Document ID: SEC-2022-0949-0001
Agency: sec
Document Type: Rule
Title: Proxy Voting Advice
Posted Date: 2022-07-19T04:00Z

[Federal Register Volume 87, Number 137 (Tuesday, July 19, 2022)]
[Rules and Regulations]
[Pages 43168-43197]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-15311]

[[Page 43167]]

Vol. 87

Tuesday,

No. 137

July 19, 2022

Part III

Securities and Exchange Commission

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17 CFR Parts 240 and 276

Proxy Voting Advice; Final Rule

  Federal Register / Vol. 87 , No. 137 / Tuesday, July 19, 2022 / Rules 
and Regulations  

[[Page 43168]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 276

[Release Nos. 34-95266; IA-6068; File No. S7-17-21]
RIN 3235-AM92

Proxy Voting Advice

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting amendments to the Federal proxy rules 
governing proxy voting advice as part of our reassessment of those 
rules and in light of feedback from market participants on those rules, 
certain developments in the market for proxy voting advice, and 
comments received regarding the proposed amendments. The amendments 
remove a condition to the availability of certain exemptions from the 
information and filing requirements of the Federal proxy rules for 
proxy voting advice businesses. The release also rescinds certain 
guidance that the Commission issued to investment advisers about their 
proxy voting obligations. In addition, the amendments remove a note 
that provides examples of situations in which the failure to disclose 
certain information in proxy voting advice may be considered misleading 
within the meaning of the Federal proxy rules' prohibition on material 
misstatements or omissions. Finally, the release discusses our views 
regarding the application of that prohibition to proxy voting advice, 
in particular with respect to statements of opinion.

DATES: The amendments and the rescission of the guidance are effective 
September 19, 2022.

FOR FURTHER INFORMATION CONTACT: Valian Afshar, Special Counsel, Office 
of Mergers and Acquisitions, Division of Corporation Finance, at (202) 
551-3440, regarding the amendments, and Thankam A. Varghese, Senior 
Counsel, Chief Counsel's Office, Division of Investment Management, at 
(202) 551-6825, regarding the rescission of the guidance, U.S. 
Securities and Exchange Commission, 100 F Street NE, Washington, DC 
20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to 17 CFR 
240.14a-2 (``Rule 14a-2'') and 17 CFR 240.14a-9 (``Rule 14a-9'') under 
the Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] (``Exchange 
Act'').\1\
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    \1\ Unless otherwise noted, when we refer to the Exchange Act, 
or any paragraph of the Exchange Act, we are referring to 15 U.S.C. 
78a of the United States Code, at which the Exchange Act is 
codified, and when we refer to rules under the Exchange Act, or any 
paragraph of these rules, we are referring to title 17, part 240 of 
the Code of Federal Regulations [17 CFR 240], in which these rules 
are published.
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Table of Contents

I. Introduction
II. Discussion of Final Amendments
    A. Amendments to Rule 14A-2(B)(9)
    1. Proposed Amendments
    2. Comments Received
    3. Final Amendments
    4. 2020 Supplemental Proxy Voting Guidance
    B. Amendment to Rule 14A-9
    1. Proposed Amendment
    2. Comments Received
    3. Final Amendment
III. Other Matters
IV. Economic Analysis
    A. Economic Baseline
    1. Affected Parties and Current Market Practices
    2. Current Regulatory Framework
    B. Benefits and Costs
    1. Benefits
    2. Costs
    C. Effects on Efficiency, Competition, and Capital Formation
    D. Reasonable Alternatives
    1. Interpretive Guidance Regarding Whether Systems and Processes 
Satisfy the Rule 14a-2(b)(9)(ii) Conditions
    2. Exempting Certain Portions of PVABs' Proxy Voting Advice From 
Rule 14a-9 Liability
V. Paperwork Reduction Act
    A. Background
    B. Summary of Comment Letters on PRA Estimates
    C. Burden and Cost Estimates for the Final Amendments
    1. Impact on Affected Parties
    2. Aggregate Decrease in Burden
    3. Decrease in Annual Responses
    4. Incremental Change in Compliance Burden for Collection of 
Information
    5. Program Change and Revised Burden Estimates
VI. Final Regulatory Flexibility Analysis
    A. Need for, and Objectives of, the Final Amendments
    B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Final Amendments
    D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    E. Agency Action To Minimize Effect on Small Entities
Statutory Authority

I. Introduction

    In 2020, the Securities and Exchange Commission (the 
``Commission'') adopted final rules regarding proxy voting advice (the 
``2020 Final Rules'') provided by proxy advisory firms, or proxy voting 
advice businesses (``PVABs'').\2\ The 2020 Final Rules, among other 
things, did the following:
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    \2\ See Exemptions from the Proxy Rules for Proxy Voting Advice, 
Release No. 34-89372 (July 22, 2020) [85 FR 55082 (Sept. 3, 2020)] 
(``2020 Adopting Release''). For purposes of this release, we refer 
to persons who furnish proxy voting advice covered by 17 CFR 
240.14a-1(l)(1)(iii)(A) (``Rule 14a-1(l)(1)(iii)(A)'') as ``proxy 
voting advice businesses,'' which we abbreviate as ``PVABs.'' See 17 
CFR 240.14a-1(l)(1)(iii)(A). Rule 14a-1(l)(1)(iii)(A) provides that 
the terms ``solicit'' and ``solicitation'' include any proxy voting 
advice that makes a recommendation to a security holder as to its 
vote, consent, or authorization on a specific matter for which 
security holder approval is solicited, and that is furnished by a 
person that markets its expertise as a provider of such proxy voting 
advice, separately from other forms of investment advice, and sells 
such proxy voting advice for a fee. Id.
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     Amended 17 CFR 240.14a-1(l) (``Rule 14a-1(l)'') to codify 
the Commission's interpretation that proxy voting advice generally 
constitutes a ``solicitation'' subject to the proxy rules.
     Adopted 17 CFR 240.14a-2(b)(9) (``Rule 14a-2(b)(9)'') to 
add new conditions to two exemptions (set forth in 17 CFR 240.14a-
2(b)(1) and (3) (``Rules 14a-2(b)(1) and (3)'')) that PVABs generally 
rely on to avoid the proxy rules' information and filing requirements. 
Those conditions include:
    [cir] New conflicts of interest disclosure requirements in 17 CFR 
240.14a-2(b)(9)(i) (``Rule 14a-2(b)(9)(i)''); and
    [cir] A requirement in 17 CFR 240.14a-2(b)(9)(ii) (``Rule 14a-
2(b)(9)(ii)'') that a PVAB adopt and publicly disclose written policies 
and procedures reasonably designed to ensure that (A) registrants that 
are the subject of proxy voting advice have such advice made available 
to them at or prior to the time such advice is disseminated to the 
PVAB's clients and (B) the PVAB provides its clients with a mechanism 
by which they can reasonably be expected to become aware of any written 
statements regarding its proxy voting advice by registrants that are 
the subject of such advice, in a timely manner before the security 
holder meeting (the ``Rule 14a-2(b)(9)(ii) conditions'').
     Adopted Note (e) to Rule 14a-9, which prohibits false or 
misleading statements, to include examples of material misstatements or 
omissions related to proxy voting advice. Specifically, Note (e) to 
Rule 14a-9 provides that the failure to disclose material information 
regarding proxy voting advice, ``such as the [PVAB's] methodology, 
sources of information, or conflicts of interest,'' may, depending upon 
particular facts and circumstances, be misleading within the meaning of 
the rule.\3\
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    \3\ 17 CFR 240.14a-9, note (e).
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    The amendments to Rules 14a-1(l) and 14a-9 became effective on 
November 2, 2020. The conditions set

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forth in new Rule 14a-2(b)(9) became effective on December 1, 2021.\4\
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    \4\ Id. at 55122. Institutional Shareholder Services, Inc. has 
filed a lawsuit challenging the 2020 Final Rules. See Institutional 
Shareholder Services, Inc. v. SEC, No. 1:19-cv-3275-APM (D.D.C.). In 
addition, on Oct. 13, 2021, the National Association of 
Manufacturers and Natural Gas Services Group, Inc. filed a lawsuit 
arising out of a statement issued by the Division of Corporation 
Finance on June 1, 2021 regarding the 2020 Final Rules. See National 
Association of Manufacturers et al. v. SEC, No. 7:21-cv-183 (W.D. 
Tex.); see also infra note 18 (discussing the Division of 
Corporation Finance's June 1, 2021 statement).
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    The 2020 Final Rules were intended to help ensure that investors 
who use proxy voting advice receive more transparent, accurate, and 
complete information on which to make their voting decisions.\5\ In the 
adopting release for the 2020 Final Rules (the ``2020 Adopting 
Release''), the Commission recognized the ``important and prominent 
role'' that PVABs play in the proxy voting process \6\ and adopted the 
2020 Final Rules, in part, to address certain concerns that 
``registrants, investors, and others have expressed . . . about the 
role of [PVABs].'' \7\ At the same time, the Commission endeavored to 
tailor the 2020 Final Rules to avoid imposing undue costs or delays 
that could adversely affect the timely provision of independent proxy 
voting advice.\8\
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    \5\ 2020 Adopting Release at 55082.
    \6\ Id. at 55083 (noting that institutional investors and 
investment advisers generally retain PVABs to ``assist them in 
making voting determinations on behalf of their own clients'' as 
well as ``other aspects of the voting process, which for certain 
investment advisers has become increasingly complex and demanding 
over time'').
    \7\ Id. at 55085.
    \8\ Id. at 55082, 55112.
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    After the Commission adopted the 2020 Final Rules, however, 
institutional investors and other PVAB clients continued to express 
strong concerns about the rules' impact on their ability to receive 
independent proxy voting advice in a timely manner. Furthermore, PVABs 
continued to develop industry-wide best practices and improve their own 
business practices to address the concerns that were the impetus for 
the 2020 Final Rules. The Commission subsequently determined that it 
was appropriate to reassess the 2020 Final Rules, solicit further 
public comment, and, where appropriate, recalibrate the rules to 
preserve the independence of proxy voting advice and ensure that PVABs 
can deliver advice in a timely manner without passing on higher costs 
to their clients. As such, in November 2021, the Commission proposed 
the following changes to the rules governing proxy voting advice (the 
``2021 Proposed Amendments''):
     Amend Rule 14a-2(b)(9) to remove the Rule 14a-2(b)(9)(ii) 
conditions and paragraphs (iii), (iv), (v), and (vi) of Rule 14a-
2(b)(9), which contain safe harbors and exclusions from the Rule 14a-
2(b)(9)(ii) conditions; and
     Amend Rule 14a-9 to remove Note (e) to that rule.\9\
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    \9\ See Proxy Voting Advice, Release No. 34-93595 (Nov. 17, 
2021) [86 FR 67383 (Nov. 26, 2021)] (``2021 Proposing Release'').
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    The 2021 Proposed Amendments would not affect other aspects of the 
2020 Final Rules, which would remain in place and effective as to PVABs 
and their advice.\10\ As such, under the 2021 Proposed Amendments, 
proxy voting advice would remain a solicitation subject to the proxy 
rules.\11\ Additionally, in order to rely on the exemptions from the 
proxy rules' information and filing requirements set forth in Rules 
14a-2(b)(1) and (3), PVABs would continue to be subject to Rule 14a-
2(b)(9)'s conflicts of interest disclosure requirement.\12\ Finally, 
although the 2021 Proposed Amendments would remove Note (e) to Rule 
14a-9, material misstatements of fact in, and omissions of material 
fact from, proxy voting advice would remain subject to liability under 
that rule.\13\ The proposing release for the 2021 Proposed Amendments 
(the ``2021 Proposing Release'') also requested comment as to whether 
the Commission should rescind or revise the supplemental guidance that 
it issued to investment advisers in 2020 about their proxy voting 
obligations (the ``Supplemental Proxy Voting Guidance'') \14\ because 
it was prompted, in part, by the adoption of the Rule 14a-2(b)(9)(ii) 
conditions.\15\ Finally, the 2021 Proposing Release provided a 
discussion of the application of Rule 14a-9 to proxy voting advice, 
specifically with respect to a PVAB's statements of opinion.\16\
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    \10\ Id. at 67384.
    \11\ Id.
    \12\ Id.
    \13\ Id.
    \14\ Supplement to Commission Guidance Regarding Proxy Voting 
Responsibilities of Investment Advisers, Release No. IA-5547 (July 
22, 2020) [85 FR 55155 (Sept. 3, 2020)].
    \15\ 2021 Proposing Release at 67388-89.
    \16\ Id. at 67390.
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    We received a number of comments in response to the 2021 Proposed 
Amendments.\17\ After considering the public comments, we are adopting 
the 2021 Proposed Amendments, as proposed, for the reasons set forth 
below. Consistent with the proposal, we are amending Rules 14a-2 and 
14a-9 to rescind the Rule 14a-2(b)(9)(ii) conditions (as well as the 
related safe harbors and exclusions set forth in Rules 14a-2(b)(9)(iii) 
through (vi)) and delete Note (e) to Rule 14a-9. In addition, we are 
rescinding the Supplemental Proxy Voting Guidance. Finally, in Section 
II.B.3 below, we reiterate our discussion regarding the application of 
Rule 14a-9 to proxy voting advice, specifically with respect to a 
PVAB's statements of opinion.\18\
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    \17\ See generally letters submitted in connection with the 2021 
Proposed Amendments, available at https://www.sec.gov/comments/s7-17-21/s71721.htm. Unless otherwise specified, all references in this 
release to comment letters are to comments submitted on the 2021 
Proposed Amendments.
    \18\ On June 1, 2021, the Division of Corporation Finance issued 
a statement that it would not recommend enforcement action based on 
the 2020 Final Rules (or on a related 2019 interpretive release 
discussed further infra note 165 and accompanying text) during the 
period in which the Commission was considering further regulatory 
action in this area. Division of Corporation Finance, Statement on 
Compliance with the Commission's 2019 Interpretation and Guidance 
Regarding the Applicability of the Proxy Rules to Proxy Voting 
Advice and Amended Rules 14a-1(1), 14a-2(b), 14a-9, U.S. Securities 
and Exchange Commission, available at https://www.sec.gov/news/public-statement/corp-fin-proxy-rules-2021-06-01. As the Commission 
noted in the 2021 Proposing Release, this staff statement did not 
alter PVABs' obligation to comply with the Rule 14a-2(b)(9) 
conditions by Dec. 1, 2021. See 2021 Proposing Release at 67393, 
n.120; see also infra note 278. In light of today's action, we 
hereby rescind the staff's statement.
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    These final amendments reflect the fact that our thinking has 
evolved with respect to the Rule 14a-2(b)(9)(ii) conditions and Note 
(e) to Rule 14a-9, informed, in part, by the concerns expressed by 
PVABs' clients and other investors that were among the primary intended 
beneficiaries of the 2020 Final Rules. The Rule 14a-2(b)(9)(ii) 
conditions and Note (e) reflected an effort to balance competing policy 
concerns. As initially proposed, Rule 14a-2(b)(9) would have required 
that PVABs allow registrants multiple opportunities to review proxy 
voting advice and provide feedback on such advice in advance of its 
distribution to PVABs' clients. In declining to adopt those proposed 
advance review and feedback provisions in the 2020 Final Rules, the 
Commission recognized the significant concerns raised by investors and 
other commenters that the proposed rules would have adverse effects on 
the cost, timeliness, and independence of proxy voting advice.\19\ The 
Commission responded to those concerns by instead adopting the 
modified, more principles-based conditions in Rule 14a-2(b)(9)(ii) and 
the related safe harbors.\20\
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    \19\ 2020 Adopting Release at 55107-08.
    \20\ Id.
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    The Commission reasonably determined at the time it adopted the 
2020 Final Rules that the revised Rule 14a-2(b)(9)(ii) conditions 
struck an appropriate balance between the risks

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raised by commenters and the Commission's interest in facilitating more 
informed proxy voting decisions. We have revisited our analysis of 
those issues, however, and are now striking a different and improved 
policy balance. We believe this new policy balance better alleviates 
the costs and risks to PVABs, as compared to the 2020 Final Rules, and 
better addresses PVAB clients' and other investors' concerns about 
receiving timely and independent advice from PVABs. In particular, we 
are no longer persuaded that the potential benefits of those conditions 
sufficiently justify the risks they pose to the cost, timeliness, and 
independence of proxy voting advice and believe that the final 
amendments strike a better policy balance. Several factors support the 
reasonableness of our analysis. For example, it is supported by the 
continued, strong opposition to the Rule 14a-2(b)(9)(ii) conditions 
from many institutional investors and other PVAB clients, as well as 
many of the commenters on the 2021 Proposed Amendments, who have 
continued to raise concerns that the 2020 Final Rules would have 
adverse effects on the cost, timeliness, and independence of proxy 
voting advice. Our analysis is also supported by certain voluntary 
practices of PVABs. We believe those practices are likely, at least to 
some extent, to advance the goals underlying the Rule 14a-2(b)(9)(ii) 
conditions, thereby providing institutional investors and other PVAB 
clients with some of the benefits that those conditions were expected 
to produce while avoiding the potentially significant associated costs.
    The Commission also determined at the time it adopted the 2020 
Final Rules that the addition of Note (e) to Rule 14a-9 would clarify 
the application of the rule to proxy voting advice while balancing 
concerns regarding heightened legal uncertainty and litigation risk for 
PVABs. We now conclude, however, that rather than reducing legal 
uncertainty and confusion, the addition of Note (e) has unnecessarily 
exacerbated it by creating a risk of confusion regarding the 
application of Rule 14a-9 to proxy voting advice.\21\
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    \21\ See infra Section II.B.3.
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    We emphasize that the final amendments do not represent a wholesale 
reversal of the 2020 Final Rules. Proxy voting advice generally remains 
a solicitation subject to the proxy rules, including liability under 
Rule 14a-9 for material misstatements or omissions of fact. Further, in 
order to rely on the exemptions from the proxy rules' information and 
filing requirements set forth in Rules 14a-2(b)(1) and (3), PVABs will 
still have to satisfy Rule 14a-2(b)(9)'s conflicts of interest 
disclosure requirements. As we explain in greater detail in Section 
II.B.3 below, our deletion of Note (e) does not affect the scope of 
Rule 14a-9 or its application to proxy voting advice. As with any other 
person engaged in a solicitation as defined in Rule 14a-1(l), a PVAB 
may be liable under Rule 14a-9 for a material misstatement of fact, or 
an omission of material fact, including, depending on the facts and 
circumstances, with regard to its methodology, sources of information, 
or conflicts of interest.
    The intent of the final amendments is to avoid burdens on PVABs 
that may impede and impair the timeliness and independence of their 
proxy voting advice and avoid misperceptions \22\ regarding the 
application of Rule 14a-9 liability to proxy voting advice, while also 
preserving investors' confidence in the integrity of such advice. We 
believe that the final amendments, in combination with the unaffected 
portions of the 2020 Final Rules, strike a more appropriate balance 
than the 2020 Final Rules, as originally adopted, because they will 
address PVAB clients' and other investors' concerns about potential 
impediments to the timely provision of independent proxy voting advice.
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    \22\ We discuss these misperceptions in more detail in Section 
II.B.3 below. See infra notes 221-222 and accompanying text.
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II. Discussion of Final Amendments

