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SEC, ISS Move to Freeze Proxy Adviser’s Suit on Trump-era Rules

June 2, 2021, 5:41 PM

The Securities and Exchange Commission and Institutional Shareholder Services Inc. want a federal court to put aside the firm’s challenge to Trump-era proxy advice rules as the agency explores possible changes.

The SEC filed a motion to suspend the litigation in the U.S. District Court for the District of Columbia late Tuesday after agency Chairman Gary Gensler ordered commission staff to consider revisions to 2019 guidance and 2020 regulations intended to curtail proxy advisory firms’ influence over shareholder voting.

ISS supports the motion, according to the SEC filing. The proxy adviser had sued to kill the commission’s 2019 guidance and 2020 rules on proxy advice, saying they brought “burdensome, time-consuming, and unnecessary obligations.”

Companies had advocated for the SEC rules and guidance, which were seen as hindrances to activist investors pushing for changes on matters like climate change and diversity at annual shareholder meetings.

The SEC said Tuesday that it won’t bring actions to enforce the Trump-era guidance or rules as it conducts its regulatory review. The litigation freeze should go until Dec. 31 or the adoption of new rules, whichever is earlier, according to the agency’s court filing.

New or revised proxy rules “could substantially narrow or moot some or all of ISS’s claims,” the SEC said in its unopposed motion to hold the case in abeyance.

Bid to Intervene

Proxy advisory firms such as ISS and Glass, Lewis & Co. have significant influence over whether activist campaigns succeed because pension funds and other institutional investors often follow their recommendations.

The SEC’s 2019 guidance told proxy advisers to provide more details about their methods and sources of information. It also notified proxy advisers that their recommendations on how pension funds and other institutional investors vote their shares in public companies are subject to anti-fraud rules.

The 2020 rules ordered proxy advisers to adopt policies and procedures aimed at ensuring investors are made aware of companies’ opposing views and other issues. They also required proxy advisers to have policies that ensure their voting recommendations are shared simultaneously with companies and investors.

The National Association of Manufacturers, which is seeking to intervene in the case, told the court Tuesday it needs the ability to represent its members in support of the proxy advice regulations.

“It is clear that the Commission no longer ‘adequately protect[s] or adequately represent[s] [the] relevant business interests,’” the trade group said in a filing, citing another case.

Oral arguments in the litigation are scheduled for June 7.

The case is Institutional S’holder Servs. Inc. v. SEC, D.D.C., No. 1:19-cv-03275, motion filed 6/1/21.

To contact the reporter on this story: Andrew Ramonas in Washington at

To contact the editors responsible for this story: Michael Ferullo at; Laura D. Francis at