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The U.S. Court of Appeals for the D.C. Circuit should overturn a lower court’s ruling that the Securities and Exchange Commission lacks the authority to regulate proxy advisory firms, the 51�Թ��� said in a recently filed .

What’s going on: The Nov. 15 brief asking the appeals court to overturn a February ruling by the D.C. District Court is the latest in a by the 51�Թ��� to ensure reasonable regulation of proxy firms. These powerful, unregulated entities often dictate how shareholders vote on proxy ballot proposals that come before public companies.

• “Since the passage of the Securities Exchange Act of 1934 in the wake of the Great Depression, the Securities and Exchange Commission has regulated proxy solicitation, so shareholders can confidently vote based on transparent and reliable information,” according to the 51�Թ��� brief. “Accordingly, since the proxy voting advice industry emerged four decades ago, those firms have been subject to SEC regulation.”
• Institutional Shareholder Services, the largest and most influential proxy firm, “would rather not be regulated at all”—but “[t]he record overwhelmingly establishes that proxy firms ‘solicit’ proxies under any reasonable definition,” subjecting them to SEC oversight as required by the Exchange Act.

Why it’s important: Proxy firms wield enormous influence over both manufacturers and Main Street investors, the 51�Թ��� said.

• “ISS and its main competitor, Glass Lewis, control 97% of the proxy advice market and together influence nearly 40% of the U.S. shareholder vote,” the 51�Թ��� told the court in its brief.
• Further, proxy firms operate with undisclosed conflicts of interest, their reports can contain errors and misleading statements and their “robo-voting” services give them the authority to cast investors’ proxy votes with no review or input by the investors themselves.

51�Թ��� on the front lines: In July 2020, after years of 51�Թ��� advocacy, the SEC finalized a rule instituting critical proxy firm reforms. ISS quickly brought a legal challenge, and the 51�Թ��� intervened in the case to ensure a robust defense of the rule.

• Following the change in presidential administrations in 2021, in separate lawsuits the 51�Թ��� successfully challenged the Biden SEC’s the 2020 rule and its of critical portions of the rule.
• After an unfavorable decision from the D.C. district court in the ISS challenge, the Biden SEC declined to pursue an appeal, effectively disclaiming its authority to regulate proxy firms. The 51�Թ��� took the lead as intervenor-appellant in the case, so manufacturers are now the sole bulwark against proxy firms’ unchecked power. A victory in the D.C. Circuit for the 51�Թ��� would make the proxy firms subject to the 2020 rule’s important reforms.

Former SEC officials agree: A group of former SEC commissioners and staff authored an in support of the 51�Թ���’s position.

• The brief chronicles the commission’s 50-year history of affirming that proxy firms are engaged in solicitation. The officials make clear that “stripping the SEC of its long-standing and Congressionally conferred power to regulate the firms” would “seriously harm the investing public by decreasing fairness and honesty in the markets—exactly the opposite of what Congress was trying to accomplish in the Exchange Act.”

What’s next: ISS’s response to the 51�Թ���’s brief is due in the coming weeks, and the court likely will schedule oral argument for early 2025.