[Federal Register Volume 85, Number 172 (Thursday, September 3, 2020)]
[Rules and Regulations]
[Pages 55082-55155]
[FR Doc No: 2020-16337]

Vol. 85

Thursday,

No. 172

September 3, 2020

Part II

Securities and Exchange Commission

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17 CFR Parts 240 and 276

Exemptions From the Proxy Rules for Proxy Voting Advice; Supplement to
Commission Guidance Regarding Proxy Voting Responsibilities of
Investment Advisers; Final Rules

Federal Register / Vol. 85 , No. 172 / Thursday, September 3, 2020 /
Rules and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-89372; File No. S7-22-19]
RIN 3235-AM50

Exemptions From the Proxy Rules for Proxy Voting Advice

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting amendments to its rules governing proxy solicitations so that
investors who use proxy voting advice receive more transparent,
accurate, and complete information on which to make their voting
decisions, without imposing undue costs or delays that could adversely
affect the timely provision of proxy voting advice. The amendments add
conditions to the availability of certain existing exemptions from the
information and filing requirements of the Federal proxy rules that are
commonly used by proxy voting advice businesses. These conditions
require compliance with disclosure and procedural requirements,
including conflicts of interest disclosures by proxy voting advice
businesses and two principles-based requirements. In addition, the
amendments codify the Commission's interpretation that proxy voting
advice generally constitutes a solicitation within the meaning of the
Securities Exchange Act of 1934. Finally, the amendments clarify when
the failure to disclose certain information in proxy voting advice may
be considered misleading within the meaning of the antifraud provision
of the proxy rules, depending upon the particular facts and
circumstances.

DATES: Effective date: The rules are effective November 2, 2020.
    Compliance dates: See Section II.E.

FOR FURTHER INFORMATION CONTACT: Daniel S. Greenspan, Senior Counsel,
Office of Rulemaking, at<PHONE_NUMBER> or Valian Afshar, Special
Counsel, Office of Mergers and Acquisitions, at<PHONE_NUMBER>, in the
Division of Corporation Finance, U.S. Securities and Exchange
Commission, 100 F Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to 17 CFR
240.14a-1(l) (``Rule 14a-1(l)''), 17 CFR 240.14a-2 (``Rule 14a-2''),
and 17 CFR 240.14a-9 (``Rule 14a-9'') under the Securities Exchange Act
of 1934 [15 U.S.C. 78a et seq.] (``Exchange Act'').\1\
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    \1\ Unless otherwise noted, when we refer to the Exchange Act,
or any paragraph of the Exchange Act, we are referring to 15 U.S.C.
78a of the United States Code, at which the Exchange Act is
codified, and when we refer to rules under the Exchange Act, or any
paragraph of these rules, we are referring to title 17, part 240 of
the Code of Federal Regulations [17 CFR 240], in which these rules
are published.
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Table of Contents

I. Introduction
II. Discussion of Final Amendments
    A. Codification of the Commission's Interpretation of
``Solicitation'' Under Rule 14a-1(l) and Section 14(a)
    1. Proposed Amendments
    2. Comments Received
    3. Final Amendments
    B. Amendments to Rule 14a-2(b): Conflicts of Interest
    1. Proposed Amendments
    2. Comments Received
    3. Final Amendments
    C. Amendments to Rule 14a-2(b): Notice of Proxy Voting Advice
and Response
    1. Proposed Amendments
    2. Comments Received
    3. Final Amendments
    D. Amendments to Rule 14a-9
    1. Proposed Amendments
    2. Comments Received
    3. Final Amendments
    E. Compliance Dates
III. Other Matters
IV. Economic Analysis
    A. Introduction
    1. Overview of Proxy Voting Advice Businesses' Role in the Proxy
Process
    2. Commenter Concerns Regarding the Rule's Economic
Justification
    B. Economic Baseline
    1. Affected Parties and Current Market Practices
    2. Current Regulatory Framework
    C. Benefits and Costs
    1. Overview of Benefits and Costs and Comments Received
    2. Codification of the Commission's Interpretation of
``Solicitation'' Under Rule 14a-1(l) and Section 14(a)
    3. Amendments to Rule 14a-2(b)
    4. Amendments to Rule 14a-(9)
    5. Effect on Smaller Entities
    D. Effects on Efficiency, Competition, and Capital Formation
    1. Efficiency
    2. Competition
    3. Capital Formation
    E. Reasonable Alternatives
    1. Use a More Prescriptive Approach in the Final Amendments
    2. Require Proxy Voting Advice Businesses To Include Full
Registrant Response in the Businesses' Voting Advice
    3. Public Disclosure of Conflicts of Interest
    4. Require Additional or Alternative Mandatory Disclosures in
Proxy Voting Advice
    5. Require Disabling or Suspension of Pre-Populated and
Automatic Submission of Votes
    6. Exempt Smaller Proxy Voting Advice Businesses From the
Additional Conditions to the Exemptions
    7. Require a Narrower Scope of Registrant Notice
V. Paperwork Reduction Act
    A. Background
    B. Summary of Comment Letters to PRA Estimates
    C. Burden and Cost Estimates for the Amendments
    1. Impact on Affected Parties
    2. Aggregate Increase in Burden
    3. Increase in Annual Responses
    4. Incremental Change in Compliance Burden for Collection of
Information
    5. Program Change and Revised Burden Estimates
VI. Final Regulatory Flexibility Analysis
    A. Need for, and Objectives of, the Final Amendments
    B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Final Amendments
    D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
    E. Agency Action To Minimize Effect on Small Entities
VII. Statutory Authority

I. Introduction

    Annual and special meetings of publicly traded corporations, where
shareholders are provided the opportunity to vote on various matters,
are a key component of corporate governance. The applicable laws are
set by the state in which the corporation is incorporated. For various
reasons, including the widely dispersed nature of public share
ownership, most shareholders do not attend these meetings in person.
Rather, most shareholders of publicly traded companies exercise their
right to vote on corporate matters through the use of proxies.\2\
Congress vested in the Commission the broad authority to oversee the
proxy solicitation process when it originally enacted the Securities
Exchange Act of 1934 (the ``Exchange Act'').\3\ As the securities
markets have become increasingly more sophisticated and complex, and
the intermediation of share ownership and participation of various
market participants has grown in kind,\4\ the Commission's interest in

ensuring fair, honest, and informed markets, underpinned by a properly
functioning proxy system, dictates that we regularly assess whether the
system is serving investors as it should.\5\
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    \2\ See Concept Release on the U.S. Proxy System, Release No.
34-62495 (Jul. 14, 2010) [75 FR 42982 (July 22, 2010)] (``Concept
Release''), at 42984.
    \3\ See Regulation of Communications Among Shareholders, Release
No. 34-31326 (Oct. 16, 1992) [57 FR 48276 (Oct. 22, 1992)]
(``Communications Among Shareholders Adopting Release''), at 48277
(``Underlying the adoption of Section 14(a) of the Exchange Act was
a Congressional concern that the solicitation of proxy voting
authority be conducted on a fair, honest and informed basis.
Therefore, Congress granted the Commission the broad `power to
control the conditions under which proxies may be solicited'. . .
.'').
    \4\ See Concept Release at 42983 (``This complexity stems, in
large part, from the nature of share ownership in the United States,
in which the vast majority of shares are held through securities
intermediaries such as broker-dealers or banks. . . .'').
    \5\ See, e.g., id. at 43020 (``The U.S. proxy system is the
fundamental infrastructure of shareholder suffrage since the
corporate proxy is the principal means by which shareholders
exercise their voting rights. The development of issuer, securities
intermediary, and shareholder practices over the years, spurred in
part by technological advances, has made the system complex and, as
a result, less transparent to shareholders and to issuers. It is our
intention that this system operate with the reliability, accuracy,
transparency, and integrity that shareholders and issuers should
rightfully expect.'').
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    In today's financial markets, which are characterized by
significant intermediation and institutional investor participation,\6\
proxy voting advice businesses \7\ have come to play an important role
in the proxy voting process by providing an array of voting services
that can help investment advisers and institutional investor clients
manage their substantive and procedural proxy voting needs.\8\
Investment advisers and institutional investors often retain proxy
voting advice businesses to assist them in making their voting
determinations on behalf of their own clients and to handle other
aspects of the voting process, which for certain investment advisers
has become increasingly complex and demanding over time.\9\ Investment
advisers voting on behalf of clients (including retail investors) and
institutional investors, by virtue of their holdings in many public
companies, including as a result of indexing and other broad portfolio
management strategies, must manage the logistics of voting in
potentially hundreds, if not thousands, of shareholder meetings and on
thousands of proposals that are presented at these meetings each year,
with the significant portion of those voting decisions concentrated in
a period of a few months.\10\
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    \6\ See Amendments to Exemptions from the Proxy Rules for Proxy
Voting Advice, Release No. 34-87457 (Nov. 5, 2019) [84 FR 66518
(Dec. 4, 2019)] (``Proposing Release'') at 66519.
    \7\ For purposes of this release, we refer to firms that advise
investment advisers and institutional investors on their voting
determinations, and any person who markets and sells such advice, as
``proxy voting advice businesses.'' Unless otherwise indicated, the
term ``proxy voting advice'' as used in this release refers to the
voting recommendations provided by proxy voting advice businesses on
specific matters presented at a registrant's shareholder meeting, or
for which written consents or authorizations from shareholders are
sought in lieu of a meeting, and the analysis and research
underlying the voting recommendations that are delivered to the
proxy voting advice business's clients through any means, such as in
a standalone written report or multiple reports, an integrated
electronic voting platform established by the proxy voting advice
businesses, or any combination thereof. The reference to ``proxy
voting advice,'' as used in this release, is not intended to
encompass (1) administrative or ministerial services, (2) data or
research that is not used by a proxy voting advice business to
formulate its voting recommendations, or (3) the identity of any of
the proxy voting advice business's clients that receive such advice.
To the extent any data or research underlies a proxy voting advice
business's voting recommendations but is not delivered to its
clients (such as internal work product), such data or research also
would not constitute that business's proxy voting advice. Further,
we recognize that, in formulating its voting recommendations, a
proxy voting advice business may use data and research that was
prepared by another party, such as market intelligence and database
providers. For the avoidance of doubt, the fact that a third party's
data and research is used by the proxy voting advice business would
not, by itself, cause such third party to be a proxy voting advice
business. However, if a proxy voting advice business uses a third
party's data and research in formulating its voting recommendations
and delivers such data and research to its clients, then the data
and research would constitute part of the proxy voting advice
business's proxy voting advice.
    \8\ See Proposing Release at 66520, n.17.
    \9\ Id. at 66519, n.9.
    \10\ Id. at n.8.
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    Proxy voting advice businesses typically provide investment
advisers, institutional investors, and other clients with a variety of
services that relate to the substance of voting decisions, such as:
Providing research and analysis regarding the matters subject to a
vote; promulgating their generally applicable benchmark voting policies
(a ``benchmark policy'') or specialty voting policies (a ``specialty
policy''), such as a socially responsible policy, a sustainability
policy, or a Taft-Hartley labor policy,\11\ that their clients can use;
and making specific voting recommendations to their clients on matters
subject to a shareholder vote, either based on the proxy voting advice
business's benchmark or specialty policies or based on custom voting
policies that are proprietary to a proxy voting advice business's
clients (``custom policy'').\12\ This advice is often an important
factor in the clients' proxy voting decisions. Clients may use the
proxy voting advice business's recommendations in a variety of ways,
including as an alternative or supplement to their own internal
resources in analyzing matters when deciding how to vote.\13\
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    \11\ For example, the various benchmark and specialty policies
of one proxy voting advice business, Institutional Shareholder
Services (ISS), are set forth on the following web page: https://www.issgovernance.com/policy-gateway/voting-policies/. The various
benchmark and specialty policies of another proxy voting advice
business, Egan-Jones, are set forth on the following web page:
https://www.ejproxy.com/methodologies/.
    \12\ See Proposing Release at 66519. As discussed infra Section
II.C.3.c.i., we are excluding from the requirements of new Rule 14a-
2(b)(9)(ii) proxy voting advice to the extent that such advice is
based on custom policies. Custom policies would not include the
proxy voting advice businesses' benchmark or specialty policies,
even if those benchmark or specialty policies were to be adopted by
proxy voting advice businesses' clients. See infra note 394 for a
discussion of how a proxy voting advice business may satisfy the
requirements of new Rule 14a-2(b)(9)(ii) in situations in which a
client's custom policy is identical to the benchmark or specialty
policies.
    \13\ Id.
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    Proxy voting advice businesses may also provide services that
assist clients in handling the administrative tasks of the voting
process, typically through an electronic platform that enables their
clients to cast votes more efficiently.\14\ In some cases, proxy voting
advice businesses are given authority to execute votes on behalf of
their clients in accordance with the clients' general guidance or
specific instructions.\15\
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    \14\ Id.
    \15\ Id.
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    Although estimates vary, each year proxy voting advice businesses
provide voting advice to thousands of clients that exercise voting
authority over a sizable number of shares.\16\ Because proxies have
become the predominant means by which shareholders of publicly traded
companies exercise their right to vote on corporate matters,\17\ and
institutional investors hold a significant and increasing number of
shares, proxy voting advice businesses have become uniquely situated in
today's market to influence,\18\ and in many cases directly execute,
these investors' voting decisions.\19\
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    \16\ Id. at 66520, n.18.
    \17\ Id. at 66518, n.2.
    \18\ See, e.g., letter from Council of Inst. Investors (Nov. 14,
2019) (``CII I'') (noting that proxy voting advice businesses'
``recommendations and related analysis'' may be ``market-moving'').
    \19\ See also infra note 36 for a discussion of the increased
institutional investor holdings in the U.S. markets.
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    In recognition of the important and unique role that proxy voting
advice businesses play in the proxy voting process \20\ and in the
voting decisions of investment advisers and institutional investors
\21\ who often vote on behalf of retail investors, the Commission
proposed amendments to the Federal proxy rules in November 2019 to
enhance the transparency, accuracy, and completeness of the information
provided to clients of proxy voting advice businesses in connection
with their voting decisions.\22\
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    \20\ Id. at 66520.
    \21\ Id.
    \22\ See generally Proposing Release.
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    Specifically, the Commission proposed amendments to codify its
interpretation that proxy voting advice generally constitutes a
solicitation within the meaning of Exchange Act Section 14(a) and
therefore is subject to the Federal proxy rules. In addition, the
Commission proposed to condition the

