the Fiduciary Governance Group, spoke with Fund Intelligence on the new guidance approved by the Commissions to enhance transparency regarding the recommendation proxy advisers make with respect to proxy voting decisions. We will have a client alert on these developments over the new few days.

SEC announces open meeting on investment adviser proxy issues

The SEC has announced that it will hold a public meeting on August 21 @ 10 am re:

  • whether to publish guidance regarding the proxy voting responsibilities of investment advisers under, inter alia, Rule 206(4)-6 under the Investment Advisers Act of 1940; and
  • whether to publish an interpretation and related guidance regarding the applicability of certain rules, which the Commission has promulgated under Section 14 of the Securities Exchange Act of 1934, to proxy voting advice.

We will track these developments carefully.

SEC ready to move forward to proxy advisor/shareholder proposal rules

Asset managers expressing more concern over climate change risk

Putting the Trump Executive Order on ESG Into Perspective for ERISA Fiduciaries

Much was made of the President’s April 10th Executive Order that directed the Secretary of Labor Alex Acosta to re-examine the DOL’s guidance on proxy voting. The Executive Order was focused on energy production, so a reasonable inference is that the DOL could tighten the screws on how ERISA fiduciaries engage in proxy voting and other forms of shareholder engagement when taking into account ESG risks. Our initial description and analysis of the Executive Order can be found here. Today, Pensions & Investments published an op-ed of mine, which seeks to put the Executive Order into context for ERISA fiduciaries, particularly those who are taking ESG factors into account when they vote proxies on behalf of plans. I note, for instance, that adding a more rigorous test for including ESG factors into proxy voting decisions “could not be so onerous as to make divestment preferable to engagement, as that would seem to undermine the executive order’s very purpose.”

The benefits of shareholder engagement can be captured, but will they be near-term enough to address DOL concerns?

According to the Wall Street Journal, “there are signs that companies are becoming more responsive to investor demands before annual meetings, especially as consumers engage more on environmental and social topics.” As an example of this development, the article points to the recent decision by Mondelez International Inc. to have all of its Oreo cookie wrappers recyclable by 2025. Though the Mondelez decision is the fruits of many years of discussions, the article acknowledges that “[i]t is difficult to measure the effect of closed-door conversations between shareholders and companies.” This is the tension: even with company boards showing greater receptivity to engagement, how does one gauge measurable outcomes of these meetings? This conundrum will probably surface with likely new guidance from the Department of Labor on proxy voting and shareholder engagement this year. One should expect the guidance will call for a greater articulation of the costs spent on these activities, as well as some indicator that any such engagement is in the best interests of the retirement plan investor in light of those costs.

Institutional investors pressing SEC on executive compensation disclosure

Jackson calls for greater disclosure of index fund voting patterns

Potential effect of this week’s shareholder engagement Executive Order

What the new Executive Order on proxy voting may mean for fiduciaries

The White House announced on April 10 that the President had signed an Executive Order on “Promoting Energy Infrastructure and Economic Growth.” Section 5 of the Executive Order imposes two requirements on the Department of Labor (DOL), each of which must be completed within 6 months:

  1. “[C]omplete a review of available data filed with the Department of Labor by retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) in order to identify whether there are discernible trends with respect to such plans’ investments in the energy sector,” and “provide an update to the Assistant to the President for Economic Policy on any discernable trends in energy investments by such plans;” and,
  2. “complete a review of existing Department of Labor guidance on the fiduciary responsibilities for proxy voting to determine whether any such guidance should be rescinded, replaced, or modified to ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets.”

Less than one year ago, the DOL released Field Assistance Bulletin 2018-1, in which the DOL clarified its views on how shareholder engagement could be conducted in a manner consistent with ERISA’s fiduciary duties. Proxy voting and other forms of engagement are fiduciary functions under ERISA. The application of ERISA’s fiduciary duties in this context is ultimately a function of materiality and cost, each positively related to the other, so that as the perceived materiality of an issue on investment performance that is the subject of engagement increases, a fiduciary has more rope to incur costs on its meetings with the board, etc. The converse is also true. A possible result of a narrower interpretation by the DOL and/or the courts of what (ESG) risks are material to a company’s performance: less engagement on those risks broadly. A more probable result, however, is that fiduciaries already evaluating ESG risks will continue parsing whatever ad hoc disclosures are volunteered by the companies, and may point to statements made by prominent individuals and institutions on the materiality of these risks.