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Does “No-Action” Review Require Any Action?

Three things to do while awaiting resolution of the SEC’s no-action letter revocation.

Does “no-action” Review Require Any Action?

Recently, the U.S. Securities and Exchange Commission rescinded two 2004 no-action letters that provided guidance for investment managers who rely on proxy advisory firms for voting recommendations. The purpose of this move was to generate conversation about the SEC roundtable held on November 15th 2018.

In practical terms, it’s not immediately clear what the SEC’s letter revocation means. SEC Chair Jay Clayton issued a statement indicating that no-action letters are not legally binding, so some believe the withdrawal will have no effect. On the other hand, the move could also signal a trend toward increased regulatory scrutiny or even a potential overhaul of the role proxy advisory firms play in the industry. As we await additional details, here are three things you can do today to make sure you’re ready for whatever changes might transpire.

1. Review your relationships with proxy advisory firms.

Given increasing pressure to maximize transparency and shareholder accountability, make sure you understand how your firm is using proxy recommendations, so you can minimize potential conflicts of interest.

2. Consider revising internal guidance and rules for proxy voting.

Voting on behalf of clients requires thoughtful, thorough analysis, each and every time. To ensure you act in the best interest of your clients, it’s important to apply your own proxy policy to each meeting and not rely solely on proxy advisory firms.

3. Explore alternative data and research firms.

Consider input from several reputable sources to help you gain a more diverse perspective. Some of these sources leverage original data to provide insight into historical voter trends and analytics. Unbiased, objective analysis makes it easier to perform due diligence and align voting with ESG and other policy initiatives. In addition, consider using direct-source data pulled from the proxy statements themselves.

The revocation of the SEC no-action letters may only be the beginning. Broadridge has the products and expertise to help ensure you’re prepared for today’s challenges and ready for what comes next.