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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 8 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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The Securities and Exchange Commission (SEC) recently issued guidance (“Guidance”) to assist advisers with fulfilling their proxy voting responsibilities, including their responsibilities when using proxy advisory firms. The Guidance culminated a decade’s worth of public engagement by the SEC including the Staff Roundtable held in November 2018.

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Investment Advisers’ Proxy Voting Responsibilities

Rule 206(4)-(6) of the Investment Advisers Act of 1940, as amended, requires an adviser who exercises voting authority on behalf of clients to adopt and implement written policies and procedures that are reasonably designed to ensure that the adviser votes proxies in the best interest of its clients. In this regard, it is important to note that an adviser is not required to accept the authority to vote a client’s securities. If an adviser does accept voting authority, it may agree with its client on the scope of voting arrangements, including the types of matters for which it will exercise proxy voting authority. The Guidance outlines examples of possible voting arrangements to which an adviser and client may agree, including:

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Steps to Demonstrate Voting Determinations Are in the Client’s Best Interest

In the Guidance, the SEC indicates that an adviser that has authority to vote proxies on behalf of its clients must conduct a reasonable investigation into matters in which the adviser votes and must vote in the best interest of the client. Below are specific actions and considerations outlined by the SEC that demonstrate that an adviser is acting in accordance with its fiduciary duties:

Adviser Considerations When Retaining a Proxy Advisory Firm

The Guidance also notes that an adviser should take special considerations into account before retaining a proxy advisory firm, such as whether the proxy advisory firm has:

Responding to Factual Errors, Incompleteness or Methodological Weakness in a Proxy Advisory Firm’s Analysis

An adviser may become aware of potential errors, incompleteness or weakness in the methodologies of a proxy firm’s analysis that may materially affect one or more of the adviser’s determinations. To that end, the Guidance states the adviser should:

The Guidance provides that an adviser does not have to exercise every opportunity to vote a proxy for a client if (1)&nbsp;the adviser and client have agreed to limit the conditions on which the adviser would exercise voting authority or (2)&nbsp;voting the proxy would not be in the best interest of the client.

The Guidance will become effective upon publication in the Federal Register. Advisers should reexamine their existing proxy voting policies and procedures with the above considerations in mind and as they prepare for the 2020 proxy season.

Andrew J. Davalla 614.469.3353 <a href="mailto:Andrew.Davalla@ThompsonHine.com">Andrew.Davalla@ThompsonHine.com</a>

Donald S. Mendelsohn 513.352.6546 <a href="mailto:Don.Mendelsohn@ThompsonHine.com">Don.Mendelsohn@ThompsonHine.com</a>

Brian Doyle-Wenger 614.469.3294 <a href="mailto:Brian.Doyle-Wenger@ThompsonHine.com">Brian.Doyle-Wenger@ThompsonHine.com</a>

Latashia Love* 614.469.3284 <a href="mailto:Latashia.Love@ThompsonHine.com">Latashia.Love@ThompsonHine.com</a>

*Latashia Love is a law clerk and is not admitted to practice in Ohio; her work is supervised by principals of the firm.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

This document may be considered attorney advertising in some jurisdictions.

https://admin.thompsonhine.com/wp-content/uploads/2022/04/Investment_Management_Update_-_SEC_Issues_New_Guidance_Regarding_Investment_Adviser_Proxy_Voting.pdf

SEC Issues New Guidance Regarding Investment Advisers’ Proxy Voting Responsibilities

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