Research

The U.S. Securities and Exchange Commission has rescinded critical components of a landmark 2020 rule regulating so-called “proxy advisory firms”—and the NAM is fighting back in court.

The long road here: In 2020, after years of NAM advocacy, the SEC finalized a major rule designed to combat proxy firms’ errors and conflicts of interest.

• Proxy firms influence publicly traded companies by recommending how institutional asset managers should vote in corporate proxy contests, often without any accountability.
• The 2020 rule required proxy firms to engage with public companies and their investors, and it subjected the firms to the SEC’s anti-fraud standards.

The about-face: Beginning last year, however, the SEC’s new leadership has worked to undermine the rule, including by refusing to enforce it—an unlawful decision the NAM opposed in court. Last week, the SEC officially rescinded many of the rule’s critical reforms.

The response: The NAM has filed a lawsuit against the SEC to preserve the 2020 rule. Our complaint argues that the SEC’s actions are “arbitrary and capricious”—and that the 2022 rescission should be overturned.

The issue: Federal agencies are required to articulate a reasoned explanation for making a new policy decision—especially when that decision is based on the same facts but reaches a different outcome than a recent rule.

• In this case, the SEC finalized a compromise rule in 2020 based on a decade of bipartisan research, analysis and discussion—and no new evidence has emerged since 2020 given that the SEC prevented the rule from taking effect. So, the agency’s about-face “epitomizes ‘arbitrary and capricious’ rulemaking.”

What we’re saying: “Manufacturers depend on federal agencies to provide reliable rules of the road, and the SEC’s arbitrary actions to rescind this commonsense regulation clearly violate its obligations under the Administrative Procedure Act,” said NAM Chief Legal Officer Linda Kelly. “The NAM Legal Center is filing suit to preserve the 2020 rule in full and protect manufacturers from proxy advisory firms’ outsized influence.”