SEC’s proxy-reporting rule could illuminate fund voting

Funds will have to disclose voting in a standardized format

A new Securities and Exchange Commission rule promises to shed light on asset managers’ proxy voting records, but opponents of it say that it will create headaches for some small firms.

Currently, investment managers are required to report their proxy voting records annually on the SEC’s Form N-PX. Because of that, voting records are already available to the public. However, the existing format does not make that information easy to access, according to the SEC.

For example, large funds have filed forms that are longer than 1,000 pages, with information not presented in a machine-readable format, the agency noted.

“When investors have better information about fund proxy voting records – including information about the governance and stewardship provided by funds to their portfolio companies – those investors can better allocate their hard-earned capital in line with their goals and preferences,” SEC Commissioner Caroline Crenshaw said in a prepared statement.

The SEC passed its Form N-PX regulation in 2003, at the time stating that “investors in mutual funds have a ‘fundamental right’ to know how proxy votes are being cast on their behalf,” Crenshaw said.

Standardized language

To make the information more comparable for fund shareholders, the SEC published the rule, ‘Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers,’ on November 2, requiring that proxy votes reported on Form N-PX be put into categories, such as environment, using standardized language. Vote information will also be presented in the same order on all filings.

The rule also tasks funds with reporting their securities lending in the context of voting, or shares of companies that were loaned by a fund but not recalled in order to vote on shareholder resolutions, Crenshaw noted.

Additionally, the new rule will require institutional investment managers to report their votes on executive compensation, or say-on-pay votes. That requirement was made under a mandate in the Dodd-Frank Act that had not yet been fulfilled, according to the SEC.

The rule goes into effect on July 1, 2023, meaning that the disclosures will not be made public in the new format until 2024.

The final version of the rule breaks down the proxy voting areas into 13 categories, down from 16 that it had listed in the proposed rule.

That was a welcomed change, according to the Investment Company Institute, the industry group representing mutual fund providers. That, along with the say-on-pay provision for institutional managers and leeway of a full reporting period before the new version of the filings are made, was something the ICI said it wanted to see in the final version.


The securities lending provision was not what it hoped to see, however.

“We are disappointed the SEC will require disclosure in Form N-PX of the number of shares loaned and not recalled. This information is not likely to be meaningful to investors and may cause confusion,” ICI Deputy General Counsel for Markets Sarah Bessin said in a statement.

“Looking ahead, we urge the commission to promptly address other important proxy voting reform matters,” Bessin said. “This includes, most importantly for funds, the challenges unique to the fund proxy system, reform of the processing fee framework, impediments to funds’ ability to communicate directly with their investors and the inability to confirm how shares were voted.”

Commissioner Hester Peirce, who along with Commissioner Mark Uyeda voted against the final rule, said she supported the say-on-pay aspect but nothing else.

“If we had paired that additional reporting obligation with an elimination of the 2003 rule to mandate the disclosure of proxy votes for funds, I would have supported this rulemaking with great enthusiasm,” Peirce said in prepared remarks. “Rather than eliminating the 2003 mandate, however, we are expanding it. The expansion will serve the needs of third parties eager to pressure funds to vote their way, but will harm funds and fund investors.”

Uyeda raised similar concerns but also took issue with the size of institutional managers that could be affected by say-on-pay reporting.

“The term ‘institutional investment manager’ may create a misimpression that these firms are large organizations that are equipped to handle these compliance costs. However, many 13F institutional investment managers are small entities,” Uyeda said in a statement.

About half of those filers oversee accounts with less than $300m in assets, he said.

“The persons interested in Form N-PX data are largely interested in the voting records of the largest asset managers, whose accumulated proxy votes can have an impact at shareholder meetings, and not interested in these very small investment managers,” he said. “The commission could have used its exemptive authority to spare these entities, but chose not to.”