A. Amendments to Rule 14a-2(b)(9)

    The 2020 Final Rules amended Rule 14a-2(b) by adding paragraph 
(9),\23\ which sets forth conditions that a PVAB must satisfy in order 
to rely on the exemptions in Rules 14a-2(b)(1) and (b)(3) from the 
proxy rules' information and filing requirements.\24\ Rule 14a-
2(b)(9)(i) requires PVABs to provide their clients with certain 
conflicts of interest disclosures in connection with their proxy voting 
advice.\25\ The Rule 14a-2(b)(9)(ii) conditions require that PVABs 
adopt and publicly disclose written policies and procedures reasonably 
designed to ensure that (A) registrants that are the subject of their 
proxy voting advice have such advice made available to them at or prior 
to the time when such advice is disseminated to the PVABs' clients and 
(B) the PVABs provide their clients with a mechanism by which they can 
reasonably be expected to become aware of any written statements 
regarding their proxy voting advice by registrants who are the subject 
of such advice, in a timely manner before the relevant shareholder 
meeting (or, if no meeting, before the votes, consents or 
authorizations may be used to effect the proposed action).\26\
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    \23\ 17 CFR 240.14a-2(b)(9).
    \24\ PVABs have typically relied upon the exemptions in Rules 
14a-2(b)(1) and (b)(3) to provide advice without complying with the 
proxy rules' information and filing requirements. Amendments to 
Exemptions from the Proxy Rules for Proxy Voting Advice, Release No. 
34-87457 (Nov. 5, 2019) [84 FR 66518, 66525 & n.68 (Dec. 4, 2019)] 
(``2019 Proposing Release'').
    \25\ 17 CFR 240.14a-2(b)(9)(i).
    \26\ 17 CFR 240.14a-2(b)(9)(ii). The Commission adopted the Rule 
14a-2(b)(9)(ii) conditions, in part, in response to the concerns 
expressed by commenters about the ``advance review and feedback'' 
conditions that were included in the Commission's 2019 proposed 
rules (the ``2019 Proposed Rules''). Under the advance review and 
feedback conditions in the 2019 Proposed Rules, a PVAB would have 
been required to, as a condition to relying on the exemptions in 
Rules 14a-2(b)(1) and (3), provide registrants and certain other 
soliciting persons covered by its proxy voting advice a limited 
amount of time to review and provide feedback on the advice before 
it is disseminated to the PVAB's clients, with the length of time 
provided depending on how far in advance of the shareholder meeting 
the registrant or other soliciting person has filed its definitive 
proxy statement. See 2019 Proposing Release at 66530-35. These 
conditions were among the most contentious features of the 2019 
Proposed Rules and drew a significant number of opposing public 
comments. 2020 Adopting Release at 55103-07. In response to these 
comments, the Commission reconsidered its approach and, in the 2020 
Final Rules, adopted the Rule 14a-2(b)(9)(ii) conditions in place of 
the advance review and feedback conditions. Id. at 55107-08.
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    In addition to those conditions, Rule 14a-2(b)(9) also sets forth 
two non-exclusive safe harbor provisions in paragraphs (iii) and (iv) 
that, if met, are intended to give assurance to PVABs that they have 
satisfied the conditions of Rules 14a-2(b)(9)(ii)(A) and (B), 
respectively.\27\ Further, Rules 14a-2(b)(9)(v) and (vi) contain 
exclusions from the Rule 14a-2(b)(9)(ii) conditions.\28\ Those rules 
provide that PVABs need not comply with Rule 14a-2(b)(9)(ii) to the 
extent that their proxy voting advice is based on a client's custom 
voting policy or if they provide proxy voting advice as to non-exempt 
solicitations regarding certain mergers and acquisitions or contested 
matters.\29\
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    \27\ 17 CFR 240.14a-2(b)(9)(iii) and (iv).
    \28\ 17 CFR 240.14a-2(b)(9)(v) and (vi).
    \29\ Id.
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    The Commission adopted Rule 14a-2(b)(9)(ii)(A) to help ensure that 
registrants are timely informed of proxy voting advice that bears on 
the solicitation of their shareholders.\30\ The Commission stated in 
the 2020 Adopting Release that the rule was intended as a means to 
``further the goal of ensuring that [PVABs'] clients have more 
complete, accurate, and transparent information to consider

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when making their voting decisions'' by facilitating opportunities for 
registrants to review and respond to proxy voting advice.\31\ 
Similarly, the Commission adopted Rule 14a-2(b)(9)(ii)(B) as a means of 
providing PVABs' clients with additional information that would assist 
them in assessing and contextualizing proxy voting advice.\32\ The 
Commission intended that this condition would supplement existing 
mechanisms--including registrants' ability to file supplemental proxy 
materials to respond to proxy voting advice that they may know about 
and to alert investors to any disagreements with such advice--so as to 
permit PVABs' clients, including investment advisers voting shares on 
behalf of their own clients, to consider registrants' views along with 
the proxy voting advice and before making their voting 
determinations.\33\ This condition reflected the Commission's views 
that PVABs' clients would benefit from more information when 
considering how to vote their proxies and that shareholders should have 
ready access to information to make informed voting decisions.\34\
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    \30\ 2020 Adopting Release at 55109.
    \31\ Id.
    \32\ Id. at 55112-13.
    \33\ Id.
    \34\ Id. at 55113.
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1. Proposed Amendments
    In the 2021 Proposing Release, the Commission proposed to amend 
Rule 14a-2(b)(9) by rescinding the Rule 14a-2(b)(9)(ii) conditions. The 
Commission noted that investors and others continued to express 
significant concerns that the Rule 14a-2(b)(9)(ii) conditions would 
increase PVABs' compliance costs and impair the independence and 
timeliness of their proxy voting advice and that such effects are not 
justified by corresponding investor protection benefits.\35\ Further, 
the Commission described PVABs' efforts to develop industry-wide best 
practices, in addition to certain of their existing business practices, 
and noted that those practices could address the concerns underlying 
the Rule 14a-2(b)(9)(ii) conditions. The Commission also observed that, 
although these practices differ from the Rule 14a-2(b)(9)(ii) 
conditions, they could provide PVABs' clients and registrants with some 
of the opportunities and access to information that would have been 
required pursuant to the Rule 14a-2(b)(9)(ii) conditions.\36\
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    \35\ 2021 Proposing Release at 67385-86.
    \36\ Id. at 67387.
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    The Commission also proposed to delete paragraphs (iii), (iv), (v), 
and (vi) of Rule 14a-2(b)(9), which contain safe harbors and exclusions 
from the Rule 14a-2(b)(9)(ii) conditions.\37\ Because the other 
paragraphs of Rule 14a-2(b)(9) would all be deleted, the Commission 
proposed to redesignate the conflicts of interest disclosure condition 
set forth in Rule 14a-2(b)(9)(i) as Rule 14a-2(b)(9).\38\ The 
Commission stated that the substance of that condition would otherwise 
remain unchanged.\39\
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    \37\ Id.
    \38\ Id. at 67387, n.55.
    \39\ Id.
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2. Comments Received
    Commenters expressed a range of views on the proposed amendments to 
Rule 14a-2(b)(9). A number of commenters supported rescinding the Rule 
14a-2(b)(9)(ii) conditions and deleting paragraphs (iii) through (vi) 
of Rule 14a-2(b)(9).\40\ Those supporting commenters included some 
institutional investors \41\ and some organizations that represent 
institutional investors and investment advisers,\42\ among others. 
Several commenters reiterated the concerns regarding the 2020 Final 
Rules that prompted the Commission to issue the 2021 Proposed 
Amendments, including expressing concern that the Rule 14a-2(b)(9)(ii) 
conditions would impair the independence of proxy voting advice,\43\ 
impede the timeliness of proxy voting advice,\44\ and increase PVABs' 
compliance costs.\45\ For example, one commenter asserted that the Rule 
14a-2(b)(9)(ii) conditions ``threaten[ ] the independence of the proxy 
advisory process by requiring that their voting advice be made 
available to corporate management at or prior to the time the advice is 
sent to their clients.'' \46\ Another commenter stated that those 
conditions ``disrupt[ ] the preparation and delivery of proxy voting 
advice to fund managers and increases compliance costs,'' noting that 
PVABs ``may engage with hundreds of issuers regarding thousands of 
shareholder proposals during a critical shareholder season'' and that 
``additional compliance burdens not only muddle the timely delivery of 
materials to fund managers making it difficult to use the advice in 
advance of a shareholder meeting, but also increase compliance costs 
which get passed on to clients.'' \47\
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    \40\ See letters from Fran Seegull, President, U.S. Impact 
Investing Alliance (Dec. 17, 2021) (``Alliance''); Anonymous (Nov. 
20, 2021) (``Anonymous 1''); Ben J., Administrative Services Manager 
(Dec. 7, 2021) (``Ben J.''); Stephen Hall, Legal Director and 
Securities Specialist, and Jason Grimes Senior Counsel, Better 
Markets, Inc. (Dec. 27, 2021) (``Better Markets''); Marcie Frost, 
Chief Executive Officer, California Public Employees' Retirement 
System (Dec. 27, 2021) (``CalPERS''); Jeff Mahoney, General Counsel, 
Council of Institutional Investors (Dec. 24, 2021) (``CII''); Ron 
Baker, Executive Director, Colorado Public Employees' Retirement 
Association (Dec. 27, 2021) (``CO Retirement''); Dan Jamieson (Dec. 
7, 2021) (``D. Jamieson''); Nichol Garzon-Mitchell, Senior Vice 
President, General Counsel, Glass Lewis (Dec. 27, 2021) (``Glass 
Lewis''); Gail C. Bernstein, General Counsel, Investment Adviser 
Association (Dec. 27, 2021) (``IAA''); Kerrie Waring, Chief 
Executive Officer, ICGN (Dec. 22, 2021) (``ICGN''); Matt Thornton, 
Associate General Counsel, and Susan Olson General Counsel, 
Investment Company Institute (Dec. 23, 2021) (``ICI''); Gary Retelny 
President and CEO, Institutional Shareholder Services Inc. (Dec. 22, 
2021) (``ISS''); Justin Giorgio, Doctorate of Computer Science (Nov. 
20, 2021) (``J. Giorgio''); Jennifer Han Executive Vice President, 
Chief Counsel and Head of Regulatory Affairs, Managed Funds 
Association (Dec. 20, 2021) (``MFA''); Melanie Senter Lubin, NASAA 
President, Maryland Securities Commissioner (Dec. 27, 2021) 
(``NASAA''); Thomas P. DiNapoli, State Comptroller, New York State 
Common Retirement Fund (Dec. 27, 2021) (``New York Comptroller''); 
Patti Gazda, Corporate Governance Officer, Ohio Public Employees 
Retirement System (Dec. 23, 2021) (``Ohio Public Retirement''); 
Richard A. Kirby and Beth-ann Roth, RK Invest Law, PBC ESG Legal 
Services, Inc. (Dec. 27, 2021) (``RK Invest Law and ESG Legal 
Services''); Donna F. Anderson, Vice President, Head of Corporate 
Governance, and Bob Grohowski, Managing Legal Counsel, Head of 
Legislative and Regulatory Affairs, T. Rowe Price (Dec. 21, 2021) 
(``TRP''); Lisa Woll, CEO, US SIF: The Forum for Sustainable and 
Responsible Investment (Dec. 23, 2021) (``US SIF''); Theresa 
Whitmarsh, Chief Executive Officer, Washington State Investment 
Board (Dec. 22, 2021) (``Washington State Investment'').
    \41\ See, e.g., letters from CalPERS; CO Retirement; New York 
Comptroller; Ohio Public Retirement; TRP; Washington State 
Investment.
    \42\ See, e.g., letters from CII; ICGN; ICI; IAA; MFA.
    \43\ See letters from Alliance; CO Retirement; Glass Lewis; IAA; 
ICGN; ISS; NASAA; New York Comptroller; Ohio Public Retirement; US 
SIF; Washington State Investment.
    \44\ See letters from CO Retirement; Glass Lewis; IAA; ICI; ISS; 
MFA; NASAA; New York Comptroller; US SIF.
    \45\ See id.
    \46\ See letter from Alliance.
    \47\ See letter from MFA.
---------------------------------------------------------------------------

    Other commenters questioned the necessity of the Rule 14a-
2(b)(9)(ii) conditions, asserting that they would not improve the 
accuracy of PVABs' advice.\48\ One commenter that is a PVAB stated that 
PVABs already are incentivized to engage with registrants regarding 
their proxy voting advice in order to provide potentially useful 
information to their clients.\49\ Some commenters asserted that 
registrants have ways to express their views on proxy voting advice 
other than via the Rule 14a-2(b)(9)(ii) conditions, such as by publicly 
filing additional soliciting materials,\50\ with one of those 
commenters stating the types of investors that utilize proxy voting 
advice are sophisticated enough to know where to find registrants' 
responses to such advice.\51\ Further,

[[Page 43172]]

several commenters asserted that PVABs' existing practices already 
address the concerns underlying the Rule 14a-2(b)(9)(ii) conditions 
\52\ and indicated that they expect PVABs to continue to maintain those 
practices even if the Rule 14a-2(b)(9)(ii) conditions are 
rescinded.\53\
---------------------------------------------------------------------------

    \48\ See letters from CalPERS; ICI; TRP; US SIF.
    \49\ See letter from Glass Lewis.
    \50\ See letters from Glass Lewis; NASAA.
    \51\ See letter from NASAA.
    \52\ See letters from CII; Glass Lewis; IAA; ICI; ISS; Ohio 
Public Retirement.
    \53\ See letters from CII; ICI; Ohio Public Retirement.
---------------------------------------------------------------------------

    Other commenters questioned, as an initial matter, whether the 
adoption of the Rule 14a-2(b)(9)(ii) conditions was warranted. For 
example, some commenters noted that although the Rule 14a-2(b)(9)(ii) 
conditions were intended to benefit investors, most investors did not 
request or support the adoption of those conditions.\54\ Other 
commenters asserted that the 2020 Adopting Release failed to identify 
or provide credible evidence of a market failure.\55\ Some commenters 
also highlighted the low prevalence of errors in proxy voting advice 
historically, including by reference to data the Commission included in 
the 2019 Proposing Release that indicated an approximately 0.3% error 
rate in proxy voting advice.\56\ One commenter expressed skepticism 
that the Rule 14a-2(b)(9)(ii) conditions would significantly improve 
the accuracy of proxy voting advice.\57\ Another commenter observed 
that it has not experienced a significant increase in registrant 
outreach regarding disputes over proxy voting advice since the adoption 
of the 2020 Final Rules, including through the Report Feedback Service 
that Glass Lewis implemented and made available to registrants before 
the Commission adopted the 2020 Final Rules and continues to make 
available.\58\ Other commenters expressed concern that the Rule 14a-
2(b)(9)(ii) conditions inappropriately privilege the views of 
registrants' management.\59\ For example, one of these commenters noted 
that the Rule 14a-2(b)(9)(ii) conditions ``tilt the playing field in 
favor of company management and create unequal access to the proxy 
solicitation process'' because those conditions ``do[ ] not require a 
PVAB to afford these opportunities to any other stakeholders,'' 
including shareholder proponents.\60\
---------------------------------------------------------------------------

    \54\ See letters from CII; Ohio Public Retirement.
    \55\ See letters from Better Markets; Glass Lewis; US SIF.
    \56\ See letters from Better Markets; CalPERS; ICI; Ohio Public 
Retirement; US SIF; Washington State Investment.
    \57\ See letter from ICI.
    \58\ See letter from Ohio Public Retirement. This commenter also 
noted that much of the registrant feedback that it had observed 
``involve[d] differences of opinion regarding the methodologies used 
by our proxy advisory firm, which is less useful in helping us to 
formulate our proxy votes.'' Id.
    \59\ See letters from Alliance; NASAA.
    \60\ See letter from NASAA.
---------------------------------------------------------------------------

    In addition to expressing concerns regarding the Rule 14a-
2(b)(9)(ii) conditions, some commenters highlighted the potential 
benefits of rescinding those conditions as proposed. For example, one 
commenter stated that the 2021 Proposed Amendments would better ensure 
that investors have access to clear, timely, and impartial proxy voting 
advice and that the 2021 Proposed Amendments are appropriately tailored 
and responsive to investor concerns.\61\ Another commenter asserted 
that rescinding the Rule 14a-2(b)(9)(ii) conditions would give PVABs 
and investors flexibility to select mechanisms that best serve their 
needs and market conditions.\62\
---------------------------------------------------------------------------

    \61\ See letter from Alliance.
    \62\ See letter from CII.
---------------------------------------------------------------------------

    Finally, some of the commenters that supported the 2021 Proposed 
Amendments expressed concerns regarding the legal basis or 
constitutionality of the Rule 14a-2(b)(9)(ii) conditions. Several 
commenters maintained that the Rule 14a-2(b)(9)(ii) conditions exceed 
the Commission's authority under Section 14(a) of the Exchange Act 
because proxy voting advice does not constitute a ``solicitation.'' 
\63\ Other commenters asserted that the Rule 14a-2(b)(9)(ii) conditions 
could violate the First Amendment.\64\
---------------------------------------------------------------------------

    \63\ See letters from CII; ISS; RK Invest Law and ESG Legal 
Services.
    \64\ See letters from D. Jamieson; Glass Lewis; ISS; RK Invest 
Law and ESG Legal Services.
---------------------------------------------------------------------------

    A number of commenters opposed rescinding the Rule 14a-2(b)(9)(ii) 
conditions and deleting paragraphs (iii) through (vi) of Rule 14a-
2(b)(9).\65\ Several of those commenters expressed concern regarding 
the process by which the 2021 Proposed Amendments were formulated, 
including by comparison to the process by which the 2020 Final Rules 
were adopted. Those process-based concerns generally were based on 
commenters' assertions that the 2021 Proposed Amendments were not 
justified by sufficient evidence, data, or changes in the market for 
proxy voting advice and that the Commission lacked a reasonable basis 
for the 2021 Proposed Amendments because the Commission proposed those 
amendments before the 2020 Final Rules took effect.\66\
---------------------------------------------------------------------------

    \65\ See letters from John Endean, President, American Business 
Conference (Dec. 23, 2021) (``ABC''); Kyle Isakower, SVP of 
Regulatory and Energy Policy, American Council for Capital Formation 
(Dec. 22, 2021) (``ACCF''); Anonymous (Dec. 16, 2021) (``Anonymous 
2''); Anne Smith (Dec. 27, 2021) (``A. Smith''); Lynnette Fallon, 
Executive Vice President HR/Legal, General Counsel and Secretary, 
Axcelis Technologies, Inc. (Dec. 20, 2021) (``Axcelis''); Michele 
Nellenbach, Vice President of Strategic Initiatives, Bipartisan 
Policy Center (Jan. 4, 2022) (``BPC''); Carlo Passeri, Senior 
Director of Capital Markets and Financial Services Policy, 
Biotechnology Innovation Organization (Dec. 23, 2021) (``BIO''); 
Maria Ghazal, Senior Vice President and Counsel, Business Roundtable 
(Dec. 23, 2021) (``BRT''); Benjamin Zycher, Senior Fellow, American 
Enterprise Institute (Dec. 23, 2021) (``B. Zycher''); Coalition of 
Business Trades (Dec. 23, 2021) (``CBT''); Tom Quaadman, Executive 
Vice President, Center for Capital Markets Competitiveness, U.S. 
Chamber of Commerce (Nov. 30, 2021) (``CCMC I''); Tom Quaadman, 
Executive Vice President, Center for Capital Markets 
Competitiveness, U.S. Chamber of Commerce (Dec. 23, 2021) (``CCMC 
II''); Ani Huang, President and CEO, Center On Executive 
Compensation (Dec. 27, 2021) (``CEC''); Eric Mills (Dec. 27, 2021) 
(``E. Mills''); Mark R. Allen, Executive Vice President, General 
Counsel and Secretary, Member of the Executive Committee, FedEx 
Corporation (Dec. 23, 2021) (``FedEx''); Frederick A. Brightbill, 
CEO and Chairman of the Board, MasterCraft Boat Holdings, Inc. (Dec. 
17, 2021) (``MasterCraft''); Chris Netram, Vice President, Tax and 
Domestic Economic Policy, National Association of Manufacturers 
(Dec. 24, 2021) (``NAM''); John A. Zecca, Executive Vice President, 
Chief Legal and Regulatory Officer, Nasdaq, Inc. (Dec. 27, 2021) 
(``Nasdaq''); Stephen C. Taylor and John W. Chisholm, Chairman, 
President, CEO, and Lead Independent Director, Natural Gas Services 
Group, Inc. (Dec. 27, 2021) (``Natural Gas Services''); Gary A. 
LaBranche, FASAE, CAE, President and CEO, National Investor 
Relations Institute (Dec. 27, 2021) (``NIRI''); Wayne Winegarden, 
Ph.D., Sr. Fellow, Business and Economics Pacific Research Institute 
(Dec. 22, 2021) (``Pacific Research''); J.W. Verret, George Mason 
University Antonin Scalia Law School (Dec. 21, 2021) (``Prof. 
Verret''); Paul Rose and Christopher J. Walker, Professors of Law, 
The Ohio State University (Dec. 22, 2021) (``Profs. Rose and 
Walker''); Bryan Steil and Bill Huizenga, Members of Congress (Feb. 
2, 2022) (``Reps. Steil and Huizenga''); Ted Allen, Vice President, 
Policy and Advocacy, Society for Corporate Governance (Dec. 30, 
2021) (``SCG''); Tim Doyle, Founder and Principle, Doyle Strategies, 
LLC (Dec. 27, 2021) (``T. Doyle''); Douglas A. Cifu, Chief Executive 
Officer, Virtu Financial, Inc. (Dec. 20, 2021) (``Virtu'').
    \66\ See letters from ABC; ACCF; BIO; BRT; B. Zycher; CBT; CCMC 
II; CEC; E. Mills; NAM; Natural Gas Services; NIRI; Pacific 
Research; Prof. Verret; Reps. Steil and Huizenga; SCG; T. Doyle; 
Virtu.
---------------------------------------------------------------------------

    Similarly, some commenters submitted a report that analyzed and 
highlighted the benefits of the 2020 Final Rules as support for the 
proposition that those rules were adopted pursuant to a careful, 
methodical process and should not be amended at this time.\67\ Other 
commenters expressed concern that registrants and investors may have 
changed their practices in reliance on the Commission's adoption of the 
2020 Final Rules,\68\ with one of these commenters indicating that it 
and other registrants have been preparing for the

