Input Stories

The NAM heads to court today to fight for reasonable oversight of proxy advisory firms. 
 
What’s going on: The NAM Legal Center team will argue before a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit in Institutional Shareholder Services v. Securities and Exchange Commission. 

• In 2020, after years of advocacy by the NAM, the SEC adopted a common-sense rule to provide oversight of proxy advisory firms—unregulated, for-profit entities that advise investors about how to vote on public firms’ proxy ballot measures.  
• The NAM will urge the court to reaffirm the authority of the SEC to regulate these firms, which employ opaque methodologies and frequently operate with undisclosed conflicts of interest, among other serious flaws. 

Why it’s unusual: Today’s “oral argument puts us in the extremely unusual position of defending government authority to regulate in court when the government won’t,” NAM Vice President and Deputy General Counsel of Litigation Erica Klenicki said.  

• Wishing to remain unregulated, ISS, the biggest and most influential proxy firm, launched this lawsuit in 2019 to challenge the SEC’s authority to enact crucial proxy firm reforms. The NAM quickly moved to intervene to ensure a robust defense of those reforms.  
• Four years later, in the fall of 2024, the SEC abdicated its authority to defend shareholders from proxy firms when it declined to pursue an appeal in the case. Today, proxy advisory firms remain unregulated. 
• “The SEC’s 2020 rule has spent five years hung up in court,” NAM Managing Vice President of Policy Charles Crain told the House Subcommittee on Capital Markets this week. 

What proxy firms contend: ISS claims that the SEC lacks the authority to regulate proxy voting—but the Securities Exchange Act of 1934 clearly gives the SEC the power to regulate proxy solicitation, which encompasses proxy firms’ conduct.  
 
Five years in the making: As sole appellant in the case, the NAM “is keeping up the fight,” Klenicki continued. 

• Two presidential administrations and five years after the NAM first moved to intervene in the case, the NAM “will argue to Judges [Karen LeCraft] Henderson, [Neomi] Rao and [Bradley N.] Garcia the narrow but existential issue of whether proxy firms ‘solicit’ proxies within the meaning of the Exchange Act,” Klenicki said. “The answer must be yes. Just like every other player in the securities market—issuers, broker-dealers, asset managers, etc.—proxy firms must be regulated under the securities laws.”