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Chamber Sues SEC to Reinstate Trump Proxy Firm Restrictions (1)

July 28, 2022, 2:28 PMUpdated: July 28, 2022, 4:01 PM

The US Chamber of Commerce sued the SEC over its recent move to lift Trump-era restrictions on proxy advisory firms that assist institutional investors with votes at companies’ annual meetings.

The Securities and Exchange Commission failed to engage in “reasoned rulemaking” and moved away from “transparency, accuracy, and shareholder access to information” with its changes to the 2020 rules, the business group said in a complaint filed Thursday in the US District Court for the Middle District of Tennessee.

The rule changes adopted July 13 scrapped requirements for proxy advisory firms to give their voting guidance to companies and investors at the same time. The scrapped provisions also would have given shareholders access to what companies were saying about the proxy firm voting advice, among other changes.

Companies have long battled over the advice from Institutional Shareholder Services Inc. and Glass, Lewis & Co., the two largest proxy firms. The firms’ clients often listen to their recommendations, giving them great power in votes on directors and environmental, social, and governance issues, among other matters.

“The SEC’s harmful decision to roll back these reforms will allow proxy advisors to operate as a black box, as they have for decades, and create disincentives for companies to go, and stay, public,” Chamber CEO Suzanne Clark said in a statement.

The lawsuit followed a similar case the National Association of Manufacturers brought against the SEC over the new rules in the U.S. District Court for the Western District of Texas on July 21. NAM also is suing the SEC over a 2021 decision under Chair Gary Gensler to stop enforcing the the Trump-era regulations.

ISS has a suit against the SEC over the rules, as well. The firm brought the case during the Trump administration and still is pursuing the litigation, saying the agency failed to remove all the burdens against it under the 2020 regulations. A judge raised questions about the concerns from ISS Wednesday.

Cause of Action: Administrative Procedure Act

Relief: Declaratory judgment amended rule is arbitrary, capricious, or otherwise contrary to law; order vacating and setting aside amended rule; order delaying implementation of amended rule until case conclusion; order setting aside SEC suspension of compliance date for 2020 rules; attorneys’ fees.

Response: The SEC didn’t immediately respond to a request for comment.

The case is Chamber of Commerce of the United States of America v. SEC, M.D. Tenn., No. 3:22-cv-00561, complaint filed 7/28/22.

(Updates with additional background throughout)

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editor responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com