[[Page 43173]]

effectiveness of the 2020 Final Rules.\69\ One commenter asserted that 
the 2021 Proposing Release did not take into account the factors that 
Congress intended the Commission to consider with respect to Section 
14(a) of the Exchange Act.\70\ Finally, several commenters raised 
concerns regarding the 30-day comment period specified in the 2021 
Proposing Release, including concerns that such comment period did not 
provide the public sufficient time to consider and comment on the 2021 
Proposed Amendments.\71\
---------------------------------------------------------------------------

    \67\ See letters from CCMC II; Profs. Rose and Walker.
    \68\ See letters from NAM; Nasdaq; Natural Gas Services; Prof. 
Verret.
    \69\ See letter from Natural Gas Services.
    \70\ See letter from CCMC II.
    \71\ See letters from ABC; American Securities Association (Dec. 
3, 2021); BIO; CCMC I; CCMC II; CEC; IAA; NIRI; Prof. Verret; SCG; 
Reps. Steil and Huizenga; Patrick McHenry, Ranking Member, House 
Committee on Financial Services, and Pat Toomey, Ranking Member, 
Senate Committee on Banking, Housing, and Urban Affairs (Jan. 10, 
2022) (``Rep. McHenry and Sen. Toomey''); T. Doyle. We believe that 
the 30-day comment period for the 2021 Proposed Amendments provided 
adequate opportunity for interested parties to share their views, 
especially given the targeted nature of such amendments. We have 
reviewed and considered the numerous comment letters received in 
response to the proposal, including the five comment letters 
submitted after the comment period deadline. See letters from BPC; 
Reps. Steil and Huizenga; SCG; Rep. McHenry and Sen. Toomey; S. 
Milloy.
---------------------------------------------------------------------------

    In addition to expressing concern about the process by which the 
2021 Proposed Amendments were formulated, some commenters asserted that 
rescinding the Rule 14a-2(b)(9)(ii) conditions would have a negative 
impact on proxy voting advice. For example, some commenters stated that 
rescinding the Rule 14a-2(b)(9)(ii) conditions would decrease the 
transparency and accuracy of proxy voting advice and confidence in the 
proxy process generally.\72\ Relatedly, another commenter asserted that 
the Rule 14a-2(b)(9)(ii) conditions would improve the accuracy and 
reliability of proxy voting advice.\73\ Other commenters expressed 
concern that rescinding the Rule 14a-2(b)(9)(ii) conditions would 
jeopardize the Commission's stated goals for the 2020 Final Rules \74\ 
and would decrease the amount of information available to 
investors.\75\
---------------------------------------------------------------------------

    \72\ See letters from BPC; CEC; E. Mills; MasterCraft; NAM; 
Nasdaq; Natural Gas Services; Pacific Research.
    \73\ See letter from NAM.
    \74\ See letter from Profs. Rose and Walker.
    \75\ See letter from B. Zycher.
---------------------------------------------------------------------------

    Further, some commenters asserted that without the Rule 14a-
2(b)(9)(ii) conditions, registrants will struggle to address PVABs' 
advice in a timely manner before a shareholder meeting.\76\ One of 
these commenters asserted that if registrants do not have an 
opportunity to timely address the logic behind a voting recommendation, 
PVABs can ``essentially unilaterally control[ ] the outcome of'' 
shareholder votes.\77\ Some commenters also cited support from 
registrants, investors, and others for the Rule 14a-2(b)(9)(ii) 
conditions, including certain surveys,\78\ and the historically 
bipartisan support for reforming the proxy process.\79\
---------------------------------------------------------------------------

    \76\ See letters from Axcelis; CEC; Natural Gas Services; T. 
Doyle.
    \77\ See letter from Axcelis.
    \78\ See letter from Nasdaq. This commenter cited a 2020 proxy 
season survey indicating that registrants would utilize the Rule 
14a-2(b)(9)(ii) conditions (the ``CCMC and Nasdaq survey'') and a 
survey conducted in Nov. 2019 indicating that retail investors were 
in favor of providing registrants with an opportunity to review and 
provide feedback on proxy voting advice (the ``Spectrem Group 
survey''). Id.
    \79\ See letter from BPC.
---------------------------------------------------------------------------

    Some commenters maintained that the Commission should retain the 
Rule 14a-2(b)(9)(ii) conditions due to continued concerns regarding 
errors in proxy voting advice. For example, some commenters asserted 
that a 2021 study (the ``ACCF study'') demonstrates the continued 
prevalence of errors in, and disagreements by registrants with, proxy 
voting advice.\80\ According to the ACCF study, there were 50 instances 
in 2021 in which registrants filed supplemental proxy materials to 
dispute the data or analysis in a PVAB's proxy voting advice, an 
increase from 42 such instances in 2020.\81\ That study also asserted 
that the Rule 14a-2(b)(9)(ii) conditions provide a better process for 
registrants to access and respond to proxy voting advice than the 
current process in which registrants ``who receive a proxy advisor 
recommendation where they believe there is an error or serious 
disagreement must submit a supplemental filing to their proxy statement 
and take on additional anti-fraud liability.'' \82\ Another commenter 
cited a December 2019 survey of compensation and human resource 
professionals at 105 public registrants (the ``Willis Towers Watson 
survey'') in which 59% of respondents ``considered factual errors to be 
a big problem under the current system'' of proxy voting advice.\83\ In 
addition, several commenters highlighted their own experience with, or 
anecdotal evidence of, inaccurate or misleading proxy voting advice and 
described the burdens associated with responding to and correcting such 
advice in a timely manner.\84\ Another commenter expressed the view 
that the prevalence of errors in and omissions from proxy voting advice 
has not changed since 2020, citing a December 2019 survey of its 
members (the ``SCG survey'').\85\ Several other commenters asserted 
that the 2020 Final Rules would allow registrants to more efficiently 
and effectively communicate their perspective on errors in and 
disagreements with proxy voting advice.\86\
---------------------------------------------------------------------------

    \80\ See letters from ACCF; CCMC II; CEC; Natural Gas Services; 
NIRI; Profs. Rose and Walker.
    \81\ See American Council for Capital Formation, Proxy Advisors 
Are Still a Problem: 2021 Proxy Season Analysis Shows Companies 
Continue To Report Similar Rate of Errors Despite Heightened 
Scrutiny 9-10 (Dec. 2021) (``ACCF Study''), available at https://accf.ftlbcdn.net/wp-content/uploads/2021/12/ACCF_proxy_advisor_rule_report_2021-FINAL.pdf.
    \82\ Id. at 11-12.
    \83\ See letter from T. Doyle. Mr. Doyle's comment letter on the 
2019 Proposed Rules also cited this same Dec. 2019 survey. See 
letter in response to the 2019 Proposing Release of T. Doyle (Feb. 
3, 2020), available at https://www.sec.gov/comments/s7-22-19/s72219-6742431-207767.pdf.
    \84\ See letters from Nasdaq; Natural Gas Services.
    \85\ See letter from SCG. SCG's membership is comprised ``of 
more than 3,400 corporate and assistant secretaries, in-house 
counsel, outside counsel, and other governance professionals who 
serve approximately 1,600 entities, including 1,000 public companies 
of almost every size and industry.'' Id. SCG's comment letter on the 
2019 Proposed Rules also cited this same Dec. 2019 survey. See 
letter in response to the 2019 Proposing Release of SCG (Feb. 3, 
2020), available at https://www.sec.gov/comments/s7-22-19/s72219-6743687-207853.pdf. The Dec. 2019 survey of 134 members found that 
42% of respondents answered affirmatively when asked whether they 
were ``aware of any factual errors, omissions of material facts, or 
errors in analysis in the last three years.'' Id.
    \86\ See letters from ACCF; Natural Gas Services; T. Doyle.
---------------------------------------------------------------------------

    Other commenters disputed the concerns expressed regarding the Rule 
14a-2(b)(9)(ii) conditions that the 2021 Proposing Release described. 
Some commenters asserted that the Rule 14a-2(b)(9)(ii) conditions would 
not disproportionately or negatively impact the independence, cost, or 
timeliness of proxy voting advice.\87\ One commenter stated that the 
Commission's concern for the timeliness and cost of proxy voting advice 
is misplaced given that the 2020 Final Rules did not require advance 
review of proxy voting advice.\88\ This commenter also disputed the 
notion that the Rule 14a-2(b)(9)(ii) conditions would increase costs 
for PVABs.\89\ Other commenters asserted that PVABs' compliance costs 
associated with the Rule 14a-2(b)(9)(ii) conditions did not support 
rescinding those conditions in light of the duopolistic nature of the 
proxy voting advice market.\90\ Finally, some commenters stated that, 
even if the Rule 14a-2(b)(9)(ii) conditions increase the costs of proxy 
voting advice, such costs

[[Page 43174]]

are justified and preferred by investors if they ensure accurate advice 
and give registrants a chance to respond to such advice in a timely 
manner.\91\
---------------------------------------------------------------------------

    \87\ See letters from ABC; BIO; BRT; NAM; T. Doyle.
    \88\ See letter from Axcelis.
    \89\ See id.
    \90\ See letters from BIO; B. Zycher.
    \91\ See letters from Axcelis; Natural Gas Services.
---------------------------------------------------------------------------

    Several commenters took issue with the Commission's discussion in 
the 2021 Proposing Release of PVABs' existing practices. Some of those 
commenters asserted that PVABs' current practices are insufficient 
substitutes for the Rule 14a-2(b)(9)(ii) conditions, which, in the view 
of these commenters, provide more comprehensive and consistent 
standards.\92\ Other commenters asserted that the Commission's 
discussion of PVABs' policies and procedures does not support 
rescission of the Rule 14a-2(b)(9)(ii) conditions.\93\ One commenter 
asserted that because ISS and Glass Lewis already provide registrants 
access to their advice at the same time that it is disseminated to 
their clients, compliance with the Rule 14a-2(b)(9)(ii) conditions 
should not be burdensome.\94\ Other commenters expressed concern that 
without the Rule 14a-2(b)(9)(ii) conditions, PVABs could change their 
practices to the detriment of their clients.\95\
---------------------------------------------------------------------------

    \92\ See letters from BIO; BRT; CEC; NAM; Nasdaq; NIRI; SCG; T. 
Doyle.
    \93\ See letters from CCMC II; Prof. Verret.
    \94\ See letter from CEC.
    \95\ See letters from BIO; SCG.
---------------------------------------------------------------------------

    Similarly, some commenters expressed specific concerns regarding 
ISS' practices. One commenter asserted that ISS has increasingly 
resisted making changes to its proxy voting advice in response to 
registrant feedback and has been less inclined to engage with 
registrants regarding its advice.\96\ Other commenters stated that ISS 
has recently reduced communications and transparency below what it 
would have provided prior to the adoption of the 2020 Final Rules by 
ending its practice of providing S&P 500 companies with the opportunity 
to review and provide feedback on draft proxy voting advice.\97\ Some 
of these commenters highlighted the fact that ISS still provides 
registrants in jurisdictions other than the U.S. with this 
opportunity.\98\ Finally, one commenter asserted that, because ISS no 
longer provides U.S. registrants with an opportunity to review draft 
proxy voting advice, more errors in proxy voting advice now go 
uncorrected.\99\
---------------------------------------------------------------------------

    \96\ See letter from CEC.
    \97\ See letters from CCMC II; CEC; Nasdaq; SCG.
    \98\ See letters from Nasdaq; SCG.
    \99\ See letter from SCG.
---------------------------------------------------------------------------

    One commenter referenced broader, policy-based justifications for 
opposing the proposed amendments to Rule 14a-2(b)(9). For example, the 
commenter expressed concern that rescinding the Rule 14a-2(b)(9)(ii) 
conditions would exempt PVABs from the transparency standards that the 
Commission applies to other similarly-situated market participants, 
such as exchanges, registrants, and broker-dealers.\100\ This commenter 
also highlighted the duopolistic nature of the proxy voting advice 
market as a justification for additional regulation, rather than de-
regulation, of PVABs to ensure transparency.\101\
---------------------------------------------------------------------------

    \100\ See letter from BIO.
    \101\ See id.
---------------------------------------------------------------------------

    Finally, some commenters expressed concerns regarding potential 
consequences of rescinding the Rule 14a-2(b)(9)(ii) conditions. One 
commenter expressed concern that, without these conditions, the 
Commission would allow PVABs to be exempt from the proxy rules' 
information and filing requirements without sufficient alternative 
investor protection mechanisms to justify that exemption.\102\ Another 
commenter expressed concern that rescinding the Rule 14a-2(b)(9)(ii) 
conditions would reduce the transparency of proxy voting advice and 
allow PVABs to increase the relative weight of their political 
preferences, such as by introducing environmental, social, and 
governance (``ESG'') objectives.\103\ Similarly, one commenter cited a 
2021 research paper that found that PVABs' advice favors ESG proposals 
that may not necessarily be in the best economic interests of all 
investors.\104\ Another commenter asserted that although it appreciated 
the Commission's retention of the conflicts of interest disclosure 
requirement in Rule 14a-2(b)(9)(i), that requirement is hollow without 
the Rule 14a-2(b)(9)(ii) conditions.\105\
---------------------------------------------------------------------------

    \102\ See letter from Prof. Verret (``This new proposal would 
generate all the harm that may come from allowing the proxy advisors 
an exemption from the proxy solicitation rules with none of the 
mechanisms previously attached to the exemption to limit conflicts 
and to address problems with the reliability of proxy advisor 
recommendations.'').
    \103\ See letter from B. Zycher.
    \104\ See letter from CCMC II.
    \105\ See letter from Natural Gas Services.
---------------------------------------------------------------------------

    In addition to expressing concerns regarding the 2021 Proposed 
Amendments, some commenters that opposed the proposed rescission of the 
Rule 14a-2(b)(9)(ii) conditions made alternative recommendations to the 
Commission. For example, some commenters recommended that the 
Commission commit to a retrospective review of the 2020 Final Rules 
rather than adopting the 2021 Proposed Amendments.\106\ One commenter 
recommended that the Commission rescind the 2021 Proposed Amendments 
and issue an Advanced Notice of Proposed Rulemaking that would permit 
all interested parties to provide input and inform the Commission's 
deliberations on whether to reconsider the 2020 Final Rules.\107\ 
Another commenter suggested that the Commission could mitigate concerns 
about whether waiting for a registrant's response to proxy voting 
advice could shorten the proxy voting period by providing guidance on 
how long a registrant has to provide a response or the applicability of 
the rules in sensitive cases (e.g., proxy contests, vote no campaigns, 
or special meetings).\108\ One commenter recommended that the 
Commission adopt an ``advance review and feedback'' requirement 
consistent with the 2019 Proposed Rules.\109\ Another commenter 
recommended that if the Commission does not believe that the 2020 Final 
Rules are appropriate, it should consider implementing an alternative 
regulatory framework.\110\ In addition, one commenter asserted that the 
Rule 14a-2(b)(9)(ii) conditions should be maintained but modified to 
require that PVABs provide their advice to registrants at no cost.\111\
---------------------------------------------------------------------------

    \106\ See letters from ABC; BIO; NAM; NIRI; Virtu.
    \107\ See letter from CCMC I.
    \108\ See letter from CEC.
    \109\ See letter from NIRI.
    \110\ See letter from SCG.
    \111\ See letter from Axcelis.
---------------------------------------------------------------------------

    Finally, one commenter, which generally supported the proposal, 
recommended that the Commission focus more on the accuracy of 
registrants' disclosures, rather than PVABs, given the low incidence of 
errors in their proxy voting advice.\112\
---------------------------------------------------------------------------

    \112\ See letter from CalPERS.
---------------------------------------------------------------------------

3. Final Amendments
    We are adopting the amendments to Rule 14a-2(b)(9) as proposed. 
Specifically, we are amending Rule 14a-2(b)(9) to delete paragraphs 
(ii), (iii), (iv), (v), and (vi) and to redesignate Rule 14a-2(b)(9)(i) 
as Rule 14a-2(b)(9).
    The Commission recognized when it adopted the 2020 Final Rules that 
``introducing new rules into a complex system like proxy voting . . . 
could inadvertently disrupt the system and impose unnecessary costs if 
not carefully calibrated.'' \113\ The Commission acknowledged that many 
investors had expressed serious concerns that the proposed advance 
review and feedback conditions would adversely affect the cost, 
timeliness, and independence of proxy voting advice.\114\ The 
Commission nonetheless concluded

[[Page 43175]]

that the Rule 14a-2(b)(9)(ii) conditions adequately mitigated those 
concerns and, despite existing mechanisms in the proxy voting system 
that advance similar objectives, were justified in light of their 
potential to facilitate timely access by PVABs' clients to information 
material to their voting decisions.\115\
---------------------------------------------------------------------------

    \113\ 2020 Adopting Release at 55107.
    \114\ Id. at 55107-08, 55111-12.
    \115\ Id.
---------------------------------------------------------------------------

    We weigh these competing concerns differently today, especially in 
light of the continued, strong opposition to the Rule 14a-2(b)(9)(ii) 
conditions from many institutional investors and other PVAB clients as 
well as many of the comments we received on the 2021 Proposed 
Amendments. The Commission's 2020 adoption of the Rule 14a-2(b)(9)(ii) 
conditions was grounded in its view that ``more complete and robust 
information and discussion leads to more informed investor decision-
making.'' \116\ We agree with that general principle, but, upon further 
analysis in light of the continued concerns expressed by investors and 
others, we now conclude that the potential informational benefits to 
investors of the Rule 14a-2(b)(9)(ii) conditions do not sufficiently 
justify the risks they pose to the cost, timeliness, and independence 
of proxy voting advice on which many investors rely.
---------------------------------------------------------------------------

    \116\ Id. at 55107.
---------------------------------------------------------------------------

    Investor protection has always been the touchstone of the 
Commission's rulemaking efforts with respect to PVABs. Accordingly, our 
decision to rescind the Rule 14a-2(b)(9)(ii) conditions is 
significantly informed by the concerns expressed by investors and other 
PVAB clients regarding the Rule 14a-2(b)(9)(ii) conditions. PVABs serve 
an important role in the proxy process, and their clients depend on 
receiving independent proxy voting advice in a timely manner. The Rule 
14a-2(b)(9)(ii) conditions were intended to benefit PVABs' clients 
(i.e., institutional investors and investment advisers) and the 
underlying investors they serve, among others.\117\ However, many 
investors and PVAB clients have continued to warn, both in response to 
the adoption of the 2020 Final Rules and again in comments on the 2021 
Proposing Release, that the Rule 14a-2(b)(9)(ii) conditions risk 
impairing the independence and timeliness of proxy voting advice and 
imposing increased compliance costs on PVABs, without corresponding 
investor protection benefits.\118\ And, as noted above,\119\ we agree 
that the risks posed by the Rule 14a-2(b)(9)(ii) conditions to the 
cost, timeliness, and independence of proxy voting advice are 
sufficiently significant such that it is appropriate to rescind the 
conditions now to limit any burdens that PVABs and their clients may 
experience.
---------------------------------------------------------------------------

    \117\ See supra notes 31-34 and accompanying text.
    \118\ See supra notes 43-47 and accompanying text; 2021 
Proposing Release at 67385 & nn.23-24 (citing Peter Rasmussen, 
Divided SEC Passes Controversial Proxy Advisor Rule, Bloomberg Law 
(July 29, 2020), available at https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-divided-sec-passes-controversial-proxy-advisor-rule (noting criticism of the 2020 Final Rules by Nell 
Minow, Vice Chair of ValueEdge Advisors, that the 2020 Final Rules 
will make proxy voting advice ``more expensive and less 
independent''); Council of Institutional Investors, Leading Investor 
Group Dismayed by SEC Proxy Advice Rules (July 22, 2020), available 
at https://www.cii.org/july22_sec_proxy_advice_rules (``[T]he new 
rules . . . seem to effectively require investment advisors who vote 
proxies on behalf of investor clients to consider and evaluate any 
response from companies to proxy advice before submitting votes. 
That could cause significant delays in the already constricted proxy 
voting process. It also could jeopardize the independence of proxy 
advice as proxy advisory firms may feel pressure to tilt voting 
recommendations in favor of management more often, to avoid critical 
comments from companies that could draw out the voting process and 
expose the firms to costly threats of litigation.''); US SIF, US SIF 
Releases Statement on SEC Vote to Regulate Proxy Advisory Firms 
(July 22, 2020), available at https://www.ussif.org/blog_home.asp?display=146 (``Today's vote is a blow to the 
independence of research provided by proxy advisors to investors. . 
. . The rule will make it more difficult, expensive and time-
consuming for proxy advisors to produce their research.'')).
    \119\ See supra notes 113-116 and accompanying text.
---------------------------------------------------------------------------

