The SEC has withdrawn two no-action letters that allowed an investment adviser to rely on third-party proxy voting services so long as the adviser had policies in place to ensure independence. The SEC withdrew the letters because it wants to open debate about the regulation of proxy voting services at its upcoming Roundtable on the Proxy Process in November. The SEC wants to consider whether investment advisers are “relying on proxy advisory firms for information aggregation and voting recommendations to a greater extent than they should, and whether the extent of reliance on these firms is in the best interests of investment advisers and their clients, including funds and fund shareholders.” The SEC withdrew the Egan-Jones Proxy Services (5/27/04) and Institutional Shareholder Services (9/15/04) no-action letters.
OUR TAKE: The Egan-Jones and ISS letters provided a de facto safe harbor for advisers to rely on third party voting services. Their withdrawal and upcoming roundtable open the door to additional requirements on advisers to supervise proxy voting.