February 9, 2011 

By Electronic Mail to e-ORI@dol.gov 

Office of Regulations and Interpretations 

Employee Benefits Security Administration 

Attn: Fiduciary Definition Hearing 

Room N-5655

U.S. Department of Labor 

200 Constitution Avenue, NW 

Washington, DC 20210 

Re: Written Request to be Heard and Outline of Proposed Testimony on Proposed 

Definition of the Term, Fiduciary

Ladies and Gentlemen: 

In response to the Notice of Public Hearing on Definition of “Fiduciary,” published in 

the Federal Register on January 12, 2011, the Center On Executive Compensation (the 

“Center”) submits this written request to testify at the public hearing to be held on March 

1, 2011. Charles G. Tharp, the Center’s Executive Vice President for Policy, will present 

testimony on behalf of the Center. 

The Center is a research and advocacy organization that seeks to provide a principlesbased approach to executive compensation policy from the perspective of the senior 

human resource officers of leading companies. The Center is a division of HR Policy 

Association, which represents the chief human resources officers of over 300 large 

companies, and the Center’s more than 70 subscribing companies are HR Policy 

members that represent a broad cross-section of industries. Because senior human 

resource officers play a unique role in serving on or supporting ERISA plan committees 

and also in advising compensation committees on compensation and related governance 

issues, we believe the Center’s views can be particularly helpful in understanding the 

implications of the Proposed Regulations on the proxy voting process for ERISA plans 

and other investors. 

As indicated in the Notice of Public Hearing, we expect the testimony to take 10 

minutes and we will be prepared to answer the Department’s questions. We may remark 

upon any of the issues discussed in our comment letter, although time permitting, we 

expect to specifically address the points below. 
Office of Regulations and Interpretations 

February 9, 2011 

Page 2 

Outline of Testimony 

I. Scope of the Regulation (1 minute) 

• The proposed definition of fiduciary is too broad and should not be 

adopted as currently drafted. 

• The Center is concerned that the proposed regulation could potentially 

cover as fiduciaries numerous individuals and entities that provide basic 

services to plans that have not traditionally been considered fiduciary in 

nature. 

• Proxy advisory firms play an important role in the proxy voting process 

and have a significant impact on proxy voting. Therefore, while we do not 

advocate adoption of the rule, additional investigation and analysis of the 

role of proxy advisors is appropriate. 

II. Background on Proxy Advisory Firms (3 minutes) 

• The Center believes that the voting of proxies is an important fiduciary 

activity. 

• The Center further believes that retirement plans and other institutional 

investors responsible for voting proxies need to have access to accurate, 

unbiased information, provided free from conflicts of interest. 

• The growth of the proxy advisory firm industry was fueled by a dramatic 

increase in the volume of proxy votes and the growth of institutional 

investor share ownership. 

• Proxy advisory firms are scarcely regulated through a patchwork of 

regulations. Where regulations do exist, it is not clear that the regulations 

are effective in ensuring that proxy advisory firms provide accurate and 

unbiased information. 

III. Problems with Proxy Advisory Firms (4 minutes) 

• The most important problem facing the proxy advisory industry is the 

existence of serious conflicts of interest. 

o The predominant proxy advisory firm engages in the worst form of 

conflict by providing so-called independent analyses of company 

practices while also offering consulting services to the same 

companies. 
Office of Regulations and Interpretations 

February 9, 2011 

Page 3 

o Each proxy advisory firm has conflicts of interest in its ownership 

structure. 

• Proxy advisory firms are not accountable for material inaccuracies. These 

inaccuracies are prevalent in final reports and, according to Center data, 

are usually related to improper use of peer groups or peer group data, 

erroneous analysis of long-term incentive plans and discussions of 

provisions that were no longer in effect. 

IV. Request for Comprehensive Review of Proxy Advisory Firms (2 minutes) 

• The Center urges DOL to undertake a comprehensive review of proxy 

advisory firms. 

• As part of the review, the Center also urges DOL to hold proxy advisory 

firms accountable under existing regulations for eliminating conflicts of 

interest in services provided, ownership structures and lack of 

transparency over analytical methodologies. 

• The Center seeks consistent treatment for those firms providing proxy 

advisory services. Currently, regulatory oversight differs for those firms 

that have registered as investment advisers with the SEC. 

* * * * 

We appreciate the opportunity to testify on this important proposal. 

Best regards, 

 

Timothy J. Bartl 

Senior Vice President and General Counsel 

Center On Executive Compensation 

tbartl@execcomp.org 

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