    Although we recognize that some commenters disputed these 
concerns,\120\ we nonetheless believe that the risks to investors 
support rescinding the Rule 14a-2(b)(9)(ii) conditions, particularly in 
light of the limited reliance interests at stake \121\ and the 
existence of other mechanisms in the proxy system that promote informed 
shareholder voting.\122\ It is also noteworthy that the vast majority 
of PVABs' clients and investors that expressed views on the Rule 14a-
2(b)(9)(ii) conditions continue to be concerned about the risks those 
conditions pose, including institutional investors \123\ and 
organizations that represent institutional investors and investment 
advisers.\124\
---------------------------------------------------------------------------

    \120\ See supra notes 87-91 and accompanying text.
    \121\ See infra notes 153-154 and accompanying text.
    \122\ See infra notes 139-141 and accompanying text.
    \123\ See letters from CalPERS; CO Retirement; New York 
Comptroller; Ohio Public Retirement; TRP; Washington State 
Investment.
    \124\ See letters from CII; ICGN; ICI; IAA; MFA. We recognize 
that one commenter cited the Spectrem Group survey which indicated 
that 79% of retail investors were in favor of providing registrants 
with an opportunity to review and provide feedback on proxy voting 
advice. See supra note 78 and accompanying text; Spectrem Group, 
Reclaiming Main Street: SEC Hears Retail Investors' Cries for Proxy 
Advisory Oversight 3 (Dec. 16, 2019), available at https://spectrem.com/Content_Whitepaper/white-paper-reclaiming-main-street.aspx. We note, however, that no such investors submitted 
comments opposing the proposed rescission of the Rule 14a-
2(b)(9)(ii) conditions. We further note that the Spectrem Group 
survey was conducted in Nov. 2019 with respect to the 2019 Proposed 
Rules rather than the 2020 Final Rules and, therefore, is less 
relevant for our determination as to whether to rescind the Rule 
14a-2(b)(9)(ii) conditions. In addition, as discussed in the 2020 
Adopting Release, one commenter on the 2019 Proposed Rules 
``disputed the methodology used'' in the Spectrem Group survey and 
``claim[ed] it used leading questions and ultimately showed that 
retail investors are generally uninformed about the proxy voting 
advice market.'' 2020 Adopting Release at 55125, n.491. One 
commenter also cited the CCMC and Nasdaq survey indicating that 97% 
of the 182 registrants surveyed would utilize the Rule 14a-
2(b)(9)(ii) conditions. See supra note 78 and accompanying text. 
But, for the reasons discussed above, we do not believe the 
potential benefits of those conditions are justified in light of the 
risks they present. In addition, while we recognize that this survey 
indicates that registrants would use the conditions, we do not 
believe that the Rule 14a-2(b)(9)(ii) conditions have engendered 
significant reliance interests for the reasons discussed later in 
this section.
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    Nor do we find the studies and surveys that some opposing 
commenters cited as support for their continued concerns regarding 
errors in proxy voting advice to be persuasive evidence for retaining 
the Rule 14a-2(b)(9)(ii) conditions.\125\ For example, several 
commenters asserted that the ACCF study demonstrates the continued 
prevalence of errors in, and disagreements by registrants with, proxy 
voting advice.\126\ As an initial matter, we note that the 2020 Final 
Rules were not predicated on any Commission finding with regard to the 
prevalence of errors in proxy voting advice,\127\ which

[[Page 43176]]

was a matter of dispute among commenters on both the 2019 Proposed 
Rules \128\ and the 2021 Proposed Amendments.\129\ In any event, the 
ACCF study does not, in our view, establish the necessity of the Rule 
14a-2(b)(9)(ii) conditions. Rather, in the 50 instances that the study 
identified, registrants were able to effectively review and respond to 
proxy voting advice. Those 50 instances included situations in which a 
registrant alleged that a PVAB's advice contained a factual or 
analytical error and situations in which the registrant had a ``serious 
dispute'' with a PVAB's advice (or a combination of these 
concerns).\130\ The registrant, in turn, either provided corrective 
disclosure with respect to the purported factual or analytical error or 
explained the basis for its dispute with the proxy voting advice.\131\ 
This form of discourse is precisely what the Commission envisioned when 
adopting the Rule 14a-2(b)(9)(ii) conditions.\132\ It is noteworthy 
that registrants were able to identify those issues and respond using 
pre-existing mechanisms rather than mechanisms that were adopted to 
satisfy the Rule 14a-2(b)(9)(ii) conditions given that individual PVABs 
generally do not appear to have implemented new practices in response 
to the Commission's adoption of the 2020 Final Rules.\133\
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    \125\ See supra notes 80-83, 85 and accompanying text.
    \126\ See supra notes 80-82 and accompanying text.
    \127\ See 2020 Adopting Release at 55107. We note that the 
Willis Towers Watson survey and the SCG survey both were conducted 
in Dec. 2019, before the Commission adopted the 2020 Final Rules, 
and were submitted by commenters on the 2019 Proposed Rules. See 
supra notes 83, 85 and accompanying text. The Commission, however, 
did not rely on either survey as support for adopting the Rule 14a-
2(b)(9)(ii) conditions. We also do not find those surveys to be 
persuasive indicators of systemic inaccuracies in proxy voting 
advice, as neither survey identified any specific instances of 
errors in proxy voting advice. In addition, although the ACCF study 
identified 50 and 42 instances, respectively, in 2021 and 2020 in 
which registrants filed supplemental proxy materials to dispute the 
data or analysis in a PVAB's proxy voting advice, when compared to 
the 5,565 and 5,350 unique registrants that filed proxy materials 
with the Commission in 2021 and 2020, respectively, see infra note 
274 and accompanying text, that study indicates that only 0.90% of 
all registrants disputed a PVAB's proxy voting advice in 
supplemental filings in 2021, which is only a 0.11% increase (i.e., 
0.90% versus 0.79%) from 2020. Finally, it is worth noting that 
these percentages may not reflect the error rates in proxy voting 
advice, as the fact that a registrant raises a dispute regarding 
proxy voting advice in a supplemental filing does not necessarily 
indicate that an error exists in such advice.
    \128\ See 2020 Adopting Release at 55103-04.
    \129\ See supra note 56 and accompanying text; see also letter 
from ICI (expressing skepticism that the Rule 14a-2(b)(9)(ii) 
conditions would significantly improve the accuracy of proxy voting 
advice).
    \130\ ACCF Study, supra note 81, at 14-17.
    \131\ Id.
    \132\ See 2020 Adopting Release at 55136 (noting that 
registrants may wish to respond to proxy voting advice for various 
reasons, including ``because they have identified what they perceive 
to be factual errors or methodological weaknesses in the [PVAB's] 
analysis or because they have a different or additional perspective 
with respect to the recommendation'').
    \133\ See infra note 142 and accompanying text. Although PVABs 
have introduced certain industry-wide practices since the Commission 
adopted the 2020 Final Rules, the relevant practices at individual 
PVABs described in the 2021 Proposing Release appear to have been in 
place prior to the adoption of the 2020 Final Rules. See 2021 
Proposing Release at 67388 & nn.60-61.
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    It also is unclear how retaining the Rule 14a-2(b)(9)(ii) 
conditions would address concerns raised by the ACCF study about the 
process by which registrants respond to proxy voting advice. The study 
asserts that supplemental proxy filings, which ACCF reviewed to arrive 
at its findings, are costly and burdensome, and subject registrants to 
antifraud liability.\134\ The 2020 Adopting Release contemplated, 
however, that even pursuant to the Rule 14a-2(b)(9)(ii) conditions, 
registrants would respond to proxy voting advice via a supplemental 
proxy filing.\135\ Finally, although the study asserts that the Rule 
14a-2(b)(9)(ii) conditions ``would better ensure that investors review 
information that companies are now including in often ignored 
supplemental filings,'' \136\ we expect that the types of investors 
that utilize proxy voting advice are sufficiently sophisticated to know 
where to find registrants' responses to such advice.\137\
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    \134\ ACCF Study, supra note 81, at 10-11.
    \135\ See, e.g., 2020 Adopting Release at 55135-36 (``Providing 
timely notice to registrants of voting advice will allow registrants 
to more effectively determine whether they wish to respond to the 
recommendation by publishing additional soliciting materials . . . 
.''). While the Rule 14a-2(b)(9)(iv) safe harbor is non-exclusive, 
it also contemplates that registrants will file additional 
soliciting materials as it requires a PVAB to have ``written 
policies and procedures that are reasonably designed to inform 
clients who receive proxy voting advice when a registrant . . . 
notifies the [PVAB] that it intends to file or has filed additional 
soliciting materials.'' 17 CFR 240.14a-2(b)(9)(iv).
    \136\ ACCF Study, supra note 81, at 12.
    \137\ See supra note 51 and accompanying text. Additionally, it 
is our understanding that the leading PVABs currently provide their 
clients with notifications of and links to filings by registrants 
that are the subject of proxy voting advice in their online 
platforms, which provide a means for clients to access additional 
definitive proxy materials that registrants may file in response to 
proxy voting advice. 2021 Proposing Release at 67388, n.57.
---------------------------------------------------------------------------

    We note that several commenters expressed concerns regarding the 
potential adverse impacts of rescinding the Rule 14a-2(b)(9)(ii) 
conditions, including the ability of registrants to address errors in 
or disagreements with proxy voting advice in a timely manner.\138\ To 
the extent the Rule 14a-2(b)(9)(ii) conditions help to facilitate 
timely investor access to information material to their voting 
decisions, we recognize that rescinding those conditions could reduce 
those benefits. At the same time, we note that any such benefits of the 
Rule 14a-2(b)(9)(ii) conditions could be undermined to the extent those 
conditions make proxy voting advice more costly or reduce its 
timeliness and independence.\139\ In our judgment, the potential 
benefits of the Rule 14a-2(b)(9)(ii) conditions do not justify these 
risks.
---------------------------------------------------------------------------

    \138\ See supra notes 72-77 and accompanying text.
    \139\ See supra notes 43-47 and accompanying text. For example, 
to the extent that the Rule 14a-2(b)(9)(ii) conditions impede the 
timeliness of proxy voting advice, that could impair the ability of 
PVABs' clients to receive and process that advice sufficiently in 
advance of the relevant shareholder vote.
---------------------------------------------------------------------------

    We also believe that any negative effects of rescinding the Rule 
14a-2(b)(9)(ii) conditions will be mitigated, to some extent, by 
existing mechanisms in the proxy system that advance some of the same 
goals. As one commenter pointed out, PVABs already are incentivized to 
engage with registrants regarding their proxy voting advice, as 
evidenced by the fact that some PVABs voluntarily implemented means for 
registrants to communicate their views or concerns regarding the PVABs' 
advice even before the Commission adopted the 2020 Final Rules (e.g., 
Glass Lewis' Report Feedback Service).\140\ These incentives also are 
demonstrated by the fact that the leading PVABs have voluntarily 
adopted practices that provide their clients and registrants with some 
of the opportunities and access to information that would have been 
required pursuant to the Rule 14a-2(b)(9)(ii) conditions. We described 
those practices in detail in the 2021 Proposing Release.\141\ Based on 
our review of PVABs' public descriptions of their policies and 
procedures, those practices appear to remain in place. Further, none of 
the comment letters submitted on the 2021 Proposed Amendments asserted 
that PVABs' practices differ from those described in the 2021 Proposing 
Release or that PVABs had altered those practices described in the 
release.\142\
---------------------------------------------------------------------------

    \140\ See supra note 49 and accompanying text. One commenter 
also stated that it has not experienced a significant increase in 
registrant outreach regarding disputes over proxy voting advice 
since the adoption of the 2020 Final Rules, including through Glass 
Lewis' Report Feedback Service. See supra note 58 and accompanying 
text; see also 2021 Proposing Release at 67386 (describing Glass 
Lewis' Report Feedback Service).
    \141\ See 2021 Proposing Release at 67386-87.
    \142\ We note that some commenters expressed concerns regarding 
ISS' practices. For example, several commenters expressed concern 
that ISS has eliminated the opportunity for certain U.S. registrants 
to review draft proxy voting advice before ISS sends the advice to 
its clients. See supra note 97 and accompanying text. One of those 
commenters appeared to assert that ISS made this change ``in 
reaction to the SEC's announcement of the non-enforcement of the 
2020 Final Rules.'' Letter from CCMC II. However, ISS announced that 
it was making this change as of January 2021, well before June 1, 
2021, when the Division of Corporation Finance issued a statement 
that it would not recommend enforcement action based on a 2019 
interpretive release (discussed further infra note 165 and 
accompanying text) or the 2020 Final Rules during the period in 
which the Commission is considering further regulatory action in 
this area. Compare ISS, FAQs Regarding ISS Proxy Research, available 
at https://www.issgovernance.com/contact/faqs-engagement-on-proxy-research/#1574276867038-b204d1c3-a920 (``In the US, as from January 
2021, drafts are no longer provided to U.S. companies including 
those in the S&P 500 index.''), with Division of Corporation 
Finance, Statement on Compliance with the Commission's 2019 
Interpretation and Guidance Regarding the Applicability of the Proxy 
Rules to Proxy Voting Advice and Amended Rules 14a-1(1), 14a-2(b), 
14a-9, U.S. Securities and Exchange Commission, available at https://www.sec.gov/news/public-statement/corp-fin-proxy-rules-2021-06-01. 
Given this timing, the assertion that ISS formally altered its 
engagement practices as a result of the Division of Corporation 
Finance's statement or in response to the 2021 Proposed Amendments 
is implausible. In addition, some commenters noted that ISS provides 
some non-U.S. companies with the opportunity to review its draft 
proxy voting advice before its publication. Similarly, one commenter 
asserted that ISS has increasingly resisted making changes to its 
proxy voting advice in response to registrant feedback and has been 
less inclined to engage with registrants regarding its proxy voting 
advice. See supra note 96 and accompanying text. This commenter 
asserted that ``[c]ompanies have requested discussions with ISS 
staff to highlight errors, omissions, or mischaracterizations, but 
the ISS research team has noticeably scaled back its willingness to 
engage'' and that ``given that errors corrected post-publication 
necessitate a public alert to clients, ISS is far more reticent to 
make such changes and even more resistant if the error requires a 
change in a vote recommendation.'' Letter from CEC. Based on those 
concerns, the commenter appeared to advocate for giving registrants 
the opportunity to review proxy voting advice before its 
publication. Id. (``Thus, fixing errors highlighted by companies in 
a final report is much more complex than doing so to a draft 
report.''). Rescinding the Rule 14a-2(b)(9)(ii) conditions, however, 
should not impact the availability of such opportunities because the 
conditions do not require that PVABs provide registrants with draft 
proxy voting advice. We find it more relevant that ISS continues to 
allow any registrant to request a copy of its proxy voting advice 
issued under its Benchmark policy guidelines free of charge after 
ISS has disseminated the advice to its clients. See ISS, FAQs 
Regarding ISS Proxy Research, available at https://www.issgovernance.com/contact/faqs-engagement-on-proxy-research/#1574276741161-7ca718d3-32ae.

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[[Page 43177]]

    Several commenters expressed concern that PVABs' current practices 
are insufficient substitutes for the Rule 14a-2(b)(9)(ii) 
conditions.\143\ As noted in the 2021 Proposing Release,\144\ we 
recognize that those practices do not perfectly replicate the 
requirements of the Rule 14a-2(b)(9)(ii) conditions or result in the 
same benefits that those conditions were intended to produce. 
Nonetheless, the existence of market-based incentives for PVABs to 
provide their clients and some registrants with some of the 
opportunities and access to information that would have been required 
pursuant to the Rule 14a-2(b)(9)(ii) conditions \145\--which may 
provide institutional investors and other PVAB clients with some of the 
benefits that those conditions were intended to produce--reinforces our 
determination that those conditions should be rescinded, especially 
when balanced against the risks that those conditions present to the 
cost, timeliness, and independence of proxy voting advice.
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    \143\ See supra note 92 and accompanying text.
    \144\ See 2021 Proposing Release at 67388.
    \145\ See letter from Glass Lewis (asserting that PVABs already 
are incentivized to engage with registrants regarding their proxy 
voting advice in order to provide potentially useful information to 
their clients).
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    Further, one opposing commenter asserted that because ISS and Glass 
Lewis already provide registrants with access to their advice at the 
same time it is disseminated to their clients, compliance with the Rule 
14a-2(b)(9)(ii) conditions should not be burdensome.\146\ We note, 
however, that ISS and Glass Lewis adopted those practices voluntarily, 
before the 2020 Final Rules were adopted.\147\ We believe that 
voluntarily adopted practices, as a general matter, would not have the 
same adverse impact on the independence, cost, and timeliness of proxy 
voting advice as mandatory measures that PVABs may implement solely to 
comply with the Rule 14a-2(b)(9)(ii) conditions, as we expect that 
PVABs would only implement voluntary practices to the extent that the 
benefits of such practices would exceed their costs. This belief is 
also consistent with the Commission's economic analysis in the 2020 
Adopting Release, which noted the existence of ISS' and Glass Lewis' 
voluntary practices \148\ but still projected direct and indirect costs 
for PVABs as a result of the Rule 14a-2(b)(9)(ii) conditions.\149\
---------------------------------------------------------------------------

    \146\ See supra note 94 and accompanying text.
    \147\ See 2021 Proposing Release at 67388, nn.60-61 and 
accompanying text.
    \148\ 2020 Adopting Release at 55128-29.
    \149\ Id. at 55136-39.
---------------------------------------------------------------------------

    Although some commenters expressed concern that PVABs could change 
their practices to the detriment of their clients if the Rule 14a-
2(b)(9)(ii) conditions are rescinded,\150\ other commenters indicated 
that there are market-based incentives for PVABs to maintain the 
practices they have voluntarily adopted \151\ and that they see little 
risk that PVABs will change these practices.\152\ In addition, we will 
continue to monitor the PVAB market to help ensure that investors are 
adequately protected and have ready access to information that allows 
them to make informed voting decisions. To the extent that there are 
changes in PVABs' policies and procedures or new entrants to the PVAB 
market that do not adopt policies and procedures consistent with best 
practices, we will reevaluate the state of the PVAB market and consider 
whether to take further action.
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    \150\ See supra note 95 and accompanying text.
    \151\ See supra note 53 and accompanying text. Those commenters 
included an institutional investor that utilizes proxy voting advice 
(Ohio Public Retirement) and an organization that represents 
institutional investors (CII). Id. With respect to PVABs' 
incentives, we note that one commenter asserted that ``[i]f errors 
[in proxy voting advice] are found, the cost of correcting those 
errors creates a disincentive for [PVABs] to acknowledge them.'' 
Letter from CEC. We believe, however, that the perpetuation of 
material errors in proxy voting advice would reduce the quality and 
usefulness of such advice, which, in the long-term, would reduce a 
PVAB's credibility in the market and its competitiveness. As such, 
we believe that PVABs are financially motivated to address errors in 
their advice.
    \152\ See letters from CII; Ohio Public Retirement.
---------------------------------------------------------------------------

    Some commenters expressed concern that both registrants and 
investors may have changed their practices in reliance on the 
Commission's adoption of the 2020 Final Rules.\153\ We note, however, 
that none of the commenters that raised such concerns were investors. 
In addition, although some of the commenters suggested steps that 
registrants may have taken in reliance on the effectiveness of the Rule 
14a-2(b)(9)(ii) conditions--and one commenter that is a registrant 
asserted that it has been preparing for the effectiveness of those 
conditions--these commenters did not provide specific examples of 
actions registrants have actually taken or costs that registrants have 
actually incurred in preparation for the effectiveness of those 
conditions.
---------------------------------------------------------------------------

    \153\ See supra notes 68-69 and accompanying text.
---------------------------------------------------------------------------

    We recognize that many registrants may have anticipated taking 
advantage of the opportunities to review and respond to proxy voting 
advice pursuant to the Rule 14a-2(b)(9)(ii) conditions, but commenters 
did not present evidence that registrants have incurred significant 
costs or significantly altered existing practices in reliance on the 
conditions, nor are we aware of any information suggesting that is the 
case. Moreover, we note that the Rule 14a-2(b)(9)(ii) conditions only 
impose obligations on PVABs, as opposed to registrants, and that the 
2020 Adopting Release contemplated that, even pursuant to the Rule 14a-
2(b)(9)(ii) conditions, registrants would respond to proxy voting 
advice via existing mechanisms (i.e., a supplemental proxy filing) that 
registrants have historically utilized.\154\ Nor is there any other 
reason to believe that the Rule 14a-2(b)(9)(ii) conditions have 
engendered significant reliance interests given that the conditions 
were adopted only two years ago and took effect less than a year ago.
---------------------------------------------------------------------------

