On November 15, 2024, the NAM asked the D.C. Circuit to overturn the lower court’s decision finding that the SEC lacks authority to regulate proxy advisory firms. This appeal is the latest development in our ongoing fight to ensure reasonable regulation of proxy firms—unregulated third parties with outsized influence on shareholder votes and manufacturers’ corporate governance policies. In July 2020, after years of advocacy from the NAM and a deliberative, bipartisan process, the SEC finalized a new rule increasing transparency and accountability of proxy firms. The final rule—issued under Section 14(a) of the Securities and Exchange Act of 1934—required proxy firms to disclose their conflicts of interest, provide voting recommendations to companies after they are finalized, and notify investors of company perspectives on their recommendations. Section 14(a) of the Exchange Act makes it unlawful to “solicit” proxies “in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors[.]”
The NAM intervened in proxy firm Institutional Shareholder Services’ challenge to the rule in the D.C. District Court—the present case, Institutional Shareholder Services v. SEC. ISS is one half of the duopoly operating in the proxy advisory space. Unfortunately, the district court granted judgment for ISS after concluding that the SEC lacks authority to regulate proxy advisory firms. The district court sided with ISS and held that “the ordinary meaning of ‘solicit’ at the time of Section 14(a)’s enactment does not reach proxy voting advice for a fee”; therefore, “[b]y defining the terms ‘solicit’ and ‘solicitation’ in the proxy rules to include proxy voting advice for a fee, . . . the SEC acted contrary to law and in excess of statute authority."
We argue in our opening brief that the district court misread the record in determining what proxy advisory firms do, which is “solicit” proxies under any reasonable definition. The district court also disregarded the explicit authority provided to the SEC in the Exchange Act for it to define terms like “solicit,” rejecting the SEC’s reasonable interpretation of the term and adopting an artificially narrow definition. Notably, the SEC declined to pursue an appeal in this case, abdicating its well-established and long-standing authority and leaving the NAM as the last bulwark standing between America’s public markets and proxy firms’ unchecked influence.