There is a common theme that unites the two proposals before us today: they both would operate to suppress the exercise of shareholder rights.

The proposed changes to our current proxy regime would make it more costly and more difficult for shareholders to cast their votes or even to get their issues onto corporate ballots. There is a stark divide between issuers and shareholders on the policies reflected here.[1] The bottom line is that these policy choices, if adopted, would shift power away from shareholders and toward management.

There is nothing inherently wrong in making such a choice, particularly if data suggests the need to correct some imbalance. But what does the data show about proxy voting? That the vote recommended by management carries the day some 90 percent of the time.[2] Management’s views nearly always prevail. That is the context in which we consider these two proposals that would tilt the scales even further against shareholders.

I want to be clear – my concern does not lie with the staff and its work. We are lucky to have talented and experienced staff in the Division of Corporation Finance, the Division of Investment Management, the Division of Economic and Risk Analysis, and the Office of the General Counsel who have worked diligently on these proposals, and I thank each of you for your expertise and dedication. My concern here is that these proposals reflect policy choices with which I respectfully disagree.

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The first proposal related to proxy advisors potentially impairs, and may even preclude, shareholders’ ability to vote in reliance on independent voting recommendations. Proxy advisors provide critical research to inform shareholders, and those who manage their investments, as they cast their votes. Institutional investors and asset managers representing tens of trillions of dollars of shareholders’ money have been very clear that the services of these proxy advisors are critical to their ability to meet their fiduciary duties in casting informed votes.

I agree with the stated goal in the proposal that proxy advice should be based on the “most accurate information reasonably available.”[3] What is missing in this proposal, however, are two critical underpinnings for the policy choices it reflects. First, it is missing data demonstrating an error rate in proxy advice sufficient to warrant a rulemaking. In fact, as the comment file shows, assertions of widespread factual errors have been methodically analyzed and largely disproven.[4]

Second, there is no basis for assuming that greater issuer involvement would improve proxy voting advice. As I have stated before, issuers bring deep expertise and insight, but also have a clear stake in the outcome. Their views are helpful and necessary, but already easily accessible. They should not be allowed to influence the independent recommendations of proxy advisors. Indeed, we take this precise approach in other contexts, such as with issuer involvement in research provided to investors by analysts.[5] FINRA Rule 2241 promotes objective and reliable research by, among other things, seeking to limit any prepublication review by issuers to a verification of facts.

By contrast, today’s proposal isn’t limited to a review of just the facts, and it doesn’t just permit issuer review of proxy advisors’ recommendations; it requires it. Issuers are given not one, but two opportunities to review each recommendation.[6] We do this without even addressing the concerns expressed by investment advisers that greater issuer involvement would undermine the reliability and independence of voting recommendations.[7]

In addition, and quite importantly, these two mandated review periods will delay the recommendation by at least five business days. Proxy advisors have explained that a delay of this magnitude could actually make it impossible for them to get recommendations to their clients in time. In fact, under the timeframes in this proposal – and given that these reports must sometimes be provided to proxy advisory clients two weeks prior to a meeting – if an issuer files 25 days before its annual meeting, that issuer could actually wind up with more time to review the proxy advisor’s recommendation than the proxy advisor itself would have to write it.[8] How can this possibly result in improved quality or even be workable?

What’s more, the proposal declines to provide shareholder proponents the same opportunities to review the recommendations that it would require for issuers. While I am skeptical as to the value of the review periods, I cannot see the reason for denying it to shareholders while providing it to issuers.[9]

This one-sided approach taken throughout the proposal appears to me, at best, to increase costs and reduce quality, and at worst, to make voting for shareholders not viable.

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The second proposal will also have the effect of suppressing the exercise of shareholders rights—in this case, uniquely those of the smallest retail investors—by raising eligibility and resubmission thresholds for the shareholder proposal process.

This process has long provided a vital mechanism for shareholders to communicate their views to, and engage with, management. For decades, shareholders have succeeded in effecting significant improvements in corporate governance, including majority vote rules for the election of directors, staggered board terms, limits on poison pills that serve to entrench management, and increased adoption of proxy access bylaws. Shareholder proposals often highlight the need for important corporate reforms that are later adopted. This was the case, for example, with proposals requesting the expensing of stock options before this was required by GAAP.[10]

Significantly, shareholders have taken a leading role in seeking much needed improvements to climate risk disclosures.[11] Improved transparency in these disclosures is critical in accurately pricing risk and supporting informed, efficient capital allocation. [12] Shareholders are helping to pave the way toward better climate risk disclosures; this rule will significantly impede that progress.[13]

In fact, this proposal would create substantial new barriers to shareholder proposals in two key respects: a complete overhaul of the eligibility criteria and a doubling of the re-submission thresholds. The eligibility changes would build structural advantages for wealthier investors into the rule, increasing the required one-year ownership amount to $25,000—an increase of more than 1000%. An investor who holds only $2000 worth of stock must now wait three years to submit a proposal. For context, an analysis of retail investor portfolios indicates that the median portfolio value is approximately $27,700.[14] Thus, Main Street investors would generally have to invest virtually their entire portfolio into one company (something we strongly discourage) to enjoy the same rights as Wall Street investors, or they would have to wait three years to catch up to them.

Even more troubling is the lack of data to predict the effects of this proposed change. The proposal looks at limited subsets of shareholder proposal data from 2018. It then concludes that, had this rule been in effect last year, it would have blocked anywhere from zero to 56% of shareholder proposals. Thus we cannot say whether this proposal would do nothing or would block more than half of shareholder proposals.[15]

The dramatically increased resubmission thresholds are similarly stifling to shareholders. And, the new “momentum” requirement would block resubmissions when there is a 10% drop in support even if these significantly higher thresholds are met. This is presumably because a 10% change in support is considered significant. But, under the proposal, that change is only significant when it shows a drop, not an increase, in support. Let’s look at the numbers: For shareholders to get from the first to the second resubmission threshold, they must show a 200% increase in support.[16] A 199% increase? Not enough to move forward. A 10% decrease? Sufficient to block resubmission.

Finally, I add that the Commission voted yesterday to propose substantial changes to the investment adviser advertising rules.[17] Although I have concerns about certain aspects of that proposal, such as permitting testimonials, I voted to support it at the proposal stage because I think the proposal reflected a more balanced approach to protecting investors while providing flexibility to investment advisers.

In contrast, with each aspect of today’s two proposals, the odds are stacked against shareholders, and that is why I cannot support them.

I hope that commenters will weigh in to help us strike a better balance between the needs and views of shareholders and issuers going forward.