    \154\ See supra note 135 and accompanying text.
---------------------------------------------------------------------------

    Some commenters asserted that it was inappropriate for the 
Commission to propose amendments to Rule 14a-2(b)(9) before that rule 
had gone into effect.\155\ To the contrary, we believe it is 
appropriate to proceed expeditiously to rescind the Rule 14a-
2(b)(9)(ii) conditions rather than wait until the risks those 
conditions pose materialize and investors are harmed. This belief is 
animated, in large part, by (1) the important role that PVABs play in 
the proxy voting process and the scope of the potential consequences 
should that role be disrupted, (2) the fact that the vast majority of 
PVABs' clients that

[[Page 43178]]

expressed views on the Rule 14a-2(b)(9)(ii) conditions opposed them, 
and (3) our conclusion that the reliance interests implicated by 
rescinding those conditions are limited, as discussed above.
---------------------------------------------------------------------------

    \155\ See supra note 66 and accompanying text.
---------------------------------------------------------------------------

    Finally, we note that some opposing commenters also expressed 
broader, policy-based concerns associated with rescinding the Rule 14a-
2(b)(9)(ii) conditions \156\ and the potential consequences that may 
result from such rescission.\157\ Those commenters generally appeared 
to be concerned that PVABs' advice would become largely unregulated, 
especially given the important role that PVABs play in the proxy 
process. However, it is important to note that, notwithstanding our 
rescission of the Rule 14a-2(b)(9)(ii) conditions and our amendment to 
Rule 14a-9, proxy voting advice generally will remain a 
``solicitation'' under Rule 14a-1(l)(1)(iii)(A). As such, proxy voting 
advice generally will remain subject to Rule 14a-9 liability, and, in 
order to qualify for the exemptions set forth in Rules 14a-2(b)(1) and 
(3) from the proxy rules' information and filing requirements, PVABs 
will have to satisfy the conflicts of interest disclosure requirements 
set forth in Rule 14a-2(b)(9).\158\
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    \156\ See supra notes 100-101 and accompanying text.
    \157\ See supra notes 102-105 and accompanying text.
    \158\ One commenter asserted that the conflicts of interest 
disclosure requirement in Rule 14a-2(b)(9) is ``hollow without 
assurances that issuers and investors are protected from materially 
false, inaccurate and incomplete data as a result of unchecked 
critiques from proxy advisory firm.'' Letter from Natural Gas 
Services. Notwithstanding our rescission of the Rule 14a-2(b)(9)(ii) 
conditions, the fact that proxy voting advice generally will remain 
subject to liability under Rule 14a-9 should mitigate this concern. 
See infra Section II.B.
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4. 2020 Supplemental Proxy Voting Guidance
    The 2021 Proposing Release requested comment on whether the 
Commission should rescind or revise the Supplemental Proxy Voting 
Guidance because it was prompted, in part, by the adoption of the Rule 
14a-2(b)(9)(ii) conditions.\159\ The Supplemental Proxy Voting Guidance 
was intended to assist investment advisers in assessing how to consider 
registrant responses to proxy voting advice that may become more 
readily available as a result of the 2020 Final Rules. The Supplemental 
Proxy Voting Guidance also specifically addressed situations in which 
advisers use a PVAB's electronic vote management system and related 
disclosure obligations, as well as client consent relating to the use 
of automated voting services. The Commission received several comments 
on this issue,\160\ with most of those commenters recommending that the 
Commission rescind the Supplemental Proxy Voting Guidance.\161\
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    \159\ 2021 Proposing Release at 67388-89.
    \160\ See letters from BIO; CII; Glass Lewis; IAA; ICI; ISS.
    \161\ See letters from CII; Glass Lewis; IAA; ICI; ISS. These 
commenters generally indicated that because the Supplemental Proxy 
Voting Guidance was tied to the 2020 Final Rules, any rescission of 
those rules should also include the Supplemental Proxy Voting 
Guidance. Some of these commenters further stated that the 
Supplemental Proxy Voting Guidance was too prescriptive for 
investment advisers. See letters from IAA; Glass Lewis. Other 
commenters suggested the Supplemental Proxy Voting Guidance could 
contribute to uncertainty and delays in voting. See letters from 
CII; IAA. Another stated the 2019 Proxy Voting Guidance provided 
sufficient guidance to investment advisers on this subject. See 
letter from ICI. On the other hand, one commenter recommended 
retaining the Supplemental Proxy Voting Guidance on the basis that 
it encouraged helpful disclosure to investors. See letter from BIO.
---------------------------------------------------------------------------

    We are rescinding the Supplemental Proxy Voting Guidance. While 
aspects of the guidance could be relevant to investment advisers in 
situations in which they become aware that a registrant that is the 
subject of a voting recommendation intends to file or has filed 
additional soliciting materials with the Commission setting forth the 
registrant's views regarding the voting recommendation, we are mindful 
of the comments received with respect to the Supplemental Proxy Voting 
Guidance. Moreover, we believe that existing Commission guidance, 
including the response to Question No. 2 in the 2019 Proxy Voting 
Guidance, which discusses how advisers could consider policies and 
procedures that provide for consideration of additional information 
that may become available regarding a particular proposal, will serve 
to assist investment advisers in carrying out their obligations under 
rule 206(4)-6 under the Investment Advisers Act of 1940 and their 
fiduciary duty in such situations.\162\ Further, an investment 
adviser's fiduciary duty requires, among other things, that an adviser 
conduct a reasonable investigation into an investment sufficient not to 
base its advice on materially inaccurate or incomplete 
information.\163\ The duty of loyalty also requires, among other 
things, full and fair disclosure to clients about all material facts 
relating to the advisory relationship.\164\
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    \162\ Commission Guidance Regarding Proxy Voting 
Responsibilities of Investment Advisers, Release Nos. IA-5325; IC-
33605 (Aug. 21, 2019) [84 FR 47420, 47424 (Sept. 10, 2019)].
    \163\ Commission Interpretation Regarding Standard of Conduct 
for Investment Advisers, Release No. IA-5248 (June 5, 2019) [84 FR 
33669, 33674 (July 12, 2019)].
    \164\ Id. at 33675.
---------------------------------------------------------------------------

B. Amendment to Rule 14a-9

    Before adopting the 2020 Final Rules, the Commission, in August 
2019, issued an interpretation and guidance that clarified the 
application of the Federal proxy rules to the provision of proxy voting 
advice (the ``Interpretive Release'').\165\ In the Interpretive 
Release, the Commission explained that the determination of whether a 
communication is a solicitation for purposes of Section 14(a) of the 
Exchange Act depends upon the specific nature, content, and timing of 
the communication and the circumstances under which the communication 
is transmitted.\166\ The Commission stated that PVABs' proxy voting 
advice generally would constitute a solicitation subject to the proxy 
rules.\167\ As a solicitation, proxy voting advice is subject to Rule 
14a-9. Rule 14a-9 ``prohibits any solicitation from containing any 
statement which, at the time and in the light of the circumstances 
under which it is made, is false or misleading with respect to any 
material fact.'' \168\ The rule also requires that solicitations ``must 
not omit to state any material fact necessary in order to make the 
statements therein not false or misleading.'' \169\ The Commission 
noted that although PVABs may rely on exemptions from the proxy rules' 
information and filing requirements, even these exempt solicitations 
remain subject to Rule 14a-9.\170\
---------------------------------------------------------------------------

    \165\ Commission Interpretation and Guidance Regarding the 
Applicability of the Proxy Rules to Proxy Voting Advice, Release No. 
34-86721 (Aug. 21, 2019) [84 FR 47416 (Sept. 10, 2019)] 
(``Interpretive Release'').
    \166\ Id. at 47417-19.
    \167\ Id.
    \168\ Id. at 47419.
    \169\ Id.
    \170\ Id.
---------------------------------------------------------------------------

    In the 2020 Adopting Release, the Commission codified the guidance 
set forth in the Interpretive Release that proxy voting advice is 
generally subject to Rule 14a-9.\171\ The 2020 Final Rules amended Rule 
14a-9 by adding paragraph (e) to the Note to that rule. Paragraph (e) 
sets forth examples of what may, depending on the particular facts and 
circumstances, be misleading within the meaning of Rule 14a-9 with 
respect to proxy voting advice. Specifically, Note (e) to Rule 14a-9 
provides that the failure to disclose material information regarding 
proxy voting advice, ``such as the [PVAB's] methodology, sources of 
information, or conflicts of interest,'' may, depending upon particular 
facts and circumstances, be misleading within the meaning of the

[[Page 43179]]

rule.\172\ In adopting these amendments, the Commission noted that 
``[t]he ability of a client of a [PVAB] to make voting decisions is 
affected by the adequacy of the information it uses to formulate such 
decisions'' and stated that the amendments ``are designed to further 
clarify the potential implications of Rule 14a-9 for proxy voting 
advice specifically, and to help ensure that [PVABs'] clients are 
provided with the material information they need to make fully informed 
decisions.'' \173\
---------------------------------------------------------------------------

    \171\ 2020 Adopting Release at 55121.
    \172\ 17 CFR 240.14a-9, note (e).
    \173\ 2020 Adopting Release at 55121.
---------------------------------------------------------------------------

1. Proposed Amendment
    In the 2021 Proposing Release, the Commission proposed to amend 
Rule 14a-9 by deleting Note (e). The proposed amendment was intended to 
address concerns by PVABs, their clients, and other investors that the 
Commission's adoption of Note (e) to Rule 14a-9 had created uncertainty 
regarding the application of Rule 14a-9 to proxy voting advice and that 
such uncertainty unnecessarily increases the litigation risk to PVABs 
and impairs the independence of the proxy voting advice that investors 
use to make their voting decisions.\174\ That proposed amendment also 
was intended to address any misperception that the Commission's 
adoption of Note (e) purported to determine or alter the law governing 
Rule 14a-9's application and scope, including its application to 
statements of opinion, in order to reduce any resulting uncertainty 
that could lead to increased litigation risks, or the threat of 
litigation, and impaired independence of proxy voting advice.\175\
---------------------------------------------------------------------------

    \174\ 2021 Proposing Release at 67389-90.
    \175\ Id. at 67390.
---------------------------------------------------------------------------

    Notwithstanding the proposed deletion of Note (e) to Rule 14a-9, 
the Commission stated that PVABs ``may, depending on the facts and 
circumstances, be subject to liability under Rule 14a-9 for a 
materially misleading statement or omission of fact, including with 
regard to its methodology, sources of information or conflicts of 
interest,'' and that ``such conclusion would not be altered by virtue 
of our proposed deletion of Note (e).'' \176\ The Commission also 
provided a discussion regarding the application of Rule 14a-9 to proxy 
voting advice, in particular with respect to a PVAB's statements of 
opinion.\177\
---------------------------------------------------------------------------

    \176\ Id.
    \177\ See id.
---------------------------------------------------------------------------

2. Comments Received
    Commenters expressed a range of views on the proposed amendment to 
Rule 14a-9. A number of commenters supported the proposed deletion of 
Note (e) to Rule 14a-9.\178\ Some of these commenters reiterated the 
concerns regarding the 2020 Final Rules that prompted the Commission to 
issue the 2021 Proposed Amendments, including that the threat of 
litigation as a result of Note (e) would impair the independence and 
decrease the quality of proxy voting advice \179\ and that heightened 
legal risks as a result of Note (e) would increase compliance costs for 
PVABs, which could increase the cost of proxy voting advice for their 
clients.\180\ One commenter also asserted that increased costs of proxy 
voting advice as a result of Note (e) could reduce some clients' use of 
proxy voting advice and result in less shareholder engagement and 
participation in shareholder voting and that deleting Note (e) would 
provide PVABs with more legal certainty, as Note (e) has created 
ambiguity as to the nature and scope of PVABs' Rule 14a-9 
liability.\181\
---------------------------------------------------------------------------

    \178\ See letters from Alliance; Anonymous 1; Ben J.; Better 
Markets; CalPERS; CII; CO Retirement; D. Jamieson; Glass Lewis; IAA; 
ICGN; ISS; J. Giorgio; MFA; NASAA; New York Comptroller; Ohio Public 
Retirement; RK Invest Law and ESG Legal Services; US SIF.
    \179\ See letters from IAA; MFA; NASAA; New York Comptroller.
    \180\ See letters from CO Retirement; MFA; New York Comptroller.
    \181\ See letter from MFA.
---------------------------------------------------------------------------

    Further, one commenter expressed concern that the examples in Note 
(e) extend beyond material, factual information and subject PVABs to 
the threat of litigation in cases where registrants may disagree with 
the analysis and voting recommendations regardless of whether the 
advice contains factual errors.\182\ Similarly, one commenter suggested 
that Note (e) could invite litigation even if proxy voting advice was 
accurate on the basis that it was somehow misleading because a PVAB did 
not disclose enough about its methodology, sources of information, or 
conflicts of interest.\183\ Other commenters asserted that Note (e) 
should be deleted because it does not appear to add anything of 
interpretive significance \184\ and imposes more stringent obligations 
on PVABs than registrants.\185\
---------------------------------------------------------------------------

    \182\ See id.
    \183\ See letter from Glass Lewis.
    \184\ See letter from NASAA.
    \185\ See letter from CalPERS.
---------------------------------------------------------------------------

    In addition to reiterating some of the concerns that prompted the 
2021 Proposed Amendments, supporting commenters also critiqued the 
process by which the Commission adopted Note (e). For example, as noted 
earlier, some commenters asserted that the 2020 Final Rules were flawed 
because they did not provide credible evidence of a market failure that 
would warrant further regulation of PVABs or their advice.\186\ Another 
commenter maintained that the Commission neither sufficiently explained 
how the examples in Note (e) created a risk of misleading PVABs' 
clients nor clarified its expectations for non-misleading 
disclosure.\187\
---------------------------------------------------------------------------

    \186\ See letters from Better Markets; Glass Lewis; US SIF.
    \187\ See letter from Glass Lewis.
---------------------------------------------------------------------------

    Finally, and more broadly, some commenters asserted that subjecting 
PVABs to Rule 14a-9 liability unnecessarily increases PVABs' litigation 
risks and could impair the independence and increase the costs of proxy 
voting advice,\188\ and another commenter expressed concern regarding 
the constitutionality of the 2020 Final Rules and requested that the 
Commission ``fix'' those rules by adopting the 2021 Proposed 
Amendments.\189\
---------------------------------------------------------------------------

    \188\ See letters from CII; Glass Lewis.
    \189\ See letter from D. Jamieson.
---------------------------------------------------------------------------

    Other commenters opposed deleting Note (e).\190\ Several of those 
commenters expressed process-based concerns regarding the 2021 Proposed 
Amendments that were similar to those they expressed in the context of 
the proposed amendments to Rule 14a-2(b)(9).\191\
---------------------------------------------------------------------------

    \190\ See letters from ACCF; Anonymous 2; A. Smith; BIO; BRT; B. 
Zycher; CBT; CCMC I; CCMC II; E. Mills; FedEx; MasterCraft; NAM; 
Nasdaq; Natural Gas Services; NIRI; Pacific Research; Prof. Verret; 
Profs. Rose and Walker; Reps. Steil and Huizenga; Steve Milloy (Jan. 
3, 2022) (``S. Milloy''); T. Doyle; Virtu.
    \191\ See supra notes 66-70 and accompanying text.
---------------------------------------------------------------------------

    Some commenters opposed deleting Note (e) based on concerns 
regarding the detrimental effect that such amendment could have on 
proxy voting advice. For example, some commenters stated that the 
deletion of Note (e) would weaken antifraud provisions that were 
intended to protect investors against PVABs' false or misleading 
statements.\192\ Other commenters asserted that deleting Note (e) could 
reduce transparency in the public markets \193\ and could actually lead 
to increased litigation for PVABs.\194\
---------------------------------------------------------------------------

    \192\ See letters from ACCF; NAM; NIRI.
    \193\ See letters from Nasdaq; Natural Gas Services.
    \194\ See letter from T. Doyle.
---------------------------------------------------------------------------

    In addition, one commenter stated that Note (e) is ``critical'' to 
ensuring that Rule 14a-9 fully and fairly applies to PVABs and that 
they are held to comparable liability standards as other soliciting 
entities.\195\ Other commenters asserted, as they did in the context of 
the proposed amendments to Rule 14a-

[[Page 43180]]

2(b)(9), that the 2020 Final Rules should not be rescinded given the 
continued prevalence of errors in and disagreements by registrants with 
proxy voting advice, based on the ACCF study.\196\ Similarly, one 
commenter cited a 2021 research paper that found that PVABs' advice 
favors ESG proposals that may not necessarily be in the best economic 
interests of all investors.\197\
---------------------------------------------------------------------------

    \195\ See letter from NAM.
    \196\ See letters from ACCF; CCMC II; Natural Gas Services; 
NIRI; Profs. Rose and Walker. See supra notes 80-82 and accompanying 
text for a description of the ACCF study.
    \197\ See letter from CCMC II.
---------------------------------------------------------------------------

    Other commenters disagreed with the Commission's bases for 
proposing to delete Note (e). Several commenters disputed the 2021 
Proposing Release's suggestion that Note (e) caused misperceptions as 
to the applicability of Rule 14a-9 to proxy voting advice.\198\ Other 
commenters asserted that the deletion of Note (e) will lead to more 
confusion, not less, when interpreting the application of the rule to 
proxy voting advice.\199\ In addition, some commenters characterized 
the deletion of Note (e) as exempting PVABs from Rule 14a-9 liability 
\200\ and asserted that PVABs should be held to the same standard of 
liability and accountability as other similar market participants.\201\
---------------------------------------------------------------------------

    \198\ See letters from NAM; Profs. Rose and Walker.
    \199\ See letters from BRT; CCMC II; T. Doyle.
    \200\ See letter from Profs. Rose and Walker.
    \201\ See letters from BIO; NIRI.
---------------------------------------------------------------------------

    In addition, one commenter addressed the Commission's discussion in 
the 2021 Proposing Release regarding the application of Rule 14a-9 to 
proxy voting advice.\202\ The commenter expressed concern that the 
Commission's discussion did not ``appreciate the wealth of conflicted 
reasons why a [PVAB] may be making a recommendation,'' and stated that 
a PVAB may ``be making a recommendation on the basis of little evidence 
despite purporting to conduct robust analysis of the vote's impact on 
shareholder returns.'' \203\ This commenter also expressed the view 
that the discussion would not receive any judicial deference.\204\
---------------------------------------------------------------------------

    \202\ See letter from Prof. Verret.
    \203\ See id.
    \204\ See id.
---------------------------------------------------------------------------

    Some commenters that generally supported the proposed deletion of 
Note (e) also recommended that the Commission take additional actions 
to address their concerns. For example, some commenters recommended 
that the Commission amend Rule 14a-9 to expressly exempt all or 
portions of proxy voting advice from liability.\205\ One of those 
commenters recommended that the Commission amend Rule 14a-9 to clarify 
that PVABs are not liable simply because a registrant disagrees with 
their subjective determinations in proxy voting advice.\206\ Other 
commenters recommended that the Commission amend Rule 14a-9 to exempt 
PVABs from liability for their voting recommendations, any subjective 
determinations they make in formulating such recommendations, including 
decisions to use a specific analysis, methodology, or information, and 
their decisions regarding how to respond to registrants' disagreements 
with their advice.\207\ One of those commenters stated that such an 
exemption would not harm investors or the integrity of the proxy 
process because PVABs are already subject to a more relevant and robust 
antifraud rule under the Investment Advisers Act of 1940.\208\ Finally, 
another commenter asserted that the Commission should amend Rule 14a-9 
to provide PVABs with a safe harbor from private actions.\209\
---------------------------------------------------------------------------

    \205\ See letters from CII; Glass Lewis; ICGN; ISS; Ohio Public 
Retirement.
    \206\ See letter from ICGN.
    \207\ See letters from CII; ISS.
    \208\ See letter from ISS.
    \209\ See letter from Glass Lewis.
---------------------------------------------------------------------------

    In addition, one commenter that generally supported deleting Note 
(e) expressed concern that the Commission did not consider that the 
drafting and distribution of proxy voting advice to clients can be part 
of a PVAB's broader engagement strategy.\210\ One commenter recommended 
that the Commission require registrants, rather than PVABs, to disclose 
the methodologies and assumptions they use to formulate disclosures in 
public filings.\211\ Another commenter recommended that if the 
Commission does not at least partially exempt PVABs from Rule 14a-9 
liability for their proxy voting advice, it should: (1) reaffirm its 
prior statements about the ``judgmental'' nature of most corporate 
governance issues \212\ and state that subjective determinations on 
corporate governance issues are not subject to Rule 14a-9 liability; 
and (2) clarify that when determining whether an opinion is actionable 
under Rule 14a-9, it is important to consider the context in which the 
statement is made.\213\
---------------------------------------------------------------------------