availability of certain existing exemptions from the information and
filing requirements of the Federal proxy rules commonly used by proxy
voting advice businesses upon compliance with additional disclosure and
procedural requirements. Finally, the Commission proposed to amend
Exchange Act Rule 14a-9, the antifraud provision of the Federal proxy
rules, to clarify that, depending upon the particular facts and
circumstances at issue, the failure to disclose certain information in
proxy voting advice may be considered materially misleading within the
meaning of the rule.
    We received many comment letters in response to the Proposing
Release.\23\ After considering the public comments, we are adopting the
proposed rules with certain modifications as described, and for the
reasons set forth, below. Consistent with the proposal, we are adhering
to--and adopting an amendment to Rule 14a-1(l) to codify--our
longstanding view that proxy voting advice generally constitutes a
``solicitation'' under Section 14(a).\24\ Absent an applicable
exemption, a person providing such proxy voting advice would be subject
to the Federal proxy rules' information and filing requirements,
including the obligation to file and furnish definitive proxy
statements. For reasons previously stated in the Proposing Release, we
believe that proxy voting advice businesses should be eligible to rely
on an exemption from such information and filing requirements for their
proxy voting advice, but only to the extent that such exemption is
appropriately tailored to their unique role in the proxy process and
facilitates the transparency, accuracy, and completeness of the
information available to those making voting decisions. As such, under
the new rules that we are adopting, persons furnishing proxy voting
advice constituting a solicitation as defined in new 17 CFR 240.14a-
1(l)(1)(iii)(A) (``Rule 14a-1(l)(1)(iii)(A)'') will be eligible to rely
on the exemptions in 17 CFR 240.14a-2(b)(1) (``Rule 14a-2(b)(1)'') and
17 CFR 240.14a-2(b)(3) (``Rule 14a-2(b)(3)'') \25\ only upon
satisfaction of the conditions of new 17 CFR 240.14a-2(b)(9) (``Rule
14a-2(b)(9)'').
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    \23\ See generally letters submitted in connection with the
Proposing Release, available at https://www.sec.gov/comments/s7-22-19/s72219.htm. Unless otherwise specified, all references in this
release to comment letters are to those relating to the Proposing
Release. In addition, the SEC's Investment Advisory Committee
adopted recommendations asking the Commission to: prioritize
improvements to the proxy system (end-to-end vote confirmations,
reconciliations, and universal proxies); improve conflict-of-
interest disclosure generally; enhance the discussion about the
value of proxy advisors and shareholder proposals; and expand the
economic cost-benefit analysis. See U.S. Securities & Exchange
Commission Investor Advisory Committee, Recommendation of the SEC
Investor Advisory Committee Relating to SEC Guidance and Rule
Proposals on Proxy Advisors and Shareholder Proposals (Jan. 24,
2020) (``IAC Recommendation''), available at https://www.sec.gov/spotlight/investor-advisory-committee-2012/sec-guidance-and-rule-proposals-on-proxy-advisors-and-shareholder-proposals.pdf. These
recommendations were not unanimously approved by the members of the
Investor Advisory Committee; see letters from Stephen Holmes (Jan.
27, 2020) (``S. Holmes''); Paul G. Mahoney and J.W. Verret (Jan. 30,
2020) (``P. Mahoney and J.W. Verret''); Heidi Stam (Jan. 27, 2020).
We address the substance of the IAC Recommendation, together with
related public comments, in the discussion that follows. Finally,
the 2019 Small Business Forum Report included a recommendation that
the Commission provide ``for effective oversight of proxy advisory
firms under Rule 14a-2(b), with a focus on conflicts of interest,
accuracy, transparency, and issuer-specific decision making.'' This
recommendation was tied for first place in the priority ranking
assigned by the participants of the breakout group session. See
Final Report of the 2019 SEC Government-Business Forum on Small
Business Capital Formation (December 2019) (``2019 Small Business
Forum''), available at https://www.sec.gov/files/small-business-forum-report-2019.pdf.
    \24\ See infra Section II.A.3.
    \25\ Proxy voting advice businesses have typically relied upon
the exemptions in Rule 14a-2(b)(1) and (b)(3) to provide advice
without complying with the filing and information requirements of
the proxy rules. See Proposing Release at 66525 and n.68.
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    As described in more detail below, we have modified these
conditions in a number of respects in response to comments received to
provide appropriate flexibility to proxy voting advice businesses to
meet the principles that underlie the objectives of the rule, and to
avoid unnecessary potential disruptions to their ability to provide
their clients with timely voting advice. In addition, consistent with
the amendments to 17 CFR 240.14a-2(b) (``Rule 14a-2(b)''), we are
amending Rule 14a-1(l) to make clarifying changes to the definition of
solicitation as it relates to proxy voting advice and amending Rule
14a-9 to add to the list of examples provided in the Note to that rule.
We are adopting these amendments to Rule 14a-1(l) and Rule 14a-9
substantially in the form proposed, with certain modifications as
described in the discussion that follows.
    We recognize that for some shareholders, the services provided by
proxy voting advice businesses can be an important component of the
larger proxy voting process and, as such, help facilitate the
participation of shareholders in corporate governance through the
exercise of their voting rights.\26\ We are also mindful that the
efficacy and effectiveness of the proxy voting system depend on the
ability of shareholders to obtain transparent, accurate, and materially
complete information from an array of relevant parties before making
their proxy voting decisions. To enable shareholders to make informed
voting decisions, Congress and the Commission have placed varying
obligations on participants in the proxy voting process, including
through Commission rulemakings pursuant to the broad authority granted
by Congress to regulate proxy solicitation.\27\
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    \26\ See Proposing Release at 66525.
    \27\ See infra notes 55-60 and accompanying text for a
discussion of the multifaceted nature of the Federal securities
laws' security holder voting and ownership disclosure regulatory
framework.
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    For example, registrants and others who engage in a proxy
solicitation generally must furnish shareholders with a definitive
proxy statement containing numerous specified disclosures.\28\ They
must also generally file all of their additional soliciting materials
with the Commission, which ensures that all shareholders and interested
parties have access to their soliciting statements and have an ability
to consider such statements as part of their voting decisions and, in
certain situations such as in a proxy contest, respond to them.\29\ The
Commission, however, has long recognized that these general
requirements applicable to registrants and others engaged in a proxy
solicitation may not be necessary under certain circumstances and,
throughout the years, has tailored the application of these
requirements as needed. For example, shareholders who beneficially own
more than $5 million of securities and who do not seek proxy voting
authority are exempt from the requirement to file a definitive proxy
statement when they engage in a solicitation, but they still must
publicly file with the Commission any written soliciting materials sent
to security holders and are subject to the antifraud provisions of Rule
14a-9 with respect to the content of those soliciting materials.\30\
Parties conducting certain other solicitation activities, including the
furnishing of proxy voting advice, have relied on other exemptions from
the requirement to file proxy statements.\31\ Still other activity has

been entirely exempt from the proxy rules, including Rule 14a-9.\32\
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    \28\ 17 CFR 240.14a-3; 17 CFR 240.14a-101.
    \29\ 17 CFR 240.14a-6(b).
    \30\ 17 CFR 240.14a-2(b)(1); 17 CFR 240.14a-6(g).
    \31\ 17 CFR 240.14a-2(b). Rules 14a-2(a) and (b) set forth a
number of activities that fall within the definition of a
solicitation but for which the requirement to file a definitive
proxy statement does not apply. This includes, for example, the
delivery of registrants' proxy materials by securities
intermediaries to their clients and the securities intermediaries'
request for voting instructions from their clients (Rule 14a-
1(a)(1)), solicitations by or on behalf of a person who does not
seek proxy authority (Rule 14a-2(b)(1)), solicitations of no more
than ten persons (Rule 14a-2(b)(2)), the furnishing of proxy voting
advice by advisors to their clients under certain circumstances
(Rule 14a-2(b)(3)), the publication or distribution by a broker or a
dealer of research reports under specified conditions (Rule 14a-
2(b)(5)), and the solicitations through electronic shareholder
forums by persons who do not seek proxy voting authority (Rule 14a-
2(b)(6)).
    \32\ 17 CFR 240.14a-2(a).
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    The Commission has periodically adjusted the proxy rules in
response to market developments, including to provide shareholders with
additional sources of information.\33\ In calibrating the rules and
exemptions, the Commission has generally sought to avoid unnecessary
burdens that may deter the expression of views on matters presented for
a vote while ensuring that shareholders have transparent, accurate, and
materially complete information upon which to make their voting
decisions.\34\ In this regard, the Commission has been guided by the
``fundamental conclusion that the interests of shareholders are best
served by more, and not less, discussion of matters presented for a
vote.'' \35\ This same principle guides us again as we update the
Commission's rules in light of current market practices and
circumstances.
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    \33\ For example, the Commission has recalibrated the exemptions
``to provide shareholders with additional sources of information,
opinions and views'' to inform their voting decisions, and to remove
impediments that it determined ``unduly hindered free discussion''
among registrants, shareholders, and other interested parties.
Communications Among Shareholders Adopting Release; see also Concept
Release (``The Commission has actively monitored the proxy process
since the 1930s and has made changes when the process was not
functioning in a manner that adequately protected the interests of
investors.'').
    \34\ See Communications Among Shareholders Adopting Release
(noting concerns about ``secret'' solicitations, as well as concerns
about the burden on shareholders).
    \35\ Id.
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    As explained in the Proposing Release, proxy voting advice
businesses have become an increasingly important and prominent part of
the proxy voting process as institutional investors, who own a majority
of the outstanding shares in today's market,\36\ often retain proxy
voting advice businesses to assist them in making their voting
determinations and voting their shares on behalf of clients. In recent
years, registrants, investors, and others have expressed concerns about
the role of proxy voting advice businesses. These concerns include the
accuracy and soundness of the information, and the transparency of the
methodologies, used to formulate proxy voting advice businesses'
recommendations. Concerns have also focused on potential conflicts of
interest that may affect the recommendations made by the proxy voting
advice businesses.\37\ In addition, questions have been raised about
whether registrants have an adequate opportunity to review and respond
to proxy voting advice before votes, informed by such advice, are cast
and whether shareholders have an adequate opportunity to review the
proxy voting advice, including in the context of any response from the
registrant or others, before casting their votes.\38\ These concerns
and changing market conditions, as discussed above, prompted the
Commission to consider amendments to the exemptions commonly used by
proxy voting advice businesses, which had been crafted before proxy
voting advice businesses played the significant role that they now do
in the proxy voting process and in the voting decisions of investment
advisers and institutional investors.\39\ A number of the comment
letters we received in response to the Proposing Release continue to
express these concerns.\40\
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    \36\ See, e.g., A. De La Cruz et al., OECD, Owners of the
World's Listed Companies 22 (2019), available at https://www.oecd.org/corporate/Owners-of-the-Worlds-Listed-Companies.pdf
(``In the United States, institutional investors hold around 72% of
the domestic stock market value.'').
    \37\ See Proposing Release at 66525.
    \38\ See id. at 66529.
    \39\ See id. at 66519-21.
    \40\ See, e.g., letters from Mark A. Bloomfield, President and
CEO, American Council for Capital Formation (Jan. 27, 2020)
(``ACCF''); Kyle Isakower, Senior Vice Pres. of Reg. & Energy
Policy, American Council for Capital Formation (July 7, 2020)
(``ACCF II''); Cameron Arterton, Vice President, Biotechnology
Innovation Organization (Feb. 3, 2020) (``BIO''); Business
Roundtable (Feb. 3, 2020) (``BRT''); Tom Quaadman, Vice President,
U.S. Chamber of Commerce Center for Capital Markets Competitiveness
(Jan. 31, 2020) (``CCMC''); Henry D. Eickelberg, Chief Operating
Officer, Center on Executive Compensation (Feb. 3, 2020) (``CEC'');
Corporate Governance Coalition for Investor Value (Feb. 3, 2020)
(``CGC''); Neil A. Hanson, Vice President, Investor Relations and
Secretary, Exxon Mobil Corporation (Feb. 3, 2020) (``Exxon Mobil'');
Rick E. Hansen, Assistant General Counsel and Corporate Secretary,
General Motors Company (Feb. 25, 2020) (``GM''); Clifton A. Pemble,
President and CEO, Garmin International, Inc. (Jan. 27, 2020)
(``Garmin''); Brian S. Roman, Global General Counsel (Feb. 3, 2020)
(``Mylan''); Chris Netram, Vice President, Tax & Domestic Economic
Policy, National Association of Manufacturers (Feb. 3, 2020)
(``NAM''); Tony M. Edwards, Senior Executive Vice President, and
Victoria P. Rostow, Senior Vice President & Deputy General Counsel
(Feb. 3, 2020) (``Nareit''); John A. Zecca, Executive Vice
President, Chief Legal and Regulatory Officer, Nasdaq, Inc. (Feb. 3,
2020) (``Nasdaq''); Gary A. LaBranche, President & CEO, National
Investor Relations Institute (Feb. 3, 2020) (``NIRI''); Darla
Stuckey, President and CEO, Society for Corporate Governance (Feb.
3, 2020) (``SCG'') .
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    In updating our rules to facilitate better informed proxy voting,
we do not believe that it is necessary to subject proxy voting advice
businesses to the Federal proxy rules' information and filing
requirements applicable to registrants and certain others, such as the
filing and furnishing of definitive proxy statements, as long as they
satisfy certain requirements tailored to their role in the proxy
process. In particular, we believe that concerns raised regarding the
increase in intermediation and complexity in the market and the
increased dependence on proxy voting advice can be addressed, and the
goal of ensuring that shareholders receive more transparent, accurate,
and complete information can be furthered, without the full set of
disclosures that would be required with a definitive proxy statement.
We also recognize that a requirement to publicly file proxy voting
advice with the Commission and disseminate proxy materials to the
shareholders of every registrant covered by the advice could result in
the addition of significant substantive and procedural changes in the
current operations of proxy voting advice businesses and could
adversely impact their business models. For example, such a requirement
would effectively allow investment advisers, institutional investors,
and other investors who do not subscribe to the services of proxy
voting advice businesses to obtain certain proxy voting advice services
free of charge.
    For these reasons, we believe that as a general matter these
businesses should continue to be eligible for the benefits of
conditional, tailored exemptions from the information and filing
requirements of the Federal proxy rules generally applicable to
registrants and others. In light of the significant role proxy voting
advice plays in the voting decisions of institutional investors and
others, however, we also believe that the exemptions need to be
fashioned both to elicit adequate disclosure and to enable proxy voting
advice businesses' clients to have reasonable and timely access to
transparent, accurate, and complete information material to matters
presented for a vote--thereby ensuring that the continued use of the
exemptions facilitates informed voting decisions and does not undermine
the purposes of the Federal proxy rules.
    Some commenters argued that the Investment Advisers Act of 1940
(the ``Advisers Act'') is the proper regulatory regime for proxy voting
advice businesses, and that the Advisers Act and an investment
adviser's fiduciary duty already address the stated

