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ISS Sues SEC Over Guidance Targeting Proxy Advisers (2)

Oct. 31, 2019, 3:29 PMUpdated: Oct. 31, 2019, 4:19 PM

Institutional Shareholder Services Inc. is pushing back against changes to the regulatory regime for proxy advisers with a new lawsuit challenging what it calls “unlawful” guidance from the Securities and Exchange Commission.

The SEC should pull the guidance it issued in August, according to the complaint ISS filed in the U.S. District Court for the District of Columbia Oct. 31. The guidance came after corporate calls to add oversight for proxy firms.

The guidance tells proxy advisers to give more details about their methods and sources of information. It also warns the firms that their advice on how institutional investors vote their shares in public companies is subject to anti-fraud rules.

“We believe litigation to be necessary to prevent the chill of proxy advisers’ protected speech and to ensure the timeliness and independence of the advice that shareholders rely on to make decisions with regards to the governance of their publicly traded portfolio companies,” ISS CEO Gary Retelny said in a statement.

An SEC representative declined to comment.

The lawsuit came as the commission is preparing to add more oversight for ISS, Glass, Lewis & Co. and other proxy firms. The SEC plans to vote Nov. 5 on whether to propose proxy adviser rules concerning conflict-of-interest disclosures and improved information for investors, among other matters, according to an open meeting agenda.

Nothing in the ISS lawsuit would prevent the SEC from going forward with the rulemaking, according to Cary Coglianese, a University of Pennsylvania law professor who studies the regulatory process.

It’s not uncommon for agencies to get sued over guidance, Coglianese said. The “classic” arguments against guidance are that its interpretation is wrong or that it should have been issued as a more formal rule, he added.

The case is ISS v. SEC, D.D.C., No. 1:19-cv-03275, 10/31/19.

(Updates with additional reporting throughout.)

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

To contact the editors responsible for this story: Michael Ferullo at; Seth Stern at