    \210\ See letter from ICGN.
    \211\ See letter from CalPERS.
    \212\ See letter from Glass Lewis (citing Regulation of 
Communications Among Shareholders, Release No. 34-31326 (Oct. 16, 
1992) [57 FR 48276 (Oct. 22, 1992)]).
    \213\ See id.
---------------------------------------------------------------------------

    Finally, some of the commenters that generally opposed deleting 
Note (e) also made recommendations to the Commission. Consistent with 
their recommendations regarding the proposed amendments to Rule 14a-
2(b)(9), some commenters recommended that the Commission commit to a 
retrospective review of the 2020 Final Rules or issue an Advanced 
Notice of Proposed Rulemaking rather than adopting the 2021 Proposed 
Amendments.\214\ One commenter recommended that, rather than deleting 
Note (e), the Commission provide an interpretation regarding the 
application of Rule 14a-9 to proxy voting advice.\215\ Other commenters 
opposed any efforts to exempt all or parts of proxy voting advice from 
Rule 14a-9 liability.\216\ Another commenter recommended an alternative 
approach of amending Note (e) to include the Commission's view that 
Rule 14a-9 liability does not extend to mere differences of opinion 
regarding proxy voting advice.\217\
---------------------------------------------------------------------------

    \214\ See supra notes 106-107 and accompanying text.
    \215\ See letter from CCMC II.
    \216\ See letters from NAM; NIRI.
    \217\ See letter from Nasdaq.
---------------------------------------------------------------------------

3. Final Amendment
    We are adopting the amendment to Rule 14a-9 as proposed. 
Specifically, we are amending Rule 14a-9 to delete Note (e). We 
reiterate, however, that this amendment is not intended to, and does 
not, affect the scope of Rule 14a-9 or its application to proxy voting 
advice, just as the adoption of Note (e) in the 2020 Final Rules was 
not intended to, and did not, affect the scope of Rule 14a-9 or its 
application to proxy voting advice. Thus, to the extent that a PVAB's 
proxy voting advice constitutes a ``solicitation'' under Rule 14a-
1(l)(1)(iii)(A), it is subject to liability under Rule 14a-9 to the 
same extent that any other solicitation is, or would have been, prior 
to the 2020 Final Rules. And, like any other person that engages in a 
solicitation, a PVAB may, depending on the facts and circumstances, be 
subject to liability under Rule 14a-9 for a material misstatement of 
fact in, or an omission of material fact from, its proxy voting advice, 
including with regard to its methodology, sources of information, or 
conflicts of interest.
    While several commenters expressed concerns regarding the potential 
impact of the deletion of Note (e),\218\ as the Commission explained in 
the 2020 Adopting Release, Note (e) itself did not alter Rule 14a-9's 
application or scope.\219\ Rather, Note (e) was intended to further 
clarify the application of Rule

[[Page 43181]]

14a-9 to proxy voting advice by providing examples of what may, 
depending on the particular facts and circumstances, be misleading 
within the meaning of Rule 14a-9 with respect to proxy voting 
advice.\220\ However, PVABs, their clients, and other investors have 
asserted that, instead of clarifying the application of Rule 14a-9 to 
proxy voting advice, Note (e) has in fact heightened legal uncertainty, 
particularly with respect to PVABs' statements of opinion, and that 
such uncertainty unnecessarily increases the litigation risk to PVABs 
and threatens the independence of their advice.\221\
---------------------------------------------------------------------------

    \218\ See supra notes 192-193, 195-196, 199-201 and accompanying 
text.
    \219\ See 2020 Adopting Release at 55121.
    \220\ See id.
    \221\ See supra notes 179-180 and accompanying text; see also 
2021 Proposing Release at 67389-90 & n.74.
---------------------------------------------------------------------------

    In retrospect, we conclude that Note (e) has created a risk of 
confusion regarding the application of Rule 14a-9 to proxy voting 
advice in at least two respects. First, the fact that Note (e) concerns 
a particular type of solicitation--in contrast to the other paragraphs 
of the note, which apply to all types of solicitations--unintentionally 
could imply that proxy voting advice poses heightened concerns and 
should be treated differently than other types of solicitations under 
Rule 14a-9. Second, singling out a PVAB's methodology, sources of 
information, and conflicts of interest as examples of material 
information regarding proxy voting advice unintentionally could suggest 
that PVABs have a unique obligation to disclose that information with 
their advice. Note (e), however, was not intended to impose any such 
affirmative requirement. Whether such information must be disclosed 
depends on the same facts and circumstances-based analysis that applies 
to all solicitations. Accordingly, because Note (e) appears not to have 
achieved--and, instead, appears to have undermined--its stated goal, we 
conclude that deleting Note (e) is appropriate.\222\
---------------------------------------------------------------------------

    \222\ We disagree with those commenters who suggested that 
deleting Note (e) will lead to more confusion. See supra note 199 
and accompanying text. We do not believe that returning to the 
status quo that existed before the addition of Note (e) will lead to 
more confusion particularly in light of our repeated emphasis in 
both this release and the 2021 Proposing Release that the deletion 
of Note (e) will have no effect on the scope or application of Rule 
14a-9.
---------------------------------------------------------------------------

    Contrary to the concerns expressed by some commenters,\223\ 
deleting Note (e) does not in any respect weaken the application of 
Rule 14a-9 to proxy voting advice or otherwise reduce antifraud 
protection for investors. Proxy voting advice that falls within the 
scope of Rule 14a-1(l)(1)(iii)(A) is subject to liability under Rule 
14a-9(a) to the same extent as any other solicitation.\224\ Just as the 
addition of Note (e) did not alter the application of Rule 14a-9 to 
proxy voting advice, our deletion of it will not do so either. Thus, 
any suggestion that the deletion of Note (e) would provide PVABs with 
an exemption from Rule 14a-9 liability is incorrect.
---------------------------------------------------------------------------

    \223\ See supra notes 192, 195, 200 and accompanying text.
    \224\ The definition of ``solicitation'' is set forth in Rule 
14a-1(l) and includes, in paragraph (1)(iii)(A), certain types of 
proxy voting advice. 17 CFR 240.14a-1(l)(1)(iii)(A). Rule 14a-9(a), 
in turn, provides that ``[n]o solicitation . . . shall be made . . . 
containing any statement which, at the time and in the light of the 
circumstances under which it is made, is false or misleading with 
respect to any material fact, or which omits to state any material 
fact necessary in order to make the statements therein not false or 
misleading.'' 17 CFR 240.14a-9(a).
---------------------------------------------------------------------------

    As was the case both before and after Note (e) was added to Rule 
14a-9, a PVAB may, depending on the particular facts and circumstances, 
be subject to liability for a material misstatement in, or an omission 
of material fact from, proxy voting advice covered by Rule 14a-
1(l)(1)(iii)(A), including with regard to its methodology, sources of 
information, or conflicts of interest.
    We recognize that PVABs, their clients, and other investors 
continue to express concerns about whether Rule 14a-9 liability may 
extend to mere differences of opinion regarding proxy voting advice. We 
are therefore reiterating our understanding of the limited 
circumstances in which a PVAB's statement of opinion may subject it to 
liability under Rule 14a-9, consistent with the discussion in the 2021 
Proposing Release. We recognize that the formulation of proxy voting 
advice often requires subjective determinations and the exercise of 
professional judgment, and we do not interpret Rule 14a-9 to subject 
PVABs to liability for such determinations simply because a registrant 
holds a differing view.
    Our understanding that Rule 14a-9 liability does not extend to mere 
differences of opinion is supported by the Supreme Court's decisions in 
Omnicare, Inc. v. Laborers District Council Construction Industry 
Pension Fund \225\ and Virginia Bankshares, Inc. v. Sandberg.\226\ As 
noted above, Rule 14a-9 prohibits misstatements or omissions of 
``material fact.'' In Omnicare, the Court explained that ``a sincere 
statement of pure opinion is not an `untrue statement of material 
fact''' even if the belief is wrong.\227\ Thus, to state a claim under 
Rule 14a-9, it would not be enough to allege that a PVAB's opinions--
regarding, for example, its determination to select a particular 
analysis or methodology to formulate its voting recommendations or the 
ultimate voting recommendations themselves--were wrong.\228\
---------------------------------------------------------------------------

    \225\ 575 U.S. 175 (2015).
    \226\ 501 U.S. 1083 (1991). While Omnicare involved claims 
brought under Section 11 of the Securities Act of 1933, we believe 
its discussion of the circumstances in which a statement of opinion 
may be actionable under that provision applies to Rule 14a-9. See 
Omnicare, 575 U.S. at 185 n.2 (noting that Rule 14a-9 ``bars conduct 
similar to that described in Sec.  11''); see also, e.g., Golub v. 
Gigamon, Inc., 994 F.3d 1102 (9th Cir. 2021) (holding that the 
Omnicare standards apply to claims under Rule 14a-9); Paradise Wire 
& Cable Defined Benefit Pension Plan v. Weil, 918 F.3d 312, 322-23 
(4th Cir. 2019) (applying the Omnicare standards to claims under 
Rule 14a-9).
    \227\ 575 U.S. at 186.
    \228\ Id. at 194.
---------------------------------------------------------------------------

    As the Court explained in Omnicare, there are three ways in which a 
statement of opinion may be actionable as a misstatement or omission of 
material fact. First, every statement of opinion ``explicitly affirms 
one fact: that the speaker actually holds the stated belief.'' \229\ 
Thus, a PVAB may be subject to liability under Rule 14a-9 for a 
statement of opinion that ``falsely describe[s]'' its view as to the 
voting decision that it believes the client should make.\230\ Second, a 
statement of opinion may contain ``embedded statements of fact'' which, 
if untrue, may be a source of liability under Rule 14a-9.\231\ And 
third, ``a reasonable investor may, depending on the circumstances, 
understand an opinion statement to convey facts about how the speaker 
has formed the opinion--or, otherwise put, about the speaker's basis 
for holding that view.'' \232\ A PVAB's statement of opinion may thus 
give rise to liability if it ``omits material facts about the [PVAB's] 
inquiry into or knowledge concerning [the] statement'' and ``those 
facts conflict with what a reasonable investor would take from the 
statement itself.'' \233\
---------------------------------------------------------------------------

    \229\ Id. at 184.
    \230\ Id.; see also Virginia Bankshares, 501 U.S. at 1092, 1095. 
For example, if a speaker states the belief that a company has the 
highest market share, while knowing that the company in fact has the 
second highest market share, that statement of belief would be an 
``untrue statement of fact'' about the speaker's own belief.
    \231\ Omnicare, 575 U.S. at 185-86; see also Virginia 
Bankshares, 501 U.S. at 1092, 1095. For example, in stating its 
opinion that shareholders should vote for a particular director-
candidate, a PVAB may support that opinion by reference to that 
candidate's prior professional experience. Those descriptions of the 
candidate's professional experience would be statements of fact 
potentially subject to liability under Rule 14a-9, notwithstanding 
the context in which they were made (i.e., as support for a 
statement of opinion).
    \232\ Omnicare, 575 U.S. at 188.
    \233\ Id. at 189. In Omnicare, the court offered the example of 
``an unadorned statement of opinion about legal compliance: `We 
believe our conduct is lawful.''' Id. at 188. The court noted that 
``[i]f the issuer makes that statement without having consulted a 
lawyer, it could be misleadingly incomplete.'' Id. This example can 
also be applied to a PVAB's proxy voting advice if, for example, it 
makes a statement of opinion regarding the legality of a 
registrant's proposal or corporate action without having consulted a 
lawyer.

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[[Page 43182]]

    Omnicare and Virginia Bankshares support our view that neither mere 
disagreement with a PVAB's analysis, methodology, or opinions, nor a 
bare assertion that a PVAB failed to reveal the basis for its 
conclusions, would suffice to state a claim under Rule 14a-9. Rather, a 
litigant ``must identify particular (and material) facts'' indicating a 
misstatement or omission of a material fact that renders a PVAB's 
statements misleading in one of the three senses above--which, the 
Supreme Court noted, is ``no small task.'' \234\ As such, a PVAB would 
not face liability under Rule 14a-9 for exercising its discretion to 
rely on a particular analysis, methodology, or set of information--
while relying less heavily on or not adopting alternative analyses, 
methodologies, or sets of information, including those advanced by a 
registrant or other party--when formulating its voting recommendations. 
Similarly, a PVAB would not face liability under Rule 14a-9, for 
example, simply because it did not accept a registrant's suggested 
revisions to its proxy voting advice concerning such discretionary 
matters. Instead, a PVAB's potential liability under Rule 14a-9 \235\ 
turns on whether its proxy voting advice contains a material 
misstatement or omission of fact.\236\
---------------------------------------------------------------------------

    \234\ Id. at 194. We further note that both Omnicare and 
Virginia Bankshares were cases against registrants; we are not aware 
of any enforcement actions or private lawsuits against a PVAB based 
on statements of opinion in connection with proxy voting matters.
    \235\ This release does not address any duties or liabilities 
that a PVAB may have under the Investment Advisers Act of 1940, as 
applicable.
    \236\ Several commenters expressed concern that a statement in 
the Interpretive Release suggests a PVAB may be subject to liability 
under Rule 14a-9 for its ``opinions, reasons, recommendations or 
beliefs'' even in the absence of a misstatement or omission of 
material fact. See letters from Glass Lewis; ISS. That is not the 
case. Rather, the Commission noted, citing Virginia Bankshares, that 
``Rule 14a-9 extends to opinions, reasons, recommendations, or 
beliefs that are disclosed as part of a solicitation, which may be 
statements of material facts for purposes of the rule.'' 
Interpretive Release at 47419 & n.31 (emphasis added). That 
statement is consistent with, and was merely intended to reflect, 
the case law summarized above regarding the limited circumstances in 
which a statement of opinion may be actionable under Rule 14a-9 as a 
misstatement or omission of material fact.
---------------------------------------------------------------------------

    One commenter asserted that the Commission's discussion in the 2021 
Proposing Release ``fails to appreciate that any statements of opinion 
by [PVABs] must be considered as a part of the total mix of information 
being provided by [PVABs] as to how their opinions are generated'' and 
that ``[a]ny statement of opinion by a [PVAB] will carry with it the 
implicit representation that the opinion was generated using the robust 
methodologies otherwise described by [PVABs], and the implicit 
representation that the [PVAB's] opinion is not the result of a 
conflict of interest.'' \237\ However, Omnicare and Virginia Bankshares 
recognize that statements of opinion can, in some circumstances, carry 
such implicit factual representations as to the basis for the opinion. 
Further, we do not believe that the commenter has offered any basis to 
conclude that the principles set forth in those cases should or would 
apply differently to proxy voting advice.
---------------------------------------------------------------------------

    \237\ See letter from Prof. Verret.
---------------------------------------------------------------------------

    The same commenter also asserted that the discussion in the 2021 
Proposing Release will not receive judicial deference.\238\ That 
assertion misunderstands the purpose of that discussion, which is to 
summarize our understanding of the applicable case law to help clarify 
for market participants the limited circumstances in which a PVAB's 
statement of opinion may be subject to liability under Rule 14a-9. To 
the extent this discussion does provide such clarity, we believe it may 
help mitigate the concerns regarding uncertainty as to the application 
of Rule 14a-9 to PVABs' statements of opinion that could impair the 
independence of their proxy voting advice.
---------------------------------------------------------------------------

    \238\ Id.
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    In addition, while one commenter recommended that, rather than 
delete Note (e), we should amend it to include our view that Rule 14a-9 
liability does not extend to mere differences of opinion regarding 
proxy voting advice,\239\ we decline to do so. Amending Note (e) as 
that commenter suggested would not address our reasons for deleting it. 
For example, even with the commenter's suggested change, Note (e) would 
continue to raise a risk of confusion regarding the application of Rule 
14a-9 to proxy voting advice because it would continue to single out 
proxy voting advice and its methodology, its sources of information, 
and any conflicts of interest.
---------------------------------------------------------------------------

    \239\ See supra note 217 and accompanying text.
---------------------------------------------------------------------------

    Although some commenters that generally supported the 2021 Proposed 
Amendments recommended that we exempt all or portions of proxy voting 
advice from Rule 14a-9 liability,\240\ we are not doing so. We believe 
that the law we have summarized above regarding the application of Rule 
14a-9 to statements of opinion adequately addresses the concerns that 
PVABs, their clients, and others have expressed regarding the potential 
for perceived litigation risks to impair the independence of proxy 
voting advice, particularly in conjunction with our deletion of Note 
(e). Exempting all or parts of proxy voting advice from Rule 14a-9 
liability entirely could eliminate liability even in the narrow 
circumstances considered in Omnicare and Virginia Bankshares, in which 
statements of opinion in such advice contain a material misstatement or 
omission. We believe that it is appropriate to continue to subject 
proxy voting advice to Rule 14a-9 liability for material misstatements 
or omissions to help ensure that PVABs' clients are provided with the 
information they need to make fully informed voting decisions and to 
mitigate some of the concerns that opposing commenters raised in their 
comment letters.\241\
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    \240\ See supra notes 205-209 and accompanying text.
    \241\ See, e.g., supra notes 102-105 and accompanying text 
(expressing concern that, without the Rule 14a-2(b)(9)(ii) 
conditions, PVABs will be exempt from the proxy rules' information 
and filing requirements without sufficient alternative investor 
protection mechanisms, the transparency of proxy voting advice could 
suffer, and the conflicts of interest disclosure requirement in Rule 
14a-2(b)(9)(i) will be hollow); supra notes 192-193 and accompanying 
text (expressing concern that the deletion of Note (e) will weaken 
antifraud provisions that were intended to protect investors against 
PVABs' false or misleading statements and reduce transparency in the 
public markets); supra note 196 and accompanying text (expressing 
concern regarding the prevalence of errors in proxy voting advice); 
supra note 216 and accompanying text (expressing concern about any 
efforts to exempt all or parts of proxy voting advice from Rule 14a-
9 liability).
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    Finally, we note that several commenters expressed similar process-
based concerns regarding the proposed deletion of Note (e) as they 
expressed with respect to the proposed amendments to Rule 14a-
2(b)(9).\242\ However, for the reasons discussed in Section II.A.3 and 
above, we believe that deleting Note (e) is appropriate.\243\
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    \242\ See supra note 191 and accompanying text.
    \243\ See supra note 155 and accompanying text. Further, the 
timing-based concerns that opposing commenters expressed with 
respect to the 2021 Proposed Amendments are less relevant with 
respect to Note (e) given that Note (e) became effective on Nov. 2, 
2020, before we issued the 2021 Proposed Amendments. 2020 Adopting 
Release at 55082, 55122.
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III. Other Matters

    If any of the provisions of these amendments, or the application 
thereof to any person or circumstance, is held

[[Page 43183]]

to be invalid, such invalidity shall not affect other provisions or the 
application of such provisions to other persons or circumstances that 
can be given effect without the invalid provision or application. In 
particular, the amendments to Rule 14a-2(b)(9) operate independently 
from the amendments to Rule 14a-9.
    Pursuant to the Congressional Review Act, the Office of Information 
and Regulatory Affairs has designated these amendments a ``major 
rule,'' as defined by 5 U.S.C. 804(2).