objectives of the proposed rules.\41\ We disagree. The Advisers Act and
Section 14(a) serve distinct, though overlapping, regulatory purposes.
The Advisers Act is a principles-based regulatory framework, at the
center of which is a federal fiduciary duty to clients that is based on
equitable common law principles.\42\ Section 14(a) grants the
Commission broad power to adopt rules to control the conditions under
which proxies may be solicited in order to address a Congressional
concern that the solicitation of proxy voting authority be conducted on
a fair, honest, and informed basis.\43\
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    \41\ See, e.g., letter from Gary Retelny, CEO, Institutional
Shareholder Services, Inc. (Jan. 31, 2020) (``ISS'').
    \42\ See Commission Interpretation Regarding Standard of Conduct
for Investment Advisers, Release No. IA-5248 at 6 (June 5, 2019), 84
FR 33669, 33670 (July 12, 2019) (``Standard of Conduct for
Investment Advisers''); SEC v. Capital Gains Research Bureau, Inc.,
375 U.S. 180, 194 (1963) (noting that the Advisers Act ``reflects a
congressional recognition `of the delicate fiduciary nature of an
investment advisory relationship,' as well as a congressional intent
to eliminate, or at least to expose, all conflicts of interest which
might incline an investment adviser--consciously or unconsciously--
to render advice which was not disinterested'').
    \43\ See Communications Among Shareholders Adopting Release at
48277; Proposing Release at n.3.
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    As a preliminary matter, we note that proxy voting advice
businesses differ as to whether they believe they fall within the
definition of an investment adviser under the Advisers Act and should
be registered as investment advisers. The Commission has stated
previously that when proxy voting advice businesses provide certain
services, they meet the definition of investment adviser under the
Advisers Act and thus are subject to regulation under the Act.\44\
Specifically, a person is an ``investment adviser'' if the person, for
compensation, engages in the business of providing advice to others as
to the value of securities, whether to invest in, purchase, or sell
securities, or issues reports or analyses concerning securities.\45\
Proxy voting advice businesses provide analyses of shareholder
proposals, director candidacies, or corporate actions and provide
advice concerning particular votes in a manner designed to assist their
institutional clients to achieve their investment goals with respect to
the voting of securities they hold.\46\ In other words, proxy voting
advice businesses, for compensation, engage in the business of issuing
reports or analyses concerning securities and providing advice to
others as to the value of securities and would therefore meet the
definition of an investment adviser unless an exclusion applies.\47\
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    \44\ See Concept Release at 43010.
    \45\ Advisers Act Section 202(a)(11) [15 U.S.C. 80b-2(a)(11)].
Sections 202(a)(11)(A) through (G) of the Advisers Act address
exclusions to the definition of the term ``investment adviser.'' [15
U.S.C. 80b-2(a)(11)(A) through (G)].
    \46\ See Concept Release at 43010.
    \47\ Id.
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    One such exclusion from the definition of an investment adviser
under the Advisers Act is the ``publisher's exclusion.'' Specifically,
Section 202(a)(11)(D) of the Advisers Act excludes from the definition
of an investment adviser a ``publisher of any bona fide newspaper, news
magazine or business or financial publication of general and regular
circulation.'' \48\ At least one large proxy voting advice business has
taken the position that if it was deemed to be an investment adviser,
it could rely on the exclusion for publishers contained in Section
202(a)(11)(D) of the Advisers Act.\49\
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    \48\ Lowe v. SEC, 472 U.S. 181 (1985). The U.S. Supreme Court
has interpreted the ``publisher's exclusion'' to include
publications that offer impersonal investment advice to the general
public on a regular basis. To qualify for the section 202(a)(11)(D)
exclusion, the publication must be: (1) Of a general and impersonal
nature, in that the advice provided is not adapted to any specific
portfolio or any client's particular needs; (2) ``bona fide'' or
genuine, in that it contains disinterested commentary and analysis
as opposed to promotional material; and (3) of general and regular
circulation, in that it is not timed to specific market activity or
to events affecting, or having the ability to affect, the securities
industry.
    \49\ See letter from Katherine Rabin, CEO, Glass Lewis & Co.,
LLC (Nov. 14, 2018), available at https://www.glasslewis.com/wp-content/uploads/2018/11/GL-SEC-Roundtable-Statement-111418.pdf. The
Government Accountability Office in its Report about proxy advisory
firms to the Committee on Banking, Housing, and Urban Affairs of the
U.S. Senate in 2016 also took note of the differences in
registration status of proxy advisory firms. The Report observed
that one large proxy voting advice business is not registered with
the SEC as an investment adviser, while another is, and a third is
registered as a nationally recognized statistical rating
organization. See Report to the Chairman, Subcommittee on Economic
Policy, Committee on Banking, Housing, and Urban Affairs, U.S.
Senate, Corporate Shareholder Meetings, Proxy Advisory Firms' Role
in Voting and Corporate Governance Practices from the U.S.
Government Accountability Office (Nov. 2016), available at https://www.gao.gov/assets/690/681050.pdf.
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    Regardless of the applicability of the Advisers Act, however, we
believe the concerns motivating the rules we are adopting are squarely
subject to, and appropriately addressed through, regulation under
Section 14(a).\50\ As we noted in the Proposing Release, proxy voting
advice businesses provide voting advice to clients that exercise voting
authority over a sizable number of shares that are voted annually, and
these businesses are uniquely situated in today's market to influence
investors' voting decisions.\51\ This advice also implicates interests
beyond those of the clients who utilize it when voting. Because these
clients vote shares they hold on behalf of thousands of retail
investors, this advice affects the interests of these underlying
investors. Further, in light of proxy voting advice businesses'
clients' ability to affect the outcome of the vote on a particular
matter through their voting power, the proxy voting advice guiding the
clients' votes potentially affects the interests of all shareholders
\52\ of the registrant, the registrant, and the proxy system in
general.\53\
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    \50\ Whether an entity meets the definition of an investment
adviser or is eligible for an exclusion does not impact the analysis
of whether it is engaged in ``solicitation'' for purposes of Section
14(a). Relatedly, the retention of a proxy voting advice business
does not relieve an investment adviser of its obligations under the
Advisers Act to its clients. See Commission Guidance Regarding Proxy
Voting Responsibilities of Investment Advisers, Release No. IA-5325,
pp. 5-6 (Aug. 21, 2019) [84 FR 47420, 42421 (Sept. 10, 2019)]
(``Commission Guidance on Proxy Voting Responsibilities''), Question
No. 2 at 12, 84 FR 47423 (discussing steps that an investment
adviser that has assumed the authority to vote proxies on behalf of
clients could take to demonstrate that it is making voting
determinations in a client's best interest); see also Supplement to
Commission Guidance Regarding Proxy Voting Responsibilities of
Investment Advisers, Release No. IA-5547 (July 22, 2020)
(``Supplemental Proxy Voting Guidance'').
    \51\ See Proposing Release at 66520.
    \52\ See supra note 18.
    \53\ Cf. J. I. Case Co. v. Borak, 377 U.S. 426, 432 (1964)
(``The injury which a stockholder suffers from corporate action
pursuant to a deceptive proxy solicitation ordinarily flows from the
damage done the corporation, rather than from the damage inflicted
directly upon the stockholder. The damage suffered results not from
the deceit practiced on him alone but rather from the deceit
practiced on the stockholders as a group.'').
---------------------------------------------------------------------------

    In the areas of proxy voting, proxy solicitation, and related
activities, the Advisers Act, Section 14(a), and various other statutes
and Commission rules do not operate independently from each other and
are not mutually exclusive. Rather, depending on the activity and
status of the person involved, more than one statutory provision and
related rules may apply, with the various provisions complementing each
other. For example, Section 13(d) of the Exchange Act and the related
rules \54\ are designed to ensure that market participants are informed
when any shareholder (or group of shareholders) acquires more than five
percent of a class of equity securities registered under Exchange Act
Section 12.\55\ Section 13(d) and the related rules generally require
these holders to disclose publicly their ownership and other
information mandated by the Commission, such as any plans that the
holders may have to change the board of directors or management or to
engage in

extraordinary transactions (such as mergers or material asset sales),
for so long as the holdings exceed the five percent threshold as well
as any material changes to these disclosures.\56\ These mandated
disclosures, which are provided in Schedule 13D, along with the short-
form Schedule 13G adopted pursuant to Exchange Act Section 13(g),\57\
have proven important to investor protection by providing public notice
of significant accumulations of securities by a person that may affect
the control of the company and, ultimately, the interests of all
security holders in the company, including in the context of proxy
voting.
---------------------------------------------------------------------------

