To Nareit's Regulatory Subcommittee:

Nareit would like to alert you to some late-summer corporate governance developments relevant to U.S. REITs.

SEC Issues Guidance on Responsibilities of Investment Advisers and Proxy Advisors

During a contentious meeting yesterday, a divided Securities and Exchange Commission (SEC or Commission) issued two pieces of guidance to market participants to clarify the responsibilities of registered investment advisers and proxy advisory firms under the securities laws.

Specifically, yesterday’s guidance clarifies: 1) the responsibilities of investment advisers when voting proxies under Rule 206(4)-6 of the Investment Advisers Act, including with respect to retaining proxy advisors and relying on proxy advisor advice; and, 2) the application of the proxy solicitation rules to proxy advisory firms and the proxy voting advice that they offer. This guidance will become effective immediately upon publication in the Federal Register (without a public comment period).

In our Nov. 2018 Comment submitted to the SEC in advance of the 2018 Proxy Roundtable and in two subsequent submissions, Nareit urged the SEC to update its previous guidance on both of these topics. While today’s guidance is not as comprehensive as many stakeholders – including Nareit – had urged, Chairman Clayton indicated that it should be viewed as an initial step in the SEC’s initiative to address proxy issues and that it will likely be followed by additional actions, including a rulemaking on proxy shareholder proposal reform and another addressing the conditions that proxy advisors must satisfy to claim exemption from the proxy solicitation rules.

Voting by the SEC’s five Commissioners broke down along partisan lines, with the SEC’s two Democratic Commissioners opposing the new guidance and Chairman Clayton and two Republican Commissioners all supporting it. Each Commissioner issued a separate statement of his/her position for the record.

Below is a brief summary of the new measures, which are also described in the fact sheet released by the SEC today.

Investment Adviser Responsibilities and Use of Proxy Advisors

Today’s guidance proposed by the SEC’s Division of Investment Management and approved today further clarifies the responsibilities by investment advisors when voting client proxies. This follows on the Sept. 2018 withdrawal by the SEC of the two “no-action” letters issued in 2004. These 2004 letters had the practical effect of providing a “safe harbor” for investment advisors to rely on proxy advisors, which critics charged had fostered proxy advisor conflicts of interest and opacity in proxy voting. Nareit, together with many other groups, had long urged that these two letters be withdrawn. 

Today’s guidance addresses the obligations of investment advisers to define the scope of their role in voting client proxies and how advisers can demonstrate that their proxy voting policies and voting execution serve clients’ best interests and are consistent with their own policies and procedures. Importantly, the guidance also sets forth several factors that investment advisers should evaluate when retaining a proxy advisor, including, among others:

  • The capacity and competence of the proxy advisor to adequately analyze the relevant matters;
  • The adequacy of the proxy advisor’s “proxy voting policies, methodologies, and peer group constructions, including for ‘say-on-pay’ votes;”
  • The adequacy of the proxy advisor’s disclosure of the methodologies underlying its voting recommendations;
  • The adequacy of the proxy advisor’s disclosure of conflicts of interest (including with regard to other services that it offers) and of its reliance, if any, on third party information; and
  • The adequacy of the proxy advisor’s procedures for issuer engagement and for insuring that it’s advice is based on complete and accurate information.

Finally, the guidance also sets forth the steps that an investment adviser should take when it becomes aware of potential factual errors, incompleteness or methodological weakness in a proxy advisors analysis.

Responsibilities of Proxy Advisors

In the other guidance approved today, the SEC reaffirmed that advice provided by a proxy advisory firm constitutes a “solicitation” under the proxy solicitation rules set forth in the Exchange Act, Rules 14a-1 to 14b-2. The SEC also affirmed that certain exemptions from these rules remain available to proxy advisors, under certain circumstances.

Although the SEC did reaffirm the ability of proxy advisors to claim exemption to the solicitation rules in some circumstances, it also clarified that proxy advisors that rely these exemptions remain subject to liability for false and misleading statements under Rule 14a-9, including with regard to information, statements or opinions included in proxy reports that have not been included in material filed with the Commission. Nareit, along with other groups, has long urged the SEC to affirm the application of these Exchange Act rules to proxy advisor advice.

Today’s guidance also clarifies that compliance with Exchange Act Rule 14a-9 may further require proxy advisors to disclose:

  • The methodology used to formulate voting advice;
  • The extent that voting advice is based on third-party information sources; and
  • Any material conflicts of interest in sufficient detail to enable clients to assess its relevance.

Chairman Clayton and Commissioner Roisman, in their prepared remarks, indicated the SEC may follow up on this guidance with a rulemaking proposal to further clarify the conditions that proxy advisory firms must satisfy to claim exemption from the Exchange Act solicitation rules.

Nasdaq/U.S. Chamber of Commerce 2019 Annual Proxy Survey - Please Respond

Nareit is coordinating with the U.S. Chamber of Commerce (the Chamber) to disseminate the 5th annual U.S. Chamber of Commerce/Nasdaq proxy season survey to document public companies’ experiences with proxy advisory firms during the 2019 proxy season. Upon receipt and analysis of the results, the Chamber and Nasdaq will report anonymized and aggregated results of the survey to the SEC. Nareit once again urges corporate members to participate in this survey, which will remain open through Sept. 22, 2019. A link to the report on the 2018 proxy season survey results can be found HERE.


Please do not hesitate to contact Victoria Rostow, SVP & Deputy General Counsel (; (202) 739-9431), Cathy Barre, EVP & General Counsel, (; (202) 739-9422) or Tony Edwards, Senior EVP, (; (202) 739-9408) with any related questions.