IV. Economic Analysis

    As discussed above, the purpose of these amendments is to avoid 
burdens on PVABs that may impede and impair the timeliness and 
independence of proxy voting advice and avoid misperceptions regarding 
the application of Rule 14a-9 liability to proxy voting advice, while 
also preserving investors' confidence in the integrity of such advice. 
Specifically, we are amending Rule 14a-2(b)(9) to rescind the Rule 14a-
2(b)(9)(ii) conditions (as well as the related safe harbors and 
exclusions set forth in Rules 14a-2(b)(9)(iii) through (vi)) to address 
the risks that these conditions pose to the cost, timeliness, and 
independence of proxy voting advice on which many investors rely. We 
also are amending Rule 14a-9 to delete paragraph (e) of the Note to 
that rule because Note (e) appears not to have achieved--and, instead, 
appears to have undermined--its stated goal.
    The discussion below addresses the economic effects of the 
amendments, including their anticipated costs and benefits, as well as 
the likely effects of the amendments on efficiency, competition and 
capital formation.\244\ We also analyze the potential costs and 
benefits of reasonable alternatives to these amendments. Where 
practicable, we have attempted to quantify the economic effects of the 
amendments; however, in most cases, we are unable to do so because 
either the necessary data is unavailable or certain effects are not 
quantifiable.
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    \244\ Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)] 
directs the Commission, when engaging in rulemaking where it is 
required to consider or determine whether an action is necessary or 
appropriate in the public interest, to consider, in addition to the 
protection of investors, whether the action will promote efficiency, 
competition, and capital formation. Further, Section 23(a)(2) of the 
Exchange Act [17 U.S.C. 78w(a)(2)] requires the Commission when 
making rules under the Exchange Act, to consider the impact that the 
rules would have on competition, and prohibits the Commission from 
adopting any rule that would impose a burden on competition not 
necessary or appropriate in furtherance of the purposes of the 
Exchange Act.
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A. Economic Baseline

    The baseline against which the costs, benefits, and the impact on 
efficiency, competition, and capital formation of the amendments are 
measured consists of the current regulatory requirements applicable to 
registrants, PVABs, investment advisers, and other clients of PVABs, as 
well as current industry practices used by these entities in connection 
with the preparation, distribution, and use of proxy voting advice.
    The 2020 Adopting Release provided an overview of the role of PVABs 
in the proxy process, including a discussion of existing economic 
research on PVABs and the nature of proxy voting advice they 
provide.\245\
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    \245\ See 2020 Adopting Release at 55122-32.
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1. Affected Parties and Current Market Practices
a. Proxy Voting Advice Businesses
    As of November 2021, the proxy voting advice industry in the United 
States consists of three major firms: ISS, Glass Lewis, and Egan-Jones.
     ISS, founded in 1985, is a privately held company that 
provides research and analysis of proxy issues, custom policy 
implementation, vote recommendations, vote execution, governance data, 
and related products and services.\246\ ISS also provides advisory/
consulting services, analytical tools, and other products and services 
to corporate registrants through ISS Corporate Solutions, Inc. (a 
wholly owned subsidiary).\247\ As of May 2022, ISS had nearly 2,600 
employees in 29 locations, and covers approximately 48,000 shareholder 
meetings in 115 countries, annually.\248\ ISS states that it executes 
more than 12.8 million ballots annually on behalf of its clients 
representing 5.4 trillion shares.\249\ ISS is registered with the 
Commission as an investment adviser and identifies itself as a pension 
consultant providing advice to plans with more than $200 million as the 
basis for registering as an adviser.\250\
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    \246\ See U.S. Gov't Accountability Office, GAO-17-47, Report to 
the Chairman, Subcommittee on Economic Policy, Committee on Banking, 
Housing, and Urban Affairs, U.S. Senate, Corporate Shareholder 
Meetings: Proxy Advisory Firms' Role in Voting and Corporate 
Governance Practices, 6 (2016), available at https://www.gao.gov/assets/690/681050.pdf (``2016 GAO Report'').
    \247\ Id.
    \248\ See ISS, About ISS, available at https://www.issgovernance.com/about/about-iss.
    \249\ See id.
    \250\ See ISS, Form ADV (Mar. 31, 2022), available at https://reports.adviserinfo.sec.gov/reports/ADV/111940/PDF/111940.pdf (``ISS 
Form ADV filing''); see also 2016 GAO Report, supra note 246, at 9.
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     Glass Lewis, established in 2003, is a privately held 
company that provides research and analysis of proxy issues, custom 
policy implementation, vote recommendations, vote execution, and 
reporting and regulatory disclosure services to institutional 
investors.\251\ As of May 2022, Glass Lewis had more than 380 employees 
worldwide that provide services to more than 1,300 clients that 
collectively manage more than $40 trillion in assets.\252\ Glass Lewis 
states that it covers more than 30,000 shareholder meetings across 
approximately 100 global markets annually.\253\ Glass Lewis is not 
registered with the Commission in any capacity.
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    \251\ 2016 GAO Report, supra note 246, at 7.
    \252\ See Glass Lewis, Company Overview, available at https://www.glasslewis.com/company-overview/.
    \253\ Id.
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     Egan-Jones was established in 2002 as a division of Egan-
Jones Ratings Company.\254\ Egan-Jones is a privately held company that 
provides proxy services, such as notification of meetings, research, 
and recommendations on selected matters to be voted on, voting 
guidelines, execution of votes, and regulatory disclosure.\255\ As of 
September 2016, Egan-Jones' proxy research or voting clients mostly 
consisted of mid- to large-sized mutual funds,\256\ and the firm 
covered approximately 40,000 companies.\257\ Egan-Jones Ratings Company 
(Egan-Jones' parent company) is registered with the Commission as a 
Nationally Recognized Statistical Ratings Organization.\258\
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    \254\ See 2016 GAO Report, supra note 246, at 7.
    \255\ Id.
    \256\ Id.
    \257\ Id. While ISS and Glass Lewis have published updated 
coverage statistics on their websites, the most recent data 
available for Egan-Jones was compiled in the 2016 GAO Report.
    \258\ See Order Granting Registration of Egan-Jones Rating 
Company as a Nationally Recognized Statistical Rating Organization, 
Exchange Act Release No. 34-57031 (Dec. 21, 2007), available at 
https://www.sec.gov/ocr/ocr-current-nrsros.html#egan-jones.
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    Of these PVABs, ISS and Glass Lewis are the largest and most often 
used for proxy voting advice.\259\ We do not have

[[Page 43184]]

access to general financial information for ISS, Glass Lewis, or Egan-
Jones such as annual revenues, earnings before interest, taxes, 
depreciation and amortization, and net income. We also do not have 
access to client-specific financial information or more general or 
aggregate information regarding the economics of the PVAB industry.
---------------------------------------------------------------------------

    \259\ See 2016 GAO Report, supra note 246, at 8, 41 (``In some 
instances, we focused our review on Institutional Shareholder 
Services (ISS) and Glass Lewis and Co. (Glass Lewis), because they 
have the largest number of clients in the proxy advisory firm market 
in the United States.''). See also letters in response to the SEC 
Staff Roundtable on the Proxy Process from Center on Executive 
Compensation (Mar. 7, 2019) (noting that there are ``two firms 
controlling roughly 97% of the market share for such services''); 
Society for Corporate Governance (Nov. 9, 2018) (``While there are 
five primary proxy advisory firms in the U.S., today the market is 
essentially a duopoly consisting of Institutional Shareholder 
Services . . . and Glass Lewis & Co. . . . .'').
---------------------------------------------------------------------------

    As part of our consideration of the baseline for the amendments, we 
focus on the industry practice that is particularly relevant for the 
amendments to Rule 14a-2(b)(9): PVABs' procedures for engaging with 
registrants. As mentioned above and in the 2021 Proposing Release,\260\ 
all three major PVABs have certain policies, procedures, and 
disclosures in place intended to provide assurances to clients about 
the information used to formulate the proxy voting advice they 
receive.\261\ In some cases, PVABs seek input from registrants to 
further these objectives. Glass Lewis and Egan-Jones offer registrants 
some form of pre-release review of at least some of their proxy voting 
advice reports, or the data used in their reports. ISS does not provide 
draft proxy voting advice to any United States registrants, but it 
engages with registrants during the process of formulating its proxy 
voting advice. All three PVABs also offer registrants access to proxy 
voting advice after it is distributed to clients, in some cases for a 
fee, and offer mechanisms by which registrants can provide feedback on 
such advice. Finally, the 2021 Annual Report of the Independent 
Oversight Committee (the ``Oversight Committee'') of the Best Practice 
Principles Group (the ``BPPG''), an industry group composed of six 
PVABs that includes ISS and Glass Lewis,\262\ found that all member 
firms met the standards established in the BPPG's three Best Practices 
Principles for Providers of Shareholder Voting Research and 
Analysis,\263\ which include communication with and feedback from 
registrants.\264\ The Oversight Committee--which is composed of non-
PVAB stakeholders in proxy voting advice, including representatives 
from the institutional investor, registrant, and academic communities--
is responsible for reviewing the BPPG member-PVABs' compliance with the 
principles. This report did not include Egan-Jones because it is not a 
member of the BPPG.
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    \260\ See 2021 Proposing Release at 67386-87.
    \261\ See id.
    \262\ The BPPG was formed in 2013 after the European Securities 
and Markets Authority requested that PVABs engage in a coordinated 
effort to develop an industry-wide code of conduct focusing on 
enhancing transparency and disclosure. See Best Practice Principles 
Oversight Committee, Annual Report 2021 at 7 (July 1, 2021), 
available at https://bppgrp.info/wp-content/uploads/2021/07/2021-AR-Independent-Oversight-Committee-for-The-BPP-Group-1.pdf (``2021 
Annual Report''). Its six member-PVABs are Glass Lewis, ISS, 
Minerva, PIRC, Proxinvest, and EOS at Federated Hermes. Id.
    \263\ See Stephen Davis, First Independent Report on Proxy 
Voting Advisory Firm Best Practices (July 14, 2021), available at 
https://corpgov.law.harvard.edu/2021/07/14/first-independent-report-on-proxy-voting-advisory-firm-best-practices/; see also 2021 Annual 
Report, supra note 262.
    \264\ The three principles are (1) service quality; (2) 
conflicts-of-interest avoidance or management; and (3) 
communications policy. See 2021 Annual Report, supra note 262, at 
33-34.
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    Additionally, it is our understanding that some PVABs currently 
provide their clients with notifications of and links to filings by 
registrants that are the subject of proxy voting advice in their online 
platforms.\265\ These notifications and links provide a means for 
clients to access additional definitive proxy materials that 
registrants may file in response to proxy voting advice.
---------------------------------------------------------------------------

    \265\ 2021 Proposing Release at 67388, n.57.
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b. Clients of Proxy Voting Advice Businesses and Underlying Investors
    Clients that use PVABs for proxy voting advice will be affected by 
the amendments. In turn, investors and other groups on whose behalf 
these clients make voting determinations will be affected. One of the 
three major PVABs--ISS--is registered with the Commission as an 
investment adviser and, as such, provides annually updated disclosure 
with respect to its types of clients on Form ADV. Table 1 below reports 
client types as disclosed by ISS.\266\
---------------------------------------------------------------------------

    \266\ See ISS Form ADV filing (describing clients classified as 
``Other'' as ``Academic, vendor, other companies not able to 
identify as above'').

                Table 1--Number of Clients by Client Type
                         [As of March 31, 2022]
------------------------------------------------------------------------
                                                               Number of
                     Type of client \a\                         clients
                                                                  \b\
------------------------------------------------------------------------
Banking or thrift institutions..............................         193
Pooled investment vehicles..................................         317
Investment companies........................................          37
Pension and profit sharing plans............................         173
Charitable organizations....................................          48
State or municipal government entities......................          14
Other investment advisers...................................        1030
Insurance companies.........................................          53
Sovereign wealth funds and foreign official institutions....          11
Corporations or other businesses not listed above...........          79
Other.......................................................         291
                                                             -----------
  Total.....................................................       2,246
------------------------------------------------------------------------
\a\ The table excludes client types for which ISS indicated either zero
  clients or fewer than five clients.
\b\ Form ADV filers indicate the approximate number of clients
  attributable to each type of client. If the filer has fewer than five
  clients in a particular category (other than investment companies,
  business development companies, and pooled investment vehicles), it
  may indicate that it has fewer than five clients rather than reporting
  the number of clients.

    Table 1 illustrates the types of clients that utilize the services 
of one of the largest PVABs. For example, while investment advisers 
(``Other investment advisers'' in Table 1) constitute a 46 percent 
plurality of clients for ISS, other types of clients include pooled 
investment vehicles (14 percent) and pension and profit sharing plans 
(eight percent). Other clients include corporations, charitable 
organizations, and insurance companies.\267\ Certain of these clients, 
such as pension plans, make voting determinations that affect the 
interests of a wide array of individual investors, beneficiaries, and 
other constituents.
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    \267\ Id.
---------------------------------------------------------------------------

c. Registrants
    The amendments also will affect registrants that have a class of 
equity securities registered under Section 12 of the Exchange Act and 
non-registrant parties that conduct proxy solicitations with respect to 
those registrants.\268\ In addition, there are certain other companies 
that do not have a class of equity securities registered under Section 
12 of the Exchange Act that file proxy materials with the Commission. 
Finally, Rule 20a-1 under the Investment Company Act subjects all 
registered management investment companies to the Federal proxy 
rules.\269\
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    \268\ Foreign private registrants are exempt from the Federal 
proxy rules under Rule 3a12-3(b) of the Exchange Act. See 17 CFR 
240.3a12-3. Furthermore, we are not aware of any asset-backed 
registrants that have a class of equity securities registered under 
Section 12 of the Exchange Act. Most asset-backed registrants are 
registered under Section 15(d) of the Exchange Act and thus are not 
subject to the Federal proxy rules. 23 asset-backed registrants 
obtained a class of debt securities registered under Section 12 of 
the Exchange Act as of December 2021. As a result, these asset-
backed registrants are not subject to the Federal proxy rules.
    \269\ Under Rule 20a-1 of the Investment Company Act, registered 
management investment companies must comply with regulations adopted 
pursuant to Section 14(a) of the Exchange Act that would be 
applicable to a proxy solicitation if it were made with respect to a 
security registered pursuant to Section 12 of the Exchange Act. See 
17 CFR 270.20a-1. Additionally, ``registered management investment 
company'' means any investment company other than a face-amount 
certificate company or a unit investment trust. See 15 U.S.C. 80a-4.

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[[Page 43185]]

    We note that because registrants are owned by investors, effects on 
registrants as a result of the amendments will accrue to investors. 
Among the investors in a given registrant, there may be individual 
investors or groups of investors that may want to influence the 
direction that the registrant should pursue. Those individual investors 
or groups of investors could be clients of PVABs. Separately, given the 
principal-agent relationship between shareholders and management of a 
corporation, there may exist conflicts between management of the 
registrant and investors. Some investors therefore may use PVABs' 
advice as part of their decision-making process on a particular matter 
presented for shareholder approval for which management's interests may 
not be aligned with those of investors in general.
    We estimate that, as of December 31, 2021, the amendments may 
affect approximately 18,400 entities. Specifically, there were 
approximately 5,800 registrants with a class of securities registered 
under Section 12 of the Exchange Act \270\ and approximately 30 
companies without a class of securities registered under Section 12 of 
the Exchange Act that filed proxy materials.\271\ In addition, there 
were 12,445 registered management investment companies that were 
subject to the proxy rules: (i) 11,780 open-end funds, out of which 
2,398 were Exchange Traded Funds (``ETFs'') registered as open-end 
funds or open-end funds that had an ETF share class; (ii) 651 closed-
end funds; and (iii) 14 variable annuity separate accounts registered 
as management investment companies.\272\ We also identified 98 Business 
Development Companies (``BDCs'') that could be subject to the 
amendments.\273\
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    \270\ We estimated the number of registrants with a class of 
securities registered under Section 12 of the Exchange Act by 
reviewing all Forms 10-K and 10-K/A filed during calendar year 2021 
with the Commission. After reviewing these forms, we then counted 
the number of unique registrants that identify themselves as having 
a class of securities registered under Section 12(b) or Section 
12(g) of the Exchange Act. This estimate excludes: (1) foreign 
private issuers that filed both Forms 20-F and 40-F; (2) asset-
backed registrants that filed Forms 10-D and 10-D/A; and (3) BDCs 
that filed Form 10-K or an amendment during calendar year 2021 with 
the Commission.
    \271\ We identified these issuers as those that: (1) are subject 
to the reporting obligations of Exchange Act Section 15(d), but do 
not have a class of equity securities registered under Exchange Act 
Section 12(b) or 12(g); and (2) have filed any proxy materials 
during calendar year 2021 with the Commission. To identify 
registrants reporting pursuant to Section 15(d) but not registered 
under Section 12(b) or Section 12(g), we reviewed all Forms 10-K 
filed in calendar year 2020 with the Commission. We then counted the 
number of unique registrants that identified themselves as subject 
to Section 15(d) reporting obligations with no class of equity 
securities registered under Section 12(b) or Section 12(g).
    \272\ We estimated the number of unique registered management 
investment companies based on Forms N-CEN filed between Dec. 2020 
and Dec. 2021 with the Commission. Open-end funds are registered on 
Form N-1A, while closed-end funds are registered on Form N-2. 
Variable annuity separate accounts registered as management 
investment companies are trusts registered on Form N-3.
    \273\ Business development companies are a category of closed-
end investment company that are not registered under the Investment 
Company Act [15 U.S.C. 80a-2(a)(48) and 80a-53-64] and have been 
issued an 814-reporting number. Our estimate includes 82 BDCs that 
filed a Form 10-K in 2021, as well as 16 BDCs that were not traded.
---------------------------------------------------------------------------

    These estimates are an upper bound of the number of potentially 
affected companies because not all of these registrants may file proxy 
materials related to a meeting for which a PVAB issues proxy voting 
advice in a given year. Out of the approximately 18,300 potentially 
affected registrants, approximately 5,565 registrants filed proxy 
materials with the Commission during calendar year 2021.\274\ Out of 
the 5,565 registrants, 4,621 of these registrants (83 percent) were 
Section 12 or Section 15(d) registrants and the remaining 944 
registrants (17 percent) were registered management investment 
companies.
---------------------------------------------------------------------------

    \274\ We considered the following proxy materials in our 
analysis: DEF14A; DEF14C; DEFA14A; DEFC14A; DEFM14A; DEFM14C; 
DEFR14A; DEFR14C; DFAN14A; N-14; PRE 14A; PRE 14C; PREC14A; PREM14A; 
PREM14C; PRER14A; PRER14C. Form N-14 can be a registration statement 
and/or proxy statement. We also manually reviewed all Forms N-14 
filed during calendar year 2021 with the Commission, excluding any 
Forms N-14 that are exclusively registration statements from our 
estimates.
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2. Current Regulatory Framework
    On July 22, 2020, the Commission adopted the 2020 Final Rules. The 
2020 Final Rules:
     Amended Rule 14a-1(l) to codify the Commission's 
interpretation that proxy voting advice generally constitutes a 
``solicitation'' subject to the proxy rules.
     Adopted Rule 14a-2(b)(9) to add new conditions to two 
exemptions (set forth in Rules 14a-2(b)(1) and (3)) that PVABs 
generally rely on to avoid the proxy rules' information and filing 
requirements. Those conditions include:
    [cir] New conflicts of interest disclosure requirements; and
    [cir] The Rule 14a-2(b)(9)(ii) conditions.
     Amended the Note to Rule 14a-9, which prohibits false or 
misleading statements, to include specific examples of material 
misstatements or omissions related to proxy voting advice. 
Specifically, Note (e) provides that the failure to disclose material 
information regarding proxy voting advice, ``such as the [PVAB's] 
methodology, sources of information, or conflicts of interest'' could, 
depending upon particular facts and circumstances, be misleading within 
the meaning of the rule.
    The changes to the definition of ``solicitation'' and to Rule 14a-9 
became effective on November 2, 2020. The conditions set forth in Rule 
14a-2(b)(9) became effective on December 1, 2021. On June 1, 2021, the 
Division of Corporation Finance issued a statement that it would not 
recommend enforcement action based on the Interpretive Release or the 
2020 Final Rules during the period in which the Commission is 
considering further regulatory action in this area. This staff 
statement did not alter the compliance date for the Rule 14a-
2(b)(9)(ii) conditions.