    \54\ 17 CFR 240.13d-1 through 13d-102 (``Rules 13d-1 through
13d-102'').
    \55\ 15 U.S.C. 78m(d).
    \56\ 17 CFR 240.13d-101.
    \57\ 15 U.S.C. 78m(g).
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    Yet, the obligation for a shareholder to file Schedules 13D or 13G
does not obviate the shareholder's obligation to comply with Section
14(a) and the Federal proxy rules to the extent that the shareholder
engages in activities that constitute a proxy solicitation. For
example, a dissident shareholder seeking to solicit proxy authority to
elect its own director nominees to a registrant's board in a contested
election must still file and furnish a definitive proxy statement even
though the dissident shareholder may have previously disclosed in its
Schedule 13D the plan to change the board of directors. This is the
result of Congress establishing these two separate statutory provisions
with different purposes, with Section 13(d) focused on providing notice
about concentration of voting power and the use of that power,
including to change or influence the control of the issuer, and Section
14(a) focused on providing information needed for informed shareholder
voting, and the fact that a shareholder may engage in an activity that
triggers obligations under both provisions.
    The two statutory obligations often complement each other. For
example, Exchange Act Rule 13d-1 provides certain shareholders,
including many classes of institutional shareholders, with a tailored,
conditional exemption from the general requirements of Section 13(d) if
the shareholder has acquired the securities ``in the ordinary course of
business and not with the purpose nor with the effect of changing or
influencing the control of the issuer.'' \58\ In various circumstances
where shareholders are voting by proxy, and solicitation activity is
ongoing--for example, the election of directors or the approval of an
extraordinary corporate transaction--the information required to be
disclosed publicly by Section 13(d) may be material to a voting
decision and, accordingly, important to the regulation of the proxy
voting process. Similarly, the Commission--noting that Section 13(d)
already sets forth the circumstances for when public disclosures of
such plans, proposals, or agreements are needed--adopted the Rule 14a-
2(b)(1) exemption despite concerns from some commenters that proxy
filings are needed for disclosure of a shareholder's plans or proposals
regarding the registrant or shareholders' voting agreements on a
particular matter.\59\ At the same time, the exemption is not available
for solicitations by any person who, while not seeking proxy authority,
is nevertheless required to file a Schedule 13D or has disclosed in the
Schedule 13D an intent (or reserved the right) to engage in a change of
control transaction or a contested director election, given the
heightened need for the proxy disclosures from a person contemplating
such transformative transactions or contests.
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    \58\ 17 CFR 240.13d-1(b)(1)(i).
    \59\ See Communications Among Shareholders Adopting Release at
48278 (``When and under what circumstances a large shareholder, or
group of shareholders acting together, must reveal to the SEC, the
company, other shareholders, and the market its plans and proposals
regarding the company has been addressed by Congress, but not
through the provisions governing proxy solicitations. Section 13(d)
of the Exchange Act, as implemented by the Commission in its
regulations adopted thereunder, sets forth the circumstances when
public disclosure of plans and proposals by significant
shareholders, as well as agreements among shareholders to act
together with respect to voting matters, must be disclosed to the
market.''). See also Release No. 34-39538 (Jan. 12, 1998) [63 FR
2854 (Jan. 16, 1998)] (stating the Commission's views on when a
significant shareholder's proxy soliciting activities and
communications could be viewed as having the purpose or effect of
changing or influencing control of the company and thereby
triggering the obligation to file a Schedule 13D). Under Section
13(d) and Section 13(g), a ``group'' is formed when two or more
persons act together for the purpose of acquiring, holding, voting
or disposing of the securities. Congress created the ``group''
concept to prevent persons who seek to pool their voting or other
interests in the securities of an issuer from evading the Section
13(d) or 13(g) obligations because no one person owns more than five
percent of the securities. Use of a proxy voting advice business by
investors as a vehicle for the purpose of coordinating their voting
decisions regarding an issuer's securities without complying with
the filing obligations of Section 13(d) or 13(g) would raise
compliance concerns under the beneficial ownership reporting
requirements.
---------------------------------------------------------------------------

    Other statutes that often play an important and complementary role
in furthering all aspects of the Commission's mission in the context of
proxy voting and proxy solicitation include Sections 5, 11, and 12 of
the Securities Act of 1933 (the ``Securities Act''), in particular in
circumstances where the vote being solicited is in connection with a
significant transaction, such as a merger, in which new securities may
be issued to the shareholders who are voting on the transaction. In
such a situation, both the registration and prospectus requirements of
Securities Act Section 5 and the proxy solicitation requirements of
Exchange Act Section 14(a) apply, with public companies often filing a
joint proxy statement/prospectus to fulfill both statutory obligations.
    This framework--complementary and overlapping statutes and rules
that are based on principles, facts and circumstances, and each
participant's actions as well as status--applies similarly in other key
areas of the Commission's mandate, including the offer and sale of
securities in both the public and private markets, securities trading,
and the provision of investment advice to retail and institutional
investors. Moreover, this framework is consistent with Congressional
intent as reflected in the enactment of the Securities Act, the
Exchange Act, the Advisers Act, and various other key statutes,
including Section 14(a), and has proven to be an effective and
efficient means to regulate an important, multi-faceted and ever-
evolving aspect of commerce. Accordingly, given the importance of a
properly functioning proxy system to investors and the capital markets,
even if other provisions of the federal securities laws may apply to
certain of their activities, it is appropriate for voting advice
furnished by proxy voting advice businesses to be subject to the rules
under Section 14(a), which are designed specifically to enhance the
transparency and integrity of the proxy voting process, with the
ultimate aim of facilitating informed voting decisions.\60\
---------------------------------------------------------------------------

    \60\ See Proposing Release at 66520.
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II. Discussion of Final Amendments

A. Codification of the Commission's Interpretation of ``Solicitation''
Under Rule 14a-1(l) and Section 14(a)

    Exchange Act Section 14(a) \61\ makes it unlawful for any person to
``solicit'' any proxy with respect to any security registered under
Exchange Act Section 12 in contravention of such rules and regulations
prescribed by the Commission.\62\ The purpose of Section 14(a) is to
prevent ``deceptive or inadequate disclosure'' from being made to
shareholders in a proxy solicitation.\63\

Section 14(a) grants the Commission broad authority to establish rules
and regulations to govern proxy solicitations ``as necessary or
appropriate in the public interest or for the protection of
investors.'' \64\
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    \61\ 15 U.S.C. 78n(a).
    \62\ Registrants only reporting pursuant to Exchange Act Section
15(d) are not subject to the federal proxy rules, while foreign
private issuers are exempt from the requirements of Section 14(a).
17 CFR 240.3a12-3(b).
    \63\ Borak, 377 U.S. at 432; see S. Rep. No. 1455, 73d Cong., 2d
Sess., 74 (1934) (``In order that the stockholder may have adequate
knowledge as to the manner in which his interests are being served,
it is essential that he be enlightened not only as to the financial
condition of the corporation, but also as to the major questions of
policy, which are decided at stockholders' meetings.'');
Communications Among Shareholders Adopting Release at 48277.
    \64\ 15 U.S.C. 78n(a); see Borak, 377 U.S. at 432 (noting the
``broad remedial purposes'' evidenced by the language of Section
14(a)).
---------------------------------------------------------------------------

    The Exchange Act does not define what constitutes a
``solicitation'' for purposes of Section 14(a) and the Commission's
proxy rules. Accordingly, the Commission has exercised its rulemaking
authority over the years to define what communications are
solicitations and to prescribe rules and regulations when necessary and
appropriate in the public interest and to protect investors in the
proxy voting process.\65\ The Commission first promulgated rules in
1935 to define a solicitation to include any request for a proxy,
consent, or authorization or the furnishing of a proxy, consent, or
authorization to security holders.\66\ Since then, the Commission has
amended the definition as needed to respond to new and changing market
practices that have raised the concerns underlying Section 14(a).\67\
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    \65\ See 15 U.S.C. 78n(a); 78c(b); 78w.
    \66\ See Order Execution Obligations, Release No. 34-378 (Sept.
24, 1935) 1935 WL 29270.
    \67\ The Commission revised the definition in 1938 to include
any request for a proxy, regardless of whether the request is
accompanied by or included in a written form of proxy. See Release
No. 34-1823 (Aug. 11, 1938) [3 FR 1991 (Aug. 13, 1938)], at 1992. It
subsequently revised the definition in 1942 to include ``any request
to revoke or not execute a proxy.'' See Release No. 34-3347 (Dec.
18, 1942) [7 FR 10653 (Dec. 22, 1942)], at 10656. Courts have also
taken a broad view of solicitation. See infra notes 141-146 and
accompanying text.
---------------------------------------------------------------------------

    In particular, the Commission expanded the definition of a
solicitation in 1956 to include not only requests for proxies, but also
any ``communication to security holders under circumstances reasonably
calculated to result in the procurement, execution, or revocation of a
proxy.'' \68\ This expanded definition was prompted by recognition that
some market participants were distributing written communications
designed to affect shareholders' voting decisions well in advance of
any formal request for a proxy that would have triggered the filing and
information requirements of the federal proxy rules.\69\
---------------------------------------------------------------------------

    \68\ 17 CFR 240.14a-1(l)(1)(iii); see Adoption of Amendments to
Proxy Rules, Release No. 34-5276 (Jan. 17, 1956) [21 FR 577 (Jan.
26, 1956)], at 577; see also Broker-Dealer Participation in Proxy
Solicitations, Release No. 34-7208 (Jan. 7, 1964) [29 FR 341 (Jan.
15, 1964)] (``Broker-Dealer Release''), at 341 (``Section 14 and the
proxy rules apply to any person--not just management, or the
opposition. This coverage is necessary in order to assure that all
materials specifically directed to stockholders and which are
related to, and influence their voting will meet the standards of
the rules.'').
    \69\ See generally Communications Among Shareholders Adopting
Release.
---------------------------------------------------------------------------

    Since 1956, the Commission has recognized that its definition of a
solicitation was broad and applicable regardless of whether persons
communicating with shareholders were seeking proxy authority for
themselves.\70\ In light of the breadth of this definition, the
Commission adopted an exemption from the information and filing
requirements of the Federal proxy rules for communications by persons
not seeking proxy authority, but continued to include such
communications within the definition of a ``solicitation.'' \71\ The
Commission also adopted another exemption from the information and
filing requirements for proxy voting advice given by advisors to their
clients under certain circumstances, but likewise continued to include
such advice within the definition of ``solicitation,'' subject to an
exception discussed below.\72\ By adopting these tailored exemptions,
the Commission removed certain filing and other requirements that were
considered unnecessary for such solicitations in order to facilitate
shareholder access to more sources of information when voting, though
the antifraud provisions of the proxy rules continued to apply.
---------------------------------------------------------------------------

    \70\ Id. at 48276 (adopting Exchange Act Rule 14a-2(b)(1)).
    \71\ See id.
    \72\ See Shareholder Communications, Shareholder Participation
in Corporate Electoral Process and Corporate Governance Generally,
Release No. 34-16356 (Nov. 21, 1979) [44 FR 68764 (Nov. 29, 1979)]
(``1979 Adopting Release''), at 68766.
---------------------------------------------------------------------------

    The Commission has previously observed that the definition of a
solicitation for purposes of Section 14(a) may result in proxy voting
advice businesses being subject to the Federal proxy rules because they
provide recommendations that are reasonably calculated to result in the
procurement, withholding, or revocation of a proxy and thus, as a
general matter, the furnishing of proxy voting advice constitutes a
solicitation.\73\ In 2019, the Commission issued an interpretative
release regarding the application of the Federal proxy rules to proxy
voting advice.\74\ As the Commission explained in that release, the
determination of whether a communication is a solicitation for purposes
of Section 14(a) depends upon both the specific nature, content, and
timing of the communication and the circumstances under which the
communication is transmitted.\75\ The Commission noted several factors
that indicate proxy voting advice businesses generally engage in
solicitations when they provide proxy voting advice to their clients,
including:
---------------------------------------------------------------------------

    \73\ See Concept Release at 43009. See also Proposing Release at
66522; Broker-Dealer Release at 341.
    \74\ Commission Interpretation and Guidance Regarding the
Applicability of the Proxy Rules to Proxy Voting Advice, Release No.
34-86721 (Aug. 21, 2019) [84 FR 47416 (Sept. 10, 2019)]
(``Commission Interpretation on Proxy Voting Advice'').
    \75\ See Commission Interpretation on Proxy Voting Advice at
47417. See also Proposing Release at 66522; Concept Release at 43009
n.244.
---------------------------------------------------------------------------

     The proxy voting advice generally describes the specific
proposals that will be presented at the registrant's upcoming meeting
and presents a ``vote recommendation'' for each proposal that indicates
how the client should vote;
     Proxy voting advice businesses market their expertise in
researching and analyzing matters that are subject to a proxy vote for
the purpose of assisting their clients in making voting decisions;
     Many clients of proxy voting advice businesses retain and
pay a fee to these firms to provide detailed analyses of various
issues, including advice regarding how the clients should vote through
their proxies on the proposals to be considered at the registrant's
upcoming meeting or on matters for which shareholder approval is
sought; and
     Proxy voting advice businesses typically provide their
recommendations shortly before a shareholder meeting or authorization
vote,\76\ enhancing the likelihood that their recommendations will
influence their clients' voting determinations.\77\
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    \76\ See, e.g., letter from Maria Ghazal, Senior Vice President
and Counsel, Business Roundtable (June 3, 2019) at 9 (``[R]ecent
survey results support the contention that a spike in voting follows
adverse voting recommendations by ISS during the three-business day
period immediately after the release of the recommendation.'');
Transcript of Roundtable on the Proxy Process, at 242 (Nov. 15,
2018), available at https://www.sec.gov/files/proxy-round-table-transcript-111518.pdf; Frank Placenti, Are Proxy Advisors Really A
Problem?, American Council for Capital Formation 3 (Oct. 2018),
available at http://accfcorpgov.org/wp-content/uploads/2018/10/ACCF_ProxyProblemReport_FINAL.pdf.
    \77\ Commission Interpretation on Proxy Voting Advice at 47418.
See also Proposing Release at 66522.
---------------------------------------------------------------------------

    The Commission observed that where these or other significant
factors (or a significant subset of these or other factors) are
present,\78\ the proxy voting advice businesses' voting advice

generally would constitute a solicitation subject to the Commission's
proxy rules because such advice would be ``a communication to security
holders under circumstances reasonably calculated to result in the
procurement, withholding or revocation of a proxy.'' \79\ Furthermore,
the Commission explained that such advice generally would be a
solicitation even if the proxy voting advice business is providing
recommendations based on the client's own custom policies, and even if
the client chooses not to follow the advice.\80\ In addition, the fact
that proxy voting advice businesses may provide additional services,
such as consulting services to investment advisers and issuers and
general market commentary, does not diminish their role in the proxy
solicitation process.
---------------------------------------------------------------------------

