Amended proxy advisor rule challenged in court (IGNITES)

When the SEC rescinded and then amended the Proxy Advisor Rule’s 2020 version, it claimed to follow a 30-day comment period that was procedurally valid. Now that process is being challenged in a lawsuit filed by advocacy groups, which state the SEC failed to thoroughly solicit and incorporate enough feedback during the comment period. Exclusively quoted, FrontLine’s Founder and President Amy Lynch explains that the 2022 version of the rule is deemed more investor-friendly as now all proxy advice is considered solicitation, and advisors cannot issue materially false or misleading recommendations to clients. The SEC also viewed the prior version as more onerous, with additional compliance burdens for proxy advisors, which would also feel more pressure from corporations to tilt their voting recommendations toward management. Ms. Lynch further comments that the companies themselves subject to corporate action may believe they are at a greater disadvantage with the amended rule, and have lost some control over negotiating with the proxy advice firms. This may also be part of the rationale for pursuing the legal challenge to the rule, which the SEC has asked a judge to dismiss. See IGNITES (subscription required), “SEC: Toss ‘Meritless’ Challenge to Proxy Advisor Rule”