SEC Commissioner Daniel M. Gallagher’s Remarks Primarily on Proxy Issues

Commissioner Daniel M. Gallagher of the SEC delivered a speech that was primarily focused on proxy issues.  Commissioner Gallagher made two major points.  The first one, which he made only briefly, was that SEC requirements have likely increased the number of proxy items that are available for investor vote to the point that the ability to vote is more of a burden than it is an empowerment.  The second, which is the real focus of his talk, is that investment advisers take the view, based on two SEC staff no-action letters, that they are relieved of the burden of considering how to vote on proxies so long as they follow the advice provided by a third-party proxy service.  In Commissioner Gallagher’s view, this has a number of negative consequences: (i) advisers vote in alignment with proxy services so as to avoid compliance actions by the SEC rather than to serve their clients’ interests, (ii) proxy services do as little research as possible, since advisers just want to be given a safe harbor from disciplinary action in exercising their proxies, and do not really care about the results; and (iii) proxy services have too much power.   Accordingly, Commissioner Gallagher urged the SEC to recall the two prior no-action letters and to issue Commission-level (as opposed to staff) guidance on an adviser’s responsibilities to vote proxies.

Somewhat briefly, Commissioner Gallagher criticized the SEC’s resource extraction rule as being too expensive, which was recently struck down by the courts as “arbitrary and capricious.”

See: Commissioner Gallagher’s Remarks.