    \78\ Such other factors may include the fact that many proxy
voting advice businesses' recommendations are typically distributed
broadly.
    \79\ See Commission Interpretation on Proxy Voting Advice at
47418. See also Proposing Release at 66522.
    \80\ See Commission Interpretation on Proxy Voting Advice at
47418. See also Proposing Release at 66522.
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1. Proposed Amendments
    In the Proposing Release, the Commission proposed to amend 17 CFR
240.14a-1(l)(1)(iii) (``Rule 14a-1(l)(1)(iii)'') to add paragraph (A)
to make clear that the terms ``solicit'' and ``solicitation'' include
any proxy voting advice that makes a recommendation to a shareholder as
to its vote, consent, or authorization on a specific matter for which
shareholder approval is solicited, and that is furnished by a person
who markets its expertise as a provider of such advice, separately from
other forms of investment advice, and sells such advice for a fee.\81\
The proposed amendment would codify the long-held Commission view that
the furnishing of proxy voting advice generally constitutes a
solicitation governed by the federal proxy rules.
---------------------------------------------------------------------------

    \81\ Proposing Release at 66522, 66557.
---------------------------------------------------------------------------

    In connection with the proposed amendment to Rule 14a-1(l)(1)(iii),
the Commission recognized that the major proxy voting advice businesses
may use more than one voting policy or set of guidelines in formulating
their voting recommendations on a particular matter to be voted at a
shareholder meeting (or for which written consents or authorizations
are sought in lieu of a meeting). For example, a proxy voting advice
business may offer differing voting recommendations on a matter based
on the application of its benchmark policy or various specialty
policies. Under the proposal, the voting recommendations formulated
under the benchmark policy and each of the specialty policies would be
considered to be a separate communication of proxy voting advice under
proposed Rule 14a-1(l)(1)(iii)(A). In addition to voting
recommendations formulated pursuant to a proxy voting advice business's
benchmark and specialty policies, the Commission also proposed to
include voting recommendations formulated pursuant to a proxy voting
advice business's client's own custom policies within the scope of the
term ``solicitation,'' consistent with its prior interpretation.\82\
---------------------------------------------------------------------------

    \82\ Proposing Release at 66522.
---------------------------------------------------------------------------

    Lastly, the Commission proposed to amend Rule 14a-1(l)(2), which
currently lists activities and communications that do not constitute a
solicitation, to add paragraph (v) to make clear that the terms
``solicit'' and ``solicitation'' exclude any proxy voting advice
furnished by a person who furnishes such advice only in response to an
unprompted request.\83\ Doing so would codify the Commission's
historical view that such a communication should not be regarded as a
solicitation subject to the proxy rules.\84\
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    \83\ Id. at 66523, 66557.
    \84\ Commission Interpretation on Proxy Voting Advice at 47419
(``We view these services provided by proxy advisory firms as
distinct from advice prompted by unsolicited inquiries from clients
to their financial advisors or brokers on how they should vote their
proxies, which remains outside the definition of solicitation.'');
1979 Adopting Release at 68766. See also Broker-Dealer Release at
341 (setting forth the opinion of the SEC's General Counsel that a
broker is not engaging in a ``solicitation'' if it is merely
responding to his customer's request for advice and ``not actively
initiating the communication'').
---------------------------------------------------------------------------

2. Comments Received
    Commenters expressed a mix of views on the Commission's proposed
amendments to the definitions of ``solicit'' and ``solicitation'' in 17
CFR 240.14a-1(l)(1) (``Rule 14a-1(l)(1)''). A number of commenters
supported codifying the Commission's interpretation of those
definitions as proposed.\85\ Some of these commenters described the
proposed amendments as consistent with the Commission's existing
interpretation of the term ``solicitation'' \86\ and noted that the
advice provided by proxy voting advice businesses is the kind of
information that Congress intended Section 14(a) to address.\87\ Two
commenters agreed with the Commission's position that the definition of
``solicitation'' should not be limited to a request to obtain proxy
authority or to obtain shareholder support for a preferred outcome.\88\
Those two commenters also agreed with the Commission's view that each
voting recommendation formulated pursuant to a benchmark policy or a
specialty policy should be considered a separate ``solicitation.'' \89\
Other commenters added that the analysis of what constitutes a
``solicitation'' should not turn on whether the proxy voting advice
business's voting recommendations are based on an investor's custom
policy or the proxy voting advice business's benchmark policy.\90\
Finally, a few commenters that supported the proposed amendments
recommended that the Commission include in the definition of
``solicitation'' any reports and ratings by environmental, social, and
governance ratings firms or environmental and sustainability rating
firms.\91\
---------------------------------------------------------------------------

    \85\ See letters from BIO; BRT; CCMC; CEC; CGC; Michael
McCormick, Executive Vice President, General Counsel Secretary,
Ecolab Inc. (Feb. 3, 2020) (``Ecolab''); Exxon Mobil; Dennis E.
Nixon, President, International Bancshares Corporation (Jan. 23,
2020) (``IBC''); NAM; Nareit; Nasdaq; David Dixon, President, and
David L. Dragics, Advocacy Ambassador, NIRI Capital Area Chapter
(Feb. 6, 2020) (``NIRI-Capital''); Phil Gramm (Feb. 3, 2020) (``P.
Gramm''); Niels Holch, Executive Director, Shareholder
Communications Coalition (Feb. 3, 2020) (``SCC I''); SCG;
Stakeholders Empowerment Service (Jan. 31, 2020) (``SES'').
    \86\ See letters from BRT; CCMC; NAM; Nasdaq; NIRI-Capital.
    \87\ See letters from BRT; CCMC; Exxon Mobil; NAM; Nareit; SCC
I.
    \88\ See letters from NAM; SCG.
    \89\ See letters from NAM; SCG.
    \90\ See letters from Exxon Mobil; NAM; SCG.
    \91\ See letters from Exxon Mobil; Garmin; NAM.
---------------------------------------------------------------------------

    Other commenters opposed codifying the Commission's interpretation
of ``solicit'' and ``solicitation.'' \92\ Some

commenters asserted that the Commission does not have the authority to
regulate proxy voting advice businesses under Section 14(a) \93\ or
other provisions of the Exchange Act.\94\ Some described the proposal
as inconsistent with the Commission's historical treatment of Section
14(a).\95\ Some commenters added that proxy voting advice differs from
proxy solicitation and should not be treated as such under the proxy
rules.\96\ Specifically, these commenters asserted that proxy
solicitation differs from proxy advice in that proxy solicitors play an
advocacy role on behalf of an interested party, whereas proxy voting
advice businesses are independent third parties, hired by shareholders
to provide objective advice that the recipients are not required to
follow.\97\ One commenter also asserted that the proposal incorrectly
equates proxy voting advice with the right to vote on another's behalf
and in a manner that would benefit a particular party.\98\ Two other
commenters, which were identified as proxy voting advice businesses in
the Proposing Release,\99\ asserted that even if the Commission amends
the definition of ``solicitation'' as proposed, their activities will
not constitute ``solicitations'' under the revised definition because
they vote on behalf of their clients rather than providing them with
research reports and voting recommendations.\100\
---------------------------------------------------------------------------

    \92\ See letters from Anat Admati, George G.C. Parker Professor
of Finance and Economics, Stanford Graduate School of Business, et
al. (Jan. 15, 2020) (``62 Professors''); Brandon Rees, Deputy
Director, Corporations at Capital Markets, AFL-CIO (Feb. 3, 2020)
(``AFL-CIO II''); Robert Arnold and Matthew Aquiline, Trustees,
Bricklayers & Trowel Trades International Pension Fund (Jan. 31,
2020) (``Bricklayers''); Marcie Frost, Chief Executive Officer,
CalPERS (Feb. 3, 2020) (``CalPERS''); Aeisha Mastagni, Portfolio
Manager, California State Teachers' Retirement System (Feb. 3, 2020)
(``CalSTRS''); Marcia Moffat, Board Chair, Canadian Coalition for
Good Governance (Feb. 3, 2020) (``Canadian Governance Coalition'');
James Allen, Head, and Matt Orsagh, Senior Director, Capital Markets
Policy, CFA Institute (Feb. 3, 2020) (``CFA Institute I''); Kenneth
A. Bertsch, Executive Director, and Jeffrey P. Mahoney, General
Counsel, Council of Institutional Investors (Jan. 30, 2020) (``CII
IV''); Rob Collins, Council for Investor Rights and Corporate
Accountability (Feb. 3, 2020) (``CIRCA''); Ron Baker, Executive
Director, Colorado Public Employees' Retirement Association (Feb. 3,
2020) (``Colorado Retirement''); Duane Roberts, Director of
Equities, Dana Investment Advisors (Dec. 5, 2019) (``Dana'');
Richard B. Zabel, General Counsel and Chief Legal Officer, Elliott
Management Corporation (Jan. 31, 2020) (``Elliott I''); Hans-
Christoph Hirt, Executive Director and Head, Hermes Equity Ownership
Services Limited (Feb. 3, 2020) (``Hermes''); ISS, Josh Zinner, CEO,
Interfait Center on Corporate Responsibility (Feb. 3, 2020)
(``Interfaith Center II''); Kevin Cameron, Executive Chair, Glass
Lewis (Feb. 3, 2020) (``Glass Lewis II''); Jonathan Grabel, Chief
Investment Officer, LACERA (Feb. 3, 2020) (``LA Retirement''), Sarah
Wilson, CEO, Minerva Analytics (Jan. 2, 2020) (``Minerva I'');
Thomas P. DiNapoli, New York State Comptroller (Feb. 3, 2020) (``New
York Comptroller II''); Karen Carraher, Executive Director, and
Patti Brammer, Corporate Governance Officer, Ohio Public Employees
Retirement System (Feb. 3, 2020) (``Ohio Public Retirement''); PIRC,
on behalf of Local Authority Pension Fund Form (LAPFF) (Feb. 3,
2020) (``PIRC''); Fiona Reynolds, Chief Executive Officer,
Principles for Responsible Investment (Feb. 3, 2020) (``PRI II'');
Konstantinos Sergakis, Professor of Capital Markets Law and
Corporate Governance, University of Glasgow (Dec. 26, 2019) (``Prof.
Sergakis''); Craig M. Rosenberg, President, ProxyVote Plus, LLC
(Feb. 3, 2020) (``ProxyVote II''); Hank Kim, Executive Director &
Counsel, National Conference of Public Employee Retirement Systems
(Feb. 3, 2020) (``Public Retirement Systems''); Maureen O'Brien,
Vice President, Corporate Governance Director, Segal Margo Advisors
(Feb. 3, 2020) (``Segal Marco II''); Andrew E. Oster, CFP, AIF,
President & CCO, Triton Wealth Advisors LLC (Feb. 22, 2020)
(``Triton''); Nell Minow, Vice Chair, ValueEdge (Jan. 31, 2020)
(``ValueEdge I''); Theresa Whitmarsh, Executive Director, Washington
State Investment Board (Jan. 22, 2020) (``Washington State
Investment'').
    \93\ See letters from AFL-CIO II; CII IV; Elliott I; Glass Lewis
II; ISS; Richard A. Kirby and Beth-ann Roth, RK Invest Law, PBC
(Feb. 3, 2020) (``RK Invest Law''); ProxyVote II.
    \94\ See letter from ISS.
    \95\ See letters from CalPERS; CII IV; Elliott I; Glass Lewis
II; ISS; ProxyVote II.
    \96\ See letters from Bricklayers; CalPERS; CII IV; CIRCA;
Elliott I; Glass Lewis II; ISS; New York Comptroller II; Segal Marco
II.
    \97\ See letters from Bricklayers; CII IV; CIRCA; Glass Lewis
II; ISS; New York Comptroller II; Segal Marco II.
    \98\ See letter from CalPERS.
    \99\ See Proposing Release at 66542, n.190.
    \100\ See letters from ProxyVote II; Segal Marco II. Similarly,
another commenter noted that it executes votes directly on behalf
of--but does not provide voting recommendations to--its clients. See
letter from Mary Beth Gallagher, Executive Director, Investor
Advocates for Social Justice (Feb. 3, 2020) (``IASJ''). See also
letters from Sean P. Bannon, Chief Financial Officer, Felician
Sisters of North America (Feb. 3, 2020) (``Felician Sisters II'');
Toni Palamar, Province Business Administrator, Sisters of the Good
Shepherd (Feb. 3, 2020) (``Good Shepherd''); Interfaith Center II;
Patricia A. Daly, Corporate Responsibility Representative, Sisters
of St. Dominic of Caldwell (Feb. 3, 2020) (``St. Dominic of
Caldwell'').
---------------------------------------------------------------------------

    In addition, some commenters stated that the proposed codification
of ``solicitation'' would increase proxy voting advice businesses'
costs \101\ or interfere with their ability to provide services to
their clients.\102\ Specifically, these commenters asserted that the
proposed amendments would increase litigation risks facing proxy voting
advice businesses \103\ and interfere with the relationship between
investors and proxy voting advice businesses in a way that would
increase costs and complexity and bias voting recommendations in favor
of corporate management.\104\ Two commenters further expressed concern
that treating proxy advice as a solicitation could have a chilling
effect on shareholder communication.\105\
---------------------------------------------------------------------------

    \101\ See letters from 62 Professors; CalSTRS; Elliott I;
Interfaith Center II; New York Comptroller II; Public Retirement
Systems; Washington State Investment.
    \102\ See letters from CalSTRS; CIRCA; Elliott I; Interfaith
Center II; New York Comptroller II; Ohio Public Retirement; Prof.
Sergakis; Public Retirement Systems.
    \103\ See letters from CIRCA; Elliott I; New York Comptroller
II; Ohio Public Retirement; PRI II.
    \104\ See letters from New York Comptroller II; PRI II.
    \105\ See letters from CalPERS; Washington State Investment.
---------------------------------------------------------------------------

    Some commenters asserted that the Commission has not provided
reliable evidence that existing communications between proxy voting
advice businesses and their institutional investor clients present a
significant risk to investor protection to justify the proposed
amendment.\106\ Several commenters expressed concern that the
Commission disregarded the findings and views of its 2018 Roundtable on
the Proxy Process, the Office of Investor Advocate, and the Investor
Advisory Committee and called into question the legitimacy of other
comment letters.\107\ One commenter requested that the Commission
clarify the benefits of treating proxy advice as a solicitation.\108\
Two commenters also expressed concern that the proposal would overlap
with regulations that proxy voting advice businesses are already
subject to, including as ``investment advisers'' under the Advisers Act
and as fiduciaries under the Employee Retirement Income Security Act of
1974.\109\
---------------------------------------------------------------------------

    \106\ See letters from CII IV; Elliott I.
    \107\ See letters from CII IV; Elliott I; Glass Lewis II; ISS.
    \108\ See letter from CalPERS.
    \109\ See letters from ISS; ProxyVote II.
---------------------------------------------------------------------------

    Finally, some commenters that generally opposed the proposal
recommended that, if the Commission ultimately decides to amend Rule
14a-1(l), it should make the following revisions to narrow the scope of
the proposals: \110\
---------------------------------------------------------------------------

    \110\ See letters from CII IV; ISS; New York Comptroller II; PRI
II; ProxyVote II; Segal Marco II.
---------------------------------------------------------------------------

     Clarify whether ``proxy voting advice'' under Rule 14a-
1(l)(1)(iii)(A) would include data and research that may inform a proxy
analysis or be described in a proxy research report but that is
marketed separately to investors; \111\
---------------------------------------------------------------------------

    \111\ See letter from ISS. The commenter further opined that the
inclusion of such data and research in the scope of ``proxy voting
advice'' would be ``highly inappropriate.'' Id.
---------------------------------------------------------------------------

     Exclude advice based on investors' custom policies from
the definition of ``solicitation''; \112\
---------------------------------------------------------------------------

    \112\ See letters from ISS; New York Comptroller II; Matthew
DiGuiseppe, Head of Asset Stewardship, Americas, and Benjamin
Colton, Head of Asset Stewardship, Asia Pacific, State Street Global
Advisors (Feb. 3, 2020) (``State Street'').
---------------------------------------------------------------------------

     Modify the proposal to recognize the difference between
proxy voting advice businesses and proxy voting agent businesses, the
latter of which ``vote solely on behalf of clients, in accordance with
such clients' preset voting guidelines, based upon third-party
research'' and should not be subject to regulation as a proxy voting
advice business; \113\ and
---------------------------------------------------------------------------

    \113\ See letter from Segal Marco II.
---------------------------------------------------------------------------

     Clarify that the reference to ``other forms of investment
advice'' in Proposed Rule 14a-1(l)(1)(iii)(A) is not intended to
exclude only advice from an ``investment adviser'' and thereby sweep
into the scope of the term ``solicitation'' communications made in the
normal course of business by other professionals (e.g., management-
consulting firms, lawyers, accountants, broker-dealers, etc.).\114\
---------------------------------------------------------------------------

    \114\ See letter from Hermes.
---------------------------------------------------------------------------

    With respect to the proposed amendment to Rule 14a-1(l)(2), some
commenters supported the proposal to exclude from the definition of a
``solicitation'' any proxy voting advice furnished by a person only in
response to an unprompted request.\115\ Another

commenter, however, opposed the proposal, asserting that it would be
unworkable because investment advisers and broker-dealers may be
hesitant to announce a willingness to provide voting advice out of
concern that the Commission would determine they had ``invited and
encouraged'' their clients to ask for advice.\116\ This commenter added
that the proposed amendment would be counterproductive to investor
protection goals because the Commission would be regulating experts
with proxy advice-related skills and resources (i.e., proxy voting
advice businesses), but would not regulate parties with no relevant
expertise who engage in the same activities (i.e., any person that
furnishes proxy voting advice in response to an unprompted
request).\117\ Finally, one commenter recommended that the Commission
narrow the proposed exclusion to cover only proxy voting advice
provided pursuant to an unprompted request ``and not for
compensation.'' \118\
---------------------------------------------------------------------------

    \115\ See letters from Andrew Cave, Head of Governance and
Sustainability, Baillie Gifford & Co (Feb. 3, 2020) (``Baillie
Gifford''); BRT; CCMC; Exxon Mobil; IBC.
    \116\ See letter from ISS.
    \117\ Id.
    \118\ See letter from Exxon Mobil.
---------------------------------------------------------------------------

3. Final Amendments
    We are adopting the amendments to Rule 14a-1(l)(1)(iii) and 17 CFR
240.14a-1(l)(2) (``Rule 14a-1(l)(2)'') as proposed, with some minor
changes to the proposed amendment to Rule 14a-1(l)(1)(iii).
    With respect to Rule 14a-1(l)(1)(iii), consistent with the
Proposing Release, we are adding paragraph (A) \119\ to make clear that
the terms ``solicit'' and ``solicitation'' include any proxy voting
advice \120\ that makes a recommendation to a shareholder as to its
vote, consent, or authorization on a specific matter for which
shareholder approval is solicited, and that is furnished by a person
who markets its expertise as a provider of such advice, separately from
other forms of investment advice, and sells such advice for a fee.
---------------------------------------------------------------------------

    \119\ The amendment is intended to make clear that proxy voting
advice provided under the specified circumstances constitutes a
solicitation under current Rule 14a-1(l)(1)(iii). It is not intended
to amend, limit, or otherwise affect the scope of Rule 14a-
1(l)(1)(iii).
    \120\ As noted above, one commenter requested clarification as
to whether the term ``proxy voting advice'' would include data and
research that may inform a proxy analysis or be described in a proxy
research report but that is marketed separately to investors. See
supra note 111 and accompanying text. We have clarified the scope of
that term. Compare supra note 7, with Proposing Release at 66519 &
n.11.
---------------------------------------------------------------------------

    As noted above, the determination of whether a communication is a
solicitation ultimately depends on the specific nature, content, and
timing of the communication and the circumstances under which the
communication is transmitted.\121\ A number of factors illuminate that
determination, and, as set forth above, application of those factors
indicate that the advice that proxy voting advice businesses provide to
their clients generally constitutes a ``solicitation.'' \122\ This
amendment, therefore, codifies the Commission's interpretation that
proxy voting advice generally constitutes a ``solicitation'' under Rule
14a-1(l).\123\ As we noted in the Proposing Release, we believe the
furnishing of proxy voting advice by a person who has decided to offer
such advice, separately from other forms of investment advice, to
shareholders for a fee, with the expectation that its advice will be
part of the shareholders' voting decision-making process, is conducting
the type of activity that raises the concerns about inadequate or
materially misleading disclosures that Section 14(a) and the
Commission's proxy rules are intended to address.\124\ We also believe
that the regulatory framework of Section 14(a) and the Commission's
proxy rules, with their focus on the information received by
shareholders as part of the voting process, are well-suited to
enhancing the quality and availability of the information that clients
of proxy voting advice businesses are likely to consider as part of
their voting determinations.\125\
---------------------------------------------------------------------------

    \121\ See supra note 75 and accompanying text.
    \122\ See supra notes 75-79 and accompanying text; see also
infra note 144.
    \123\ As noted above, some commenters expressed concern that the
amendments are not supported by the relevant evidence and that the
Commission may have disregarded the findings and views of more
reliable observers, and called into question the legitimacy of other
comments. See supra notes 106-107 and accompanying text. Very
shortly after learning of the concerns raised about these comment
letters, the Chairman referred the matter to the SEC's Office of
Inspector General to investigate. That investigation is ongoing. We
have now learned that some of the commenters who submitted certain
of the letters appear to have signed declarations provided to
Members of Congress regarding the authenticity of those letters. Our
decision to adopt the amendments to Rule 14a-1(l), is not predicated
upon the input we received with respect to the quality of the
services provided by proxy voting advice businesses or the
independence thereof. Rather, these amendments largely codify the
Commission's longstanding interpretations of the scope of the terms
``solicit'' and ``solicitation,'' which, as discussed below, are
based on an assessment of the text, structure, history, and purpose
of Section 14(a) of the Exchange Act, as well as judicial precedent.
See infra notes 132-156 and accompanying text. Moreover, although
certain members of the Commission may have cited some of the letters
described above during the Commission's open meeting at which the
amendments discussed herein were proposed, neither the Commission's
interpretations of the scope of the terms ``solicit'' and
``solicitation,'' nor our decision to adopt the other amendments
herein, rest on those letters or their validity. Further, as
discussed below, the Commission's interpretations of the scope of
the terms ``solicit'' and ``solicitation'' are longstanding and far
predate the cited comment letters. See infra notes 150-154 and
accompanying text.
    \124\ We understand that investment advisers may discuss their
views on proxy voting with clients or prospective clients as part of
their portfolio management services or other common investment
advisory services. Such discussions could be unprompted or prompted
(such as in the case of a client or prospective client that has
asked the adviser for its views on a particular transaction). For
example, a mutual fund board may request that a prospective
subadviser discuss its views on proxy voting, including votes on
particular types of transactions such as mergers or corporate
governance. As noted in the Proposing Release, the amendment is not
intended to include these types of communications as solicitations
for purposes of Section 14(a). In response to certain comments we
received, we also are clarifying the amendment is not intended to
include communications made in the normal course of business by
other professionals to their clients that may relate to proxy
voting. Instead, the amendment is intended to apply to entities that
market their proxy voting advice as a service that is separate from
other forms of investment advice to clients or prospective clients
and sell such advice for a fee.
    \125\ We understand that a proxy voting advice business might,
if applicable requirements are met, be registered as an investment
adviser and subject to additional regulation under the Advisers Act,
including 17 CFR part 275. However it is not unusual for a
registrant under one provision of the securities laws to be subject
to other provisions of the securities laws when engaging in conduct
that falls within the other provisions. Given the focus of Section
14(a) and the Commission's proxy rules on protecting investors who
receive communications regarding their proxy votes, it is
appropriate that proxy voting advice businesses be subject to
applicable rules under Section 14(a) when they provide proxy voting
advice. See supra notes 41-60 and accompanying text for a discussion
of why we believe Section 14(a), together with the Commission's
proxy rules, is an appropriate regulatory regime for such
communications by proxy voting advice businesses, regardless of
whether they are registered under the Advisers Act.
---------------------------------------------------------------------------

    In addition, we are aware of at least two proxy voting advice
businesses, ISS and Egan-Jones, that use more than one proprietary
voting policy or set of guidelines--oftentimes, a benchmark policy and
one or more specialty policies--in formulating proxy voting advice as
to a particular matter to be voted on at a shareholder meeting (or for
which written consents or authorizations are sought in lieu of a
meeting).\126\ Consistent with the Proposing Release, we view the proxy
voting advice formulated pursuant to each separate policy or set of
guidelines as distinct solicitations under Rule 14a-1(l)(1)(iii)(A).
Similarly, as discussed in more detail below,\127\ proxy voting advice
formulated pursuant to a custom policy constitutes a distinct
solicitation under the final rule as well.
---------------------------------------------------------------------------

    \126\ See supra note 11 and accompanying text.
    \127\ See infra notes 165-169 and accompanying text.
---------------------------------------------------------------------------

    We recognize that some commenters opposed our amendments to Rule
14a-

1(l)(1). As noted above, some commenters stated that the Commission is
not authorized to regulate proxy voting advice as a ``solicitation''
under the Exchange Act.\128\ One commenter specifically asserted that
the amendments would be contrary to (1) the legislative history of
Section 14(a), (2) the case law that has construed the terms
``solicit'' and ``solicitation'' under Section 14(a) and Rule 14a-1(l),
and (3) the plain meaning of the term ``solicit.'' \129\ According to
some opposing commenters, the scope of Section 14(a) is limited to
soliciting activities by management, other corporate insiders,
dissident shareholders seeking to take control of a company, or parties
otherwise having an interest in the outcome of a shareholder vote.
These commenters asserted, therefore, that as a matter of statutory
interpretation, Section 14(a) cannot extend to communications or
activities by persons who do not have an interest in the outcome of the
matter being voted upon at the shareholder meeting or who do not seek
proxy authority for themselves.\130\ These commenters further assert
that, as a matter of fact, proxy voting advice businesses satisfy both
of these criteria (i.e., no interest in the outcome of a vote and no
request for authority to vote).\131\
---------------------------------------------------------------------------

    \128\ See supra notes 93-94 and accompanying text.
    \129\ See letter from ISS.
    \130\ See, e.g., supra notes 96-97 and accompanying text.
    \131\ Id.
---------------------------------------------------------------------------

    We reject this narrow interpretation of Section 14(a). The
Commission's longstanding view that a ``solicitation'' includes any
communication reasonably calculated to result in the procurement,
withholding, or revocation of a proxy--and that this encompasses the
furnishing of proxy voting advice--accords with the text, history, and
structure of Section 14(a) of the Exchange Act, as well as judicial
precedent and our own rules.
    The structure of Section 14(a) grants the Commission broad
authority. It authorizes the Commission to prescribe rules and
regulations to govern proxy solicitations ``as necessary or appropriate
in the public interest or for the protection of investors,'' and it
makes it unlawful for any person to ``solicit any proxy'' with respect
to any security registered under Section 12 of the Exchange Act in
contravention of such rules and regulations.\132\ Furthermore, rather
than defining what constitutes a proxy solicitation, the Exchange Act
leaves those terms undefined, while at the same time specifically
empowering the Commission to define such terms consistent with the
Act's ``provisions and purposes'' \133\ and, more broadly, to make
rules and regulations, including rules that classify ``transactions,
statements, applications, reports, and other materials.'' \134\
---------------------------------------------------------------------------

    \132\ See S. Rep. No. 73-792, 2d Sess., at 12 (1934) (``The
committee recommends that the solicitation and issuance of proxies
be left to regulation by the Commission.''); H.R. Rep. No. 1383, 73d
Cong., 2d Sess., 14 (1934) (explaining the intention to give the
Commission the ``power to control the conditions under which proxies
may be solicited'').
    \133\ 15 U.S.C. 78c(b).
    \134\ 15 U.S.C. 78w(a)(1).
---------------------------------------------------------------------------

    In light of that context, the phrase ``solicit any proxy'' is not
as narrow or mechanical as some commenters have claimed. Citing a
dictionary definition, one commenter suggested that the ordinary
meaning of the term ``solicit'' is ``to endeavor to obtain.'' \135\
Under this definition, what matters is the subjective intent of the
person engaging in the solicitation, and thus no person would be
soliciting a proxy unless they intend to obtain proxy authority. Some
commenters likewise claimed that no person would be soliciting a proxy
unless they intend to obtain a shareholder's support for a preferred
outcome.\136\ However, dictionaries at the time Section 14(a) was
enacted indicate that the term ``solicit'' had other meanings that did
not depend on the interest or subjective intent of the person engaging
in the solicitation. The term ``solicit'' also meant ``[t]o move to
action.'' \137\ Under this definition, what matters is not the
subjective intent to obtain a proxy, but rather the effect on a
recipient's proxy vote. A person solicits a proxy by influencing a
shareholder to act. As between these two meanings, we view the latter
as more consistent with Section 14(a)'s provisions and purposes, as any
inducement that may move a shareholder to vote a proxy in a certain way
implicates the Commission's charge to ensure that necessary and
appropriate regulations are in place for the protection of investors.
That is why the Commission has recognized since 1956 that persons who
do not seek proxy authority themselves nevertheless engage in
solicitation when they communicate with shareholders in a manner
reasonably calculated to ``result'' in a proxy vote.
---------------------------------------------------------------------------

    \135\ See letter from ISS.
    \136\ See, e.g., supra notes 96-97 and accompanying text. In
arguing that the plain meaning of ``solicit'' supports its view, one
commenter relied on the dictionary definition ``to endeavor to
obtain,'' even though the commenter elsewhere acknowledged that
Section 14(a) has long been understood to encompass communications
that do not seek to obtain a proxy--and thus would not meet that
narrow definition. See letter from ISS.
    \137\ See Webster's New International Dictionary (2d ed. 1934)
(providing multiple definitions of the term ``solicit,'' including
``[t]o move to action'' or ``[t]o urge'' or ``insist upon'').
---------------------------------------------------------------------------

    The context and history of Section 14(a) accord with this
conclusion. Congress considered different versions of the Exchange Act
that set forth the applicable proxy standards with more specificity in
the analog to Section 14(a) and rejected them in favor of the broad
authority granted to the Commission in Section 14(a), as enacted.\138\
While Congress may have been motivated to enact Section 14(a) in 1934
due to the particular abuses by corporate insiders or dissident
shareholders that occurred during that time, nothing in either the text
or legislative history of Section 14(a) indicates that Congress
intended to limit its scope to solicitations conducted by those
parties. Rather, where Congress intended to exempt certain classes of
market participants, transactions, or activities from the statutory
provisions of the Securities Act and the Exchange Act (as enacted in
1933 and 1934, respectively) or limit the Commission's rulemaking
authority with regard to those market participants, transactions or
activities, it generally did so by expressly including language in the
relevant statutory provision.\139\

Indeed, Section 14(a) itself excludes any ``exempted security'' from
its scope, but otherwise facially applies to ``any person'' without
carving out any class of market participants.\140\
---------------------------------------------------------------------------

    \138\ See Louis Loss et. al., Securities Regulation, Sec.  6.C.2
(6th ed. 2018) (``In Sec.  14(a) of the Exchange Act, Congress,
abandoning the more specific standards of the original bills, left
the solicitation of proxies to the SEC under broad public interest
standards.'') (citing S. 2693, H.R. 7852, 73d Cong., 2d Sess. Sec.
13(a) (1934)).
    \139\ See, e.g., Securities Exchange Act of 1934, Public Law 73-
291, 48 Stat. 881, Sec.  3(a)(4) (1934) (``Exchange Act (as enacted
in 1934)'') (stating that the definition of the term ``broker''
``does not include a bank''); Exchange Act (as enacted in 1934)
Sec.  3(a)(5) (stating that the definition of the term ``dealer''
``does not include a bank, or any person insofar as he buys or sells
securities for his own account, either individually or in some
fiduciary capacity, but not as part of a regular business'');
Exchange Act (as enacted in 1934) Sec.  3(a)(10) (defining the term
``security'' but expressly stating that the term ``shall not include
currency or any note, draft, bill of exchange, or banker's
acceptance which has a maturity at the time of issuance of not
exceeding nine months, exclusive of days of grace, or any renewal
thereof the maturity of which is likewise limited''); Exchange Act
(as enacted in 1934) Sec.  15(l) (restricting broker-dealers' over-
the-counter market activity, but expressly exempting from these
restrictions certain exempt securities, commercial paper, and other
instruments); Exchange Act (as enacted in 1934) Sec.  24(a)
(limiting the Commission's authority to require the ``revealing of
trade secrets or processes in any application, report, or document
filed with the Commission under this title''); Securities Act of
1933, Public Law 73-22, 48 Stat. 74, Sec.  2(a)(10) (1933)
(``Securities Act (as enacted in 1933)'') (defining the term
``prospectus'' and expressly excluding certain written
communications from this definition); Securities Act (as enacted in
1933) Sec.  2(a)(11) (carving out from the statutory definition of
``underwriter'' any ``person whose interest is limited to a
commission from an underwriter or dealer not in excess of the usual
and customary distributors' or sellers' commission''); Securities
Act (as enacted in 1933) Sec.  2(a)(3) (carving out from the
statutory definition of the terms ``sale'', ``sell'', ``offer to
sell'', and ``offer for sale'' ``preliminary negotiations or
agreements between an issuer and any underwriter'').
    \140\ See 15 U.S.C. 78n(a).
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    Nor does the case law construing Section 14(a) mandate that a party
must have an ``interest'' in the outcome of a shareholder vote in order
for a solicitation to occur, as certain commenters contended.\141\
Courts have articulated a broad definition of the term ``solicit'' such
that the proxy rules ``apply not only to direct requests to furnish,
revoke, or withhold proxies, but also to communications which may
indirectly accomplish such a result or constitute a step in the chain
of communications ultimately designed to accomplish such a result.''
\142\ Moreover, relying on the ``subjective intent of the person
furnishing the communication'' to determine whether a particular
communication constitutes a solicitation ``is at odds with the plain
and unambiguous meaning of the regulation.'' \143\ Instead, the phrase
``reasonably calculated to result in the procurement, withholding or
revocation of a proxy'' in Rule 14a-1(l)(1)(iii) requires an objective
inquiry that focuses ``on the manner in which the communicator
attempted to influence a shareholder's proxy decision from the
perspective of the shareholder who received the material.'' \144\
Courts also have broadly understood a ``solicitation'' to encompass
``communications which may indirectly [result in a proxy being
furnished, revoked or withheld],'' \145\ an interpretation that does
not, by its terms, require inquiry into the speakers' interest or
subjective intention. To inject a subjective element into the test of
whether a communication is a ``solicitation'' under Rule 14a-
1(l)(1)(iii) as argued by one commenter (i.e., determining whether the
speaker is ``completely indifferent to the outcome of the matter as to
which shareholder approval was sought'' \146\) runs counter to this
case law.
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    \141\ See, e.g., letter from ISS. Although we do not believe
that Section 14(a) requires that a party have an interest in the
outcome of a vote, we also do not accept commenters' assertion that,
as a matter of fact, proxy voting advice businesses necessarily do
not have an interest in the outcome of matters being voted upon at
shareholder meetings or do not seek proxy authority for themselves.
While this may be true in many instances, we do not think this is
always the case. See U.S. Gov't Accountability Office, GAO-17-47,
Report to the Chairman, Subcommittee on Economic Policy, Committee
on Banking, Housing, and Urban Affairs, U.S. Senate, Corporate
Shareholder Meetings: Proxy Advisory Firms' Role in Voting and
Corporate Governance Practices, 18 (2016), available at https://www.gao.gov/assets/690/681050.pdf (``2016 GAO Report'') (``Officials
from one proxy advisory firm with whom we spoke stated that they
agree that proxy advisory firms have influence on corporate
governance practices. . . . They noted that such influence is good
and ultimately they want to have a positive influence on their
clients because they view that as part of their responsibility--to
promote good governance.''); Kevin E. McManus, CEO Compensation was
a Joke Before Covid-19, Now It is Just Obnoxious, Egan-Jones Proxy
Services (June 11, 2020), available at https://www.ejproxy.com/weekly-wreck/36/ceo-compensation-was-joke-covid-19-now-it-just-obnoxious/ (criticizing executive compensation at certain
registrants and making policy-based recommendations to regulate
executive compensation). See also infra Section II.B.1. (noting
examples of circumstances where the interests of a proxy voting
advice business may diverge materially from the interests of the
clients who utilize their advice, including a proxy voting advice
business providing advice on a matter in which its affiliates or one
of its clients has a material interest, such as a business
transaction or a shareholder proposal put forward by or actively
supported by that client).
    \142\ Long Island Lighting Co. v. Barbash, 779 F.2d 793, 796 (2d
Cir. 1985) (emphasis added); see also Capital Real Estate Inv'rs Tax
Exempt Fund Ltd. P'ship v. Schwartzberg, 917 F.Supp. 1050, 1059
(S.D.N.Y. 1996).
    \143\ Gas Natural Inc. v. Osbourne, 624 Fed. Appx. 944, 950 (6th
Cir. 2015) (unpublished).
    \144\ Id. (citing Broker-Dealer Release at 342 (noting that
communications from broker-dealers to shareholders ``may constitute
a solicitation requiring compliance with the proxy rules'' depending
``upon the content of the material, upon the conditions under which
it is transmitted, and upon surrounding circumstances'')). See also
Long Island Lighting Co., 779 F.2d at 796 (``Determination of the
purpose of the communication depends upon the nature of the
communication and the circumstances under which it was
distributed.''); Sargent v. Genesco, Inc., 492 F.2d 750, 767 (5th
Cir. 1974) (``Whether or not a particular communication is a
solicitation within the meaning of 14(a) is a question of fact
dependent upon the nature of the communication and the circumstances
under which it is transmitted.''); Dyer v. SEC, 291 F.2d 774, 777-78
(8th Cir. 1961) (indicating that the determination of whether a
communication constitutes a solicitation depends on the ``nature and
circumstances'' of a communication and whether it can be rationally
inferred that the speaker ``knew or could be expected to foresee
that the things which he said might on their implication and
innuendo affect the action of a stockholder in his granting of proxy
authority,'' regardless of ``whatever [the speaker] may have had in
his mind''); Schwartzberg, 929 F.Supp. at 113-14 (noting that if a
statement ``presents the transaction in a manner objectively likely
to predispose security holders toward or against it . . . it must
comply with the proxy rules''). Among the factors relevant to the
objective inquiry into whether a communication constitutes a
``solicitation'' are (1) ``the contents of the communication,'' (2)
``the conditions under which the communication is distributed,'' and
(3) ``[t]he timing of the communication in relation to the relevant
surrounding circumstances.'' Gas Natural Inc., 624 Fed. Appx. at
950. As described above, the proxy voting advice that proxy voting
advice businesses send their clients generally constitutes
``solicitations'' under each of those three factors. See supra notes
75-79 and accompanying text.
    \145\ Long Island Lighting Co., 779 F.2d at 796.
    \146\ See letter from ISS.
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    Relying on its broad rulemaking authority, the Commission has since
1956 defined a solicitation to include any ``communication to security
holders under circumstances reasonably calculated to result in the
procurement, execution, or revocation of a proxy.'' \147\ This
definition advances Section 14(a)'s overarching purpose of ensuring
that communications to shareholders about their proxy voting decisions
contain materially complete and accurate information.\148\ It would be
inconsistent with that goal if a person whose business is to offer and
sell voting advice broadly to large numbers of shareholders, with the
expectation that their advice will factor into shareholders' voting
decisions, were beyond the reach of Section 14(a). The fact that
shareholders may retain providers of proxy voting advice to advance
their own interests does not obviate these concerns.
---------------------------------------------------------------------------

    \147\ 17 CFR 240.14a-1(l)(1)(iii).
    \148\ Borak, 377 U.S. at 432; see also S. Rep. No. 1455, 73d
Cong., 2d Sess., 74 (1934) (``In order that the stockholder may have
adequate knowledge as to the manner in which his interests are being
served, it is essential that he be enlightened not only as to the
financial condition of the corporation, but also as to the major
questions of policy, which are decided at stockholders'
meetings.''); H.R. Rep. No. 1383, 73d Cong., 2d Sess., 14 (1934)
(explaining the need for ``adequate disclosure'' and
``explanation''); Communications Among Shareholders Adopting Release
at 48277.
---------------------------------------------------------------------------

    As described above, some commenters also asserted that the proposed
amendment to Rule 14a-1(l)(1)(iii) conflicts with well-established
practice in the proxy voting advice business industry and the
Commission's historical treatment thereof.\149\ As an initial matter,
and as noted in the Interpretive Release and the Proposing Release, the
amendment to Rule 14a-1(l)(1)(iii) is in accordance with, and
represents a codification of, the Commission's longstanding view that
proxy voting advice generally constitutes a ``solicitation.'' This view
was originally set forth in a 1964 release \150\ and reiterated by the
Commission in 1979 \151\ and 2010.\152\ The cited releases did not
limit the scope of the term ``solicitation'' so as to

exclude proxy voting advice provided by ``disinterested persons.''
Instead, the Commission articulated its view that proxy voting advice
generally constitutes a ``solicitation,'' without reference to a
particular class of market participants that must be providing such
advice.\153\ Any suggestion otherwise requires reading into the
releases an additional qualification that the Commission did not
articulate.\154\
---------------------------------------------------------------------------

    \149\ See supra note 95 and accompanying text.
    \150\ See Broker-Dealer Release at 341 (``Material distributed
during a period while proxy solicitation is in progress, which
comments upon the issues to be voted on or which suggests how the
stockholder should vote, would constitute soliciting material.'').
    \151\ See 1979 Adopting Release at 68766; Shareholder
Communications, Shareholder Participation in the Corporate Electoral
Process and Corporate Governance Generally, Release No. 34-16104
(Aug. 13, 1979) [44 FR 48938 (Aug. 20, 1979)], at 48941 n.25.
    \152\ Concept Release at 43009 (``As a general matter, the
furnishing of proxy voting advice constitutes a `solicitation'
subject to the information and filing requirements in the proxy
rules.'').
    \153\ Although the Commission's view was originally articulated
in the context of an opinion by its General Counsel regarding
participation by broker-dealer firms in proxy solicitations, nothing
in the language of that release indicates that its position could
not also be extended to other independent, disinterested parties
engaged in the same activity. See Broker-Dealer Release.
    \154\ The commenters also cite the 1979 and 1992 releases as
evidence that the Commission intended to narrow the scope of the
term ``solicitation'' so as to avoid including communications by
disinterested fiduciaries. See, e.g., letter from ISS (citing
Communications Among Shareholders Adopting Release; 1979 Adopting
Release). However, those releases reinforced the Commission's view
of the breadth of the term by creating additional exemptions from
the proxy filing rules. See Communications Among Shareholders
Adopting Release at 48278 (creating an exemption from the proxy
filing rules for solicitations by persons not seeking proxy
authority who do not have a substantial interest in the matter
subject to a vote); 1979 Adopting Release at 68766-67 (creating an
exemption from the proxy filing rules for voting advice provided to
persons with whom a financial advisor has a business relationship).
In other words, the Commission recognized that certain classes of
market participants were conducting activities that constituted
``solicitations,'' but sought to grant them relief from the proxy
filing rules by adopting applicable exemptions. Had the Commission
interpreted the term ``solicitation'' as not applying to those
market participants' activities, no such exemption from the proxy
filing rules would have been necessary in the first place. Also, had
the Commission intended to narrow the scope of the term
``solicitation'' to avoid its application to those classes of market
participants, it would have amended the definition thereof in Rule
14a-1(l) appropriately. In fact, in the 1992 release, the Commission
acknowledged that even though it considered (but did not ultimately
adopt) proposed amendments exempting from the proxy filing rules all
communications by ```disinterested' persons who are not seeking
proxy authority,'' such communications under that proposal would
still have constituted ``solicitations'' and ``remained subject to
antifraud standards.'' Communications Among Shareholders Adopting
Release at 48278.
---------------------------------------------------------------------------

    We further note that these commenters' position is inconsistent
with the treatment of other disinterested parties under the current
proxy regulatory scheme. Shareholders today exercise their voting
rights through an intricate proxy process involving numerous
intermediaries, such as broker-dealers, that each play an important
role. Most shareholders own their securities in ``street name,'' with
their broker-dealers and banks generally holding the securities in
their name on behalf of their customers and possessing the legal
authority to vote those shares. Under the current proxy process and
rules, these broker-dealers and banks must forward a company's proxy
materials to their customers and seek voting instructions (often called
``voting instruction forms'') from the customers on whose behalf they
hold those shares. These activities are currently treated as
solicitations under the proxy rules, with the Commission generally
exempting them from the informational and filing requirements, despite
the fact that the broker-dealers and banks have no interest in the
outcome of the matters being presented for a vote and no involvement in
the preparation of the materials being sent to the customers.\155\
Those who have considered the issue, including at least one court, have
recognized that the forwarding of a company's proxy materials and
requests for voting instructions by broker-dealers constitute a form of
soliciting activity subject to the Commission's rules.\156\
---------------------------------------------------------------------------

    \155\ See 17 CFR 240.14a-2(a)(1); see also Jill E. Fisch,
Standing Voting Instructions: Empowering the Excluded Retail
Investor, 120 Minn. L. Rev. 11, 40-41 (2017) (noting that broker-
dealers' requests for voting instructions from their customers
``fall[] within the SEC's definition of a proxy solicitation'' and
that Rule 14a-2(a)(1) ``exempts the broker from the filing
requirements and the obligation to furnish a proxy statement'').
    \156\ See, e.g., Walsh & Levine v. The Peoria & E. R. Co., 222
F.Supp. 516, 518-19 (S.D.N.Y. 1963) (``[I]f brokers transmit some
but not all proxy solicitations to those for whose benefit they hold
in street name, they are acting in contravention of the Commission
rules if they fail to fulfill the duties required of active proxy
solicitors.''); Broker-Dealer Release at 342 (``[I]t is quite clear
. . . that the transmission to customers of proxy material furnished
by the issuer or any other person who is soliciting a proxy, is
clearly itself the solicitation of a proxy, since the material is
transmitted under circumstances reasonably calculated to result in
the procurement, withholding or revocation of a proxy.''); Fisch,
supra note 155 at 40; Council of Institutional Investors, Client
Directed Voting: Selected Issues and Design Perspectives (August
2010) (``Rule 14a-(l) under the Exchange Act defines solicitation to
include the `furnishing of a form of proxy or other communication to
security holders under circumstances reasonably calculated to result
in the procurement, withholding or revocation of a proxy,' subject
to certain exceptions. Communications sent by brokers to encourage
participation in a [client directed voting] model would appear to
fall within this definition absent an exemption, and the SEC staff
agrees with this conclusion. As such, brokers would have to comply
with the proxy solicitation rules, including principally the
disclosure and SEC filing requirements applicable to proxy
materials.'').
---------------------------------------------------------------------------

    In addition, market observers, including proxy voting advice
businesses themselves, have long recognized that the provision of proxy
voting advice may constitute a ``solicitation'' subject to the proxy
rules.\157\ Notably, one proxy voting advice business that now argues
that the Commission lacks authority to regulate proxy voting advice as
a ``solicitation'' submitted a letter to the Division of Corporation
Finance in 1988 requesting no-action relief from the Commission's proxy
filing rules.\158\ The proxy voting advice business did not request
relief on the basis that its proxy voting advice should not be
considered a ``solicitation.'' Instead, the letter appears to
implicitly assume that such advice could be a ``solicitation'' by
requesting relief from the proxy filing rules under the predecessor
exemption to current Rule 14a-2(b)(3) on the basis that its proxy
voting advice was provided to persons with whom it had a business
relationship.\159\ Further, as recently as 2016, the CEO of another
proxy voting advice business testified that ``[p]roxy advisory firms
also are subject to the Securities and Exchange Commission's proxy
solicitation rules under the [Exchange Act].'' \160\ The CEO further
testified that ``proxy voting advisors operating today . . . are
generally deemed by the SEC as qualifying for the exemptions based on
rules 14a-2(b)(1) and 14a-2(b)(3).'' \161\ These statements suggest
that the proxy voting advice business industry has understood for over
30 years that its proxy voting advice constitutes a ``solicitation''
under Rule 14a-1(l), or at least that the Commission may consider their
proxy voting advice to constitute a ``solicitation.''
---------------------------------------------------------------------------

    \157\ See, e.g., Sagiv Edelman, Proxy Advisory Firms: A Guide
for Regulatory Reform, 62 Emory L.J. 1369, 1378 (2013) (``Due to the
expansive definition of solicitation, proxy advisory firms would be
subject to federal proxy rules if not for the exemption found in
Exchange Act Rule 14a-2(b)(3).''); Douglas G. Smith, A Comparative
Analysis of the Proxy Machinery in Germany, Japan, and the United
States: Implications for the Political Theory of American Corporate
Finance, 58 U. Pitt. L. Rev. 145, 201 n.284 (1996) (``Furnishing of
proxy voting advice by an investment advisor is exempt [from the
proxy filing rules] under certain circumstances.''); John C. Coffee,
Jr., Liquidity Versus Control: The Institutional Investor as
Corporate Monitor, 91 Colum. L. Rev. 1277, 1358 (1991) (``The legal
issue is whether the provision of proxy advice amounts to a proxy
`solicitation' under SEC Rule 14a-1. Clearly, the definition of
solicitation reaches this far . . . .''); Bernard S. Black,
Shareholder Passivity Reexamined, 89 Mich. L. Rev. 520, 530 (1990)
(``Nor are the Proxy Rules limited to communications by the
contestants. A third party who proffers voting advice is
`soliciting' votes.''). See also infra notes 158-161 and
accompanying text.
    \158\ Institutional Shareholder Services, Inc., 1991 SEC No-Act.
LEXIS 17 (Dec. 15, 1988).
    \159\ See id.
    \160\ Katherine H. Rabin, Chief Executive Officer, Glass, Lewis
& Co., Statement to the U.S. House of Representatives Committee on
Financial Services: Markup of H.R. 5983, the ``Financial CHOICE Act
of 2016,'' at 3 (September 13, 2016), available at https://www.glasslewis.com/wp-content/uploads/2016/09/2016_0912_Glass-Lewis-Statement-re-H.R.-5983_final.pdf.
    \161\ Id.
---------------------------------------------------------------------------

    Some commenters also asserted that our amendments to Rule 14a-
1(l)(1)(iii) will increase proxy voting advice businesses' costs or
interfere with their

ability to provide services to their clients. Specifically, commenters
indicated that the amendments could increase litigation risks for proxy
voting advice businesses or have a chilling effect on shareholder
communications.\162\ Although we acknowledge that compliance with the
new conditions we are adopting to the exemptions in Rules 14a-2(b)(1)
and 14a-2(b)(3) may increase the resources that proxy voting advice
businesses apply to ensuring compliance with applicable law and
regulation,\163\ we disagree that our amendments to Rule 14a-
1(l)(1)(iii), taken in isolation, will have a material impact on the
operation of a proxy voting advice business.\164\ To the contrary, the
fact that both the Commission and the market generally, including proxy
voting advice businesses, have long recognized that proxy voting advice
generally constitutes a ``solicitation'' indicates that any impact from
codifying this aspect of the definition of a solicitation likely is
already reflected in the manner in which proxy voting advice
businesses' provide their services and the pricing thereof.
---------------------------------------------------------------------------

    \162\ See supra notes 101-105 and accompanying text.
    \163\ See infra Section IV.
    \164\ To the extent that some proxy voting advice businesses did
not previously understand their proxy voting advice to constitute a
solicitation and thus subject to Rule 14a-9 liability, it is
possible that the codification of the Commission's longstanding view
could have some economic effects. See infra Section IV.B.
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    Finally, in the Interpretive Release, we stated our view that proxy
voting advice based on a proxy voting advice business's application of
custom policies generally should be considered a ``solicitation'' under
Rule 14a-1(l).\165\ We continue to hold that view for the reasons
stated in the Interpretive Release. As a result, such proxy voting
advice is subject to Rule 14a-9, and persons who provide such advice in
reliance on the exemptions in either Rule 14a-2(b)(1) or (b)(3) must
comply with the conflicts of interest disclosure requirements set forth
in new 17 CFR 240.14a-2(b)(9)(i) (``Rule 14a-2(b)(9)(i)'').\166\ Some
commenters recommended that we amend Rule 14a-1(l) to exclude from the
definitions of ``solicit'' and ``solicitation'' proxy voting advice
that is based on investors' custom policies.\167\ These commenters'
concerns, however, focused largely on subjecting investors' custom