B. Benefits and Costs

    In the following sections, we discuss the economic effects of the 
amendments in terms of the specific benefits and costs of the final 
amendments.
    Several commenters raised broader concerns with how the Commission 
conducted its economic analysis in the 2021 Proposing Release. One 
commenter asserted the Commission did not conduct appropriate due 
diligence in issuing the 2021 Proposing Release and instead relied 
solely on statements made by market participants in private 
meetings.\275\ This commenter also contended that, because the 
Commission did not ``possess any financial or cost information to 
support'' its economic analysis, the Commission ``lacks evidence to 
support the fundamental assumptions that underpin the Proposed Rule.'' 
\276\ We rely on a number of sources of information to inform our 
economic analysis, including publicly available data. And our decision 
to adopt the amendments does not rest on any statements made by market 
participants in private meetings. Moreover, for reasons the Commission 
explained at the time, the analysis of the economic effects of adopting 
Rule 14a-2(b)(9)(ii) was primarily qualitative in nature. In the 2021 
Proposing Release, and for the same reasons, the Commission provided a 
qualitative discussion of the economic effects of rescinding the Rule 
14a-2(b)(9)(ii) conditions. The Commission noted

[[Page 43186]]

where it lacked data and solicited feedback and additional data from 
commenters. Having not received information or data that would permit a 
quantitative analysis, we again engage in a qualitative analysis of the 
costs and benefits of rescinding the conditions.
---------------------------------------------------------------------------

    \275\ See letter from BIO.
    \276\ Id.
---------------------------------------------------------------------------

    Another commenter expressed concern that the economic analysis in 
the 2021 Proposing Release ``makes passing reference to impacts on 
issuers and investors'' and ``focused almost entirely on the costs 
borne and benefits received by the PVABs.'' \277\ We disagree, however, 
as, both in the 2021 Proposing Release and in our discussion below, we 
have substantively discussed and weighed the potential effects of the 
amendments on both registrants and investors, such as the potential 
impact of the rescission of the notice requirement on registrants.
---------------------------------------------------------------------------

    \277\ See letter from CCMC II.
---------------------------------------------------------------------------

1. Benefits
    In this section, we discuss benefits of the amendments that accrue 
to PVABs, their clients, registrants, and investors. The main benefit 
for PVABs from our rescission of the Rule 14a-2(b)(9)(ii) conditions 
would be the reduction of any initial or ongoing \278\ direct costs 
associated with modifying their current systems and methods, or 
developing and maintaining new systems and methods. Those costs have 
been and/or will be incurred to satisfy the requirement of Rule 14a-
2(b)(9)(ii)(A) that PVABs adopt and publicly disclose written policies 
and procedures reasonably designed to ensure that registrants that are 
the subject of proxy voting advice have such advice made available to 
them at or prior to the time when such advice is disseminated to PVABs' 
clients. Additionally, the amendments will reduce the direct costs of 
satisfying the requirement of Rule 14a-2(b)(9)(ii)(B) that PVABs adopt 
and publicly disclose written policies and procedures reasonably 
designed to ensure that PVABs provide clients with a mechanism by which 
they can reasonably be expected to become aware of a registrant's 
written statements about the proxy voting advice in a timely manner 
before the shareholder meeting or, if no meeting, before the votes, 
consents, or authorizations may be used to effect the proposed action. 
Under the safe harbor in Rule 14a-2(b)(9)(iv), a PVAB could satisfy 
this requirement by providing notice to its clients that the registrant 
has filed or has informed the PVAB that it intends to file additional 
soliciting materials and include an active hyperlink to those materials 
on EDGAR when available either: (i) on its electronic client platform; 
or (ii) through email or other electronic means. Both mechanisms for 
informing clients could involve initial set-up costs as well as ongoing 
costs.
---------------------------------------------------------------------------

    \278\ The compliance date for the Rule 14a-2(b)(9)(ii) 
conditions was Dec. 1, 2021. On June 1, 2021, the Division of 
Corporation Finance issued a statement that it would not recommend 
enforcement action based on the Interpretive Release or the 2020 
Final Rules during the period in which the Commission is considering 
further regulatory action in this area. Division of Corporation 
Finance, Statement on Compliance with the Commission's 2019 
Interpretation and Guidance Regarding the Applicability of the Proxy 
Rules to Proxy Voting Advice and Amended Rules 14a-1(1), 14a-2(b), 
14a-9, U.S. Securities and Exchange Commission, available at https://www.sec.gov/news/public-statement/corp-fin-proxy-rules-2021-06-01. 
This staff statement did not alter the Dec. 1, 2021 compliance date 
for the Rule 14a-2(b)(9)(ii) conditions, and thus we recognize that 
PVABs may have already incurred certain costs to modify their 
systems or otherwise ensure that the conditions of the exemption are 
met. Even so, the elimination of these conditions will eliminate any 
ongoing costs or other costs of the conditions that have not yet 
been incurred. To the extent a PVAB has not yet incurred any direct 
costs from the Rule 14a-2(b)(9)(ii) conditions, the amendments will 
eliminate or avoid potential future costs.
---------------------------------------------------------------------------

    One commenter asserted that it is speculative to assume that PVABs 
would realize cost savings as a result of the proposed amendments.\279\ 
According to this commenter, because PVABs have voluntarily adopted 
practices regarding registrant interaction, they likely have already 
absorbed any such costs. The same commenter also expressed concern that 
the Commission could not quantify these costs. We acknowledge, as the 
Commission did in the 2021 Proposing Release, that any benefits from 
the amendments in the form of savings in initial set-up costs may be 
limited to the extent that PVABs either already had similar systems in 
place to meet the requirements of the Rules 14a-2(b)(9)(ii) conditions 
or have made changes to come into compliance with those 
conditions.\280\ Similarly, ongoing cost savings may be limited to the 
extent PVABs retain similar systems. We also acknowledge that we are 
unable to quantify the full range of PVABs' costs resulting from the 
2020 Final Rules, which would vary depending on each PVAB's current 
practices and how they implement the new conditions.\281\ In the 2020 
Adopting Release, for purposes of the Paperwork Reduction Act of 1995 
(``PRA''),\282\ the Commission estimated that each PVAB would incur 
2,845 burden hours to satisfy Rule 14a-2(b)(9)(ii)(A) and 2,845 burden 
hours to satisfy Rule 14a-2(b)(9)(ii)(B).\283\ The Commission also 
estimated that each PVAB would incur a burden of between 50 and 5,690 
hours per year associated with securing an acknowledgment or other 
assurance that the proxy voting advice would not be disclosed.\284\ We 
believe that the amendments will, at a minimum, eliminate these 
estimated PRA burdens, which took into consideration that some PVABs 
may have systems and practices in place that could substantially 
mitigate any overall burden increases.
---------------------------------------------------------------------------

    \279\ See letter from BIO.
    \280\ See 2021 Proposing Release at 67386-87.
    \281\ While some commenters on the 2021 Proposed Rules provided 
cost estimates (e.g., letter from ISS), we do not find those 
estimates persuasive because they were based on the 2019 Proposed 
Rules, which were different than the 2020 Final Rules.
    \282\ 44 U.S.C. 3501 et seq.
    \283\ See 2020 Adopting Release at Section V.B.1.
    \284\ See id.
---------------------------------------------------------------------------

    While there could be various ways a PVAB could comply with the Rule 
14a-2(b)(9)(ii) conditions currently, to rely on the safe harbor in 
Rule 14a-2(b)(9)(iii), a PVAB must provide registrants with a copy of 
the proxy voting advice at no charge. By eliminating the Rule 14a-
2(b)(9)(ii) conditions (and, by extension, the Rule 14a-2(b)(9)(iii) 
safe harbor), the amendments could lead to an increase in PVABs 
choosing to charge registrants for access to their proxy voting advice, 
potentially leading to increased revenues for PVABs.
    Some commenters expressed concern that the Commission's discussion 
of the benefits and costs of the proposed amendments focused primarily 
on the impact on PVABs, ignoring the impact of the amendments on the 
market more broadly.\285\ Contrary to the commenter's suggestion, we 
have considered the impact of the amendments on other parties, 
including registrants and investors generally.\286\ For example, below, 
we discuss the potential effects of the amendments on registrants, 
clients of PVABs, and the investors whose interests these clients 
represent.
---------------------------------------------------------------------------

    \285\ See letters from CCMC II; Prof. Verret.
    \286\ See infra Section IV.B.2.
---------------------------------------------------------------------------

    The amendments may also benefit other parties. PVABs may pass 
through a portion of the costs of modifying, developing, or maintaining 
systems to satisfy the Rule 14a-2(b)(9)(ii) conditions to their clients 
through higher fees for proxy voting advice. To the extent that 
rescinding the Rule 14a-2(b)(9)(ii) conditions also eliminates such 
costs, the cost savings could be passed on to, and therefore could 
benefit, clients of PVABs. One commenter, however, stated that it is 
speculative to assume that PVABs' costs would be passed on to clients 
given the duopolistic nature of the PVAB market.\287\
---------------------------------------------------------------------------

    \287\ See letter from BIO.

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[[Page 43187]]

    PVABs, their clients, and investors in general could also benefit 
to the extent that the final amendments eliminate the possible adverse 
effects of the Rule 14a-2(b)(9)(ii) conditions on the independence of 
proxy voting advice.\288\ Proxy voting advice that is independent may 
provide clients of PVABs and other investors, who become aware of such 
recommendations, with information that would not otherwise have 
appeared in the proxy or information statement. This could help clients 
of PVABs and other investors make better voting and investment 
decisions. One commenter expressed the view that the proposed 
amendments would strengthen the independence of PVABs.\289\ Another 
commenter, however, stated that the 2021 Proposing Release did not 
provide evidence that the 2020 Final Rules negatively affected the 
independence of proxy voting advice.\290\ While we are unable to 
quantify such negative effects for the reasons discussed in more detail 
above, we believe that the risks posed by the Rule 14a-2(b)(9)(ii) 
conditions to the cost, timeliness, and independence of proxy voting 
advice are sufficiently significant such that it is appropriate to 
rescind the conditions now to limit any burdens that PVABs and their 
clients may experience.\291\ In making this judgment, we have 
considered that the vast majority of PVABs' clients and investors that 
expressed views on the Rule 14a-2(b)(9)(ii) conditions continue to be 
concerned about the risks those conditions pose.
---------------------------------------------------------------------------

    \288\ See supra note 118.
    \289\ See letter from CII.
    \290\ See letter from BIO.
    \291\ See supra Section II.A.3.
---------------------------------------------------------------------------

    Finally, one commenter asserted that the Commission did not 
articulate any real benefits of deleting Note (e).\292\ As stated in 
the 2021 Proposing Release, we do not expect that the deletion of Note 
(e) will generate any significant benefits other than avoiding any 
misperception that its adoption purported to determine or alter the law 
governing Rule 14a-9's application and scope, including its application 
to statements of opinion. Deleting Note (e) may reduce any increased 
litigation risk or costs to PVABs that such a misperception may have 
caused. Notwithstanding this deletion, a PVAB may, depending on the 
particular facts and circumstances, be subject to liability under Rule 
14a-9 for a material misstatement in, or an omission of material fact 
from, proxy voting advice covered by Rule 14a-1(l)(1)(iii)(A), 
including with regard to its methodology, sources of information, or 
conflicts of interest. \293\ Thus, we expect that this amendment will 
not have any significant economic effect.
---------------------------------------------------------------------------

    \292\ See letter from BIO.
    \293\ See supra Section II.B.3.
---------------------------------------------------------------------------

2. Costs
    The amendments may impose costs on the clients of PVABs--and, 
thereby, ultimately the investors they serve--by potentially reducing 
the overall mix of information available to those clients as they 
assess proxy voting advice and make determinations about how to cast 
their votes. Requiring PVABs to provide registrants with proxy voting 
advice no later than the time that they disseminate such information to 
their clients could allow registrants to more effectively determine 
whether they wish to respond to a recommendation by publishing 
additional soliciting materials and to do so in a timely manner before 
shareholders cast their votes. Registrants may wish to do so for a 
variety of reasons, including, for example, because they may identify 
what they perceive to be factual errors or methodological weaknesses in 
a PVAB's analysis or have a different or additional perspective with 
respect to the advice. In either case, clients of PVABs, and 
registrants' investors in general, might have benefited from the 
availability of additional information on which to base their voting 
decisions. Clients of PVABs often must make voting decisions in a 
compressed time period. Timely access to registrant responses to proxy 
voting advice could facilitate a client's evaluation of the advice by 
highlighting disagreements regarding facts and data, differences of 
opinion, or additional perspectives before the client casts its votes. 
To the extent that the amendments reduce this type of information and 
it is valuable to investors, the amendments may make it more costly for 
investors to obtain such information and make timely voting decisions. 
One commenter took the position that eliminating the Rule 14a-
2(b)(9)(ii) conditions would create a substantial risk to registrants 
that they would be unable to timely correct errors and 
mischaracterizations in PVABs' proxy voting advice before the annual 
meeting.\294\ According to this commenter, companies must pay close 
attention to proxy voting advice and address any errors before 
investors have completed voting because, once investors have voted, it 
is often too late to make changes. The longer the time period between 
when a registrant identifies an error and responds to it, the commenter 
maintained, the less likely the error is to receive the investor's full 
attention. The same commenter also argued that the costs of correcting 
errors creates disincentives for PVABs to acknowledge them. To the 
extent that the rescission of the Rule 14a-2(b)(9)(ii) conditions limit 
a registrant's ability to timely identify errors and 
mischaracterizations in proxy voting advice, the rescission could 
increase costs to investors and registrants. We note, however, that the 
error rate in proxy voting advice appears to be low. For example, the 
commenter cites the ACCF study that identified instances during 2021 in 
which registrants filed supplemental proxy materials to dispute the 
data or analysis in proxy voting advice that represented less than one 
percent of the proxy materials filed by registrants that year.\295\ 
Additionally, as mentioned above, we believe that the perpetuation of 
material errors in proxy voting advice would reduce the quality and 
usefulness of such advice, which, in the long-term, would reduce a 
PVAB's credibility in the market and its competitiveness. As such, we 
believe that PVABs are financially motivated to address errors in their 
advice.
---------------------------------------------------------------------------

    \294\ See letter from CEC.
    \295\ As noted in Section IV.A.1.c, approximately 5,565 
registrants filed proxy materials with the Commission during 
calendar year 2021.
---------------------------------------------------------------------------

    Additionally, to the extent that a PVAB might have relied on the 
safe harbor of Rule 14a-2(b)(9)(iii), which requires PVABs to provide 
registrants with their proxy voting advice for no charge, the 
amendments may cause some registrants to incur costs in the form of 
fees or the purchase of additional PVAB services in order to obtain and 
respond to proxy voting advice. Investors ultimately will bear any such 
costs.
    The potential cost associated with the amendments may be mitigated, 
however, by the practices and standards that PVABs have voluntarily 
adopted to help improve the basis of their proxy voting advice. For 
example, some PVABs have voluntarily adopted practices aimed at 
enabling feedback from certain registrants before and after they 
disseminate proxy voting advice to their clients.\296\ Additionally, 
the BPPG's principles and the Oversight Committee's role in assessing 
compliance with those principles could address some of the concerns 
underlying the Rule 14a-2(b)(9)(ii) conditions. Moreover, because PVABs 
voluntarily adopted these practices, we believe that they are less 
likely to adversely affect the independence, cost, and timeliness of 
proxy voting advice than any additional measures that

[[Page 43188]]

PVABs may have needed to implement to satisfy the Rule 14a-2(b)(9)(ii) 
conditions. One commenter noted that the Commission's analysis assumed 
that such voluntary practices would remain in place even if the Rule 
14a-2(b)(9)(ii) conditions are rescinded.\297\ While we cannot know for 
sure whether these voluntary practices will continue, we agree with the 
commenters that asserted that PVABs have market-based incentives to 
maintain these practices, and we also believe the industry-wide 
standards of BPPG's principles and the role of the Oversight Committee 
provide further incentives for PVABs to do so. Moreover, as noted 
above, we will continue to monitor the PVAB market to help ensure that 
investors are adequately protected and have ready access to information 
that allows them to make informed voting decisions.
---------------------------------------------------------------------------

    \296\ See 2021 Proposing Release at 67386-87.
    \297\ See letter from Prof. Verret.
---------------------------------------------------------------------------

    One commenter asserted that registrants and clients of PVABs may 
have incurred costs in preparing for the 2020 Final Rules, such as 
amending proxy voting back-office functions for shareholder engagement, 
designing new bylaws or charter provisions that govern relationships 
with shareholders, or amending proxy voting policies.\298\ To the 
extent that registrants and PVABs' clients have taken such steps, 
rescinding the Rule 14a-2(b)(9)(ii) conditions would render them 
unnecessary and may lead to their reversal, resulting in costs for both 
registrants and PVABs' clients. But commenters have presented no 
specific examples of entities that have actually taken action or 
incurred costs in reliance on the Rule 14a-2(b)(9)(ii) conditions, nor 
have commenters provided evidence that would allow us to quantify those 
costs or that give reason to believe that they are significant. At the 
same time, we expect that the amendments will result in costs savings 
for PVABs in the form of some initial costs, ongoing direct costs, and 
potential indirect costs they would have incurred to comply with the 
Rule 14a-2(b)(9)(ii) conditions.\299\
---------------------------------------------------------------------------

    \298\ See id.
    \299\ Similar to registrants and PVABs' clients, PVABs may have 
incurred certain initial costs in preparing for compliance with the 
Rule 14a-2(b)(9)(ii) conditions.
---------------------------------------------------------------------------

    One commenter asserted that the Commission's economic analysis 
failed to appreciate the potential for conflicts of interest that exist 
between PVABs and the institutional investors that use their services, 
as well as between the managers of institutional investor funds and the 
investors whose interests they represent.\300\ While we agree that 
potential conflicts of interest may exist between PVABs and their 
institutional clients, we do not believe that the Rule 14a-2(b)(9)(ii) 
conditions are necessary to address that concern, or that rescinding 
the Rule 14a-2(b)(9)(ii) conditions will exacerbate it. Rather, the 
2020 Final Rules address such conflicts through Rule 14a-2(b)(9)(i), 
which requires PVABs to provide their clients with certain conflicts of 
interest disclosures in connection with their proxy voting advice. The 
current rulemaking does not amend Rule 14a-2(b)(9)(i). Additionally, 
PVABs may, depending on the particular facts and circumstances, be 
subject to liability under Rule 14a-9 for a material misstatement in, 
or omission of material fact from, proxy voting advice covered by Rule 
14a-1(l)(1)(iii)(A), including with regard to their methodology, 
sources of information, or conflicts of interest. As to potential 
conflicts between managers of institutional investor funds and the 
investors whose interests they represent, we believe that such 
conflicts are directly addressed in other regulations.\301\
---------------------------------------------------------------------------

    \300\ See id.
    \301\ See, e.g., Commission Interpretation Regarding Standard of 
Conduct for Investment Advisers, Release No. IA-5248 (June 5, 2019) 
[84 FR 33669, 33671 (July 12, 2019)] (discussing how an investment 
adviser's duty of loyalty under its fiduciary duty requires, amongst 
other things, that it must eliminate or make full and fair 
disclosure of all conflicts of interest which might incline an 
investment adviser--consciously or unconsciously--to render advice 
which is not disinterested such that a client can provide informed 
consent to the conflict); see also Rule 206(4)-6 under the 
Investment Advisers Act of 1940, 17 CFR 275.206(4)-6 (prohibiting an 
investment adviser to exercise voting authority with respect to 
client securities, unless the adviser (i) has adopted and 
implemented written policies and procedures that are reasonably 
designed to ensure that the adviser votes proxies in the best 
interest of its clients, which procedures must include how the 
investment adviser addresses material conflicts that may arise 
between the adviser's interests and interests of their clients; (ii) 
discloses to clients how they may obtain information from the 
investment adviser about how the adviser voted with respect to their 
securities; and (iii) describes to clients the investment adviser's 
proxy voting policies and procedures and, upon request, furnishes a 
copy of the policies and procedures to the requesting client).
---------------------------------------------------------------------------

    Finally, just as we do not expect the deletion of Note (e) to 
generate any significant benefits, we do not expect that its deletion 
will create any significant costs for PVABs, investors, or registrants. 
Given that this amendment will not alter a PVAB's potential liability 
under Rule 14a-9, we expect that its economic impact will be minimal. 
One commenter took the position that, in addition to deleting Note (e), 
the Commission also should exempt certain portions of proxy voting 
advice from Rule 14a-9 liability to provide investors with additional 
comfort that they will not indirectly bear the costs of litigation on 
the basis of mere disagreements regarding a PVAB's analysis, 
methodology, or sources of information.\302\ We believe that this 
approach is not appropriate for the reasons discussed in Section 
IV.D.2.
---------------------------------------------------------------------------

    \302\ See letter from CII.
---------------------------------------------------------------------------

C. Effects on Efficiency, Competition, and Capital Formation

    As discussed in Section IV.A, PVABs perform a variety of functions 
for their clients, including analyzing and making voting 
recommendations on matters presented for shareholder votes in 
registrants' proxy statements as an alternative or supplement to their 
clients' own internal resources. Rather than using these services, 
PVABs' clients could instead solely rely upon internal resources to 
research, analyze, and execute proxies.\303\ Given the costs of 
researching and voting proxies, the services offered by PVABs may offer 
economies of scale relative to their clients performing these functions 
themselves. For example, a GAO study found that among 31 institutions, 
including mutual funds, pension funds and asset managers, large 
institutions rely less than small institutions on the research and 
recommendations offered by PVABs.\304\ Small institutional investors 
surveyed in the study indicated they had limited resources to conduct 
their own research.\305\
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    \303\ PVABs' clients may also rely on some combination of 
internal and external analysis.
    \304\ See U.S. Gov't Accountability Office, GAO-07-765, Report 
to Congressional Requesters, Corporate Shareholder Meetings: Issues 
Relating to the Firms that Advise Institutional Investors on Proxy 
Voting, 2 (2007), available at https://www.gao.gov/new.items/d07765.pdf (``2007 GAO Report''). See generally letter in response 
to the 2019 Proposing Release from Business Roundtable (Feb. 3, 
2020) (stating that because many institutional investors face voting 
on a large number of corporate matters every year but lack personnel 
and resources for managing such activities, they outsource tasks to 
proxy advisors); letters in response to the SEC Staff Roundtable on 
the Proxy Process from BlackRock (Nov. 16, 2018) (stating that 
``BlackRock's Investment Stewardship team has more than 40 
professionals responsible for developing independent views on how we 
should vote proxies on behalf of our clients''); NYC Comptroller 
(Jan. 2, 2019) (stating that we ``have five full-time staff 
dedicated to proxy voting during peak season, and our least-tenured 
investment analyst has 12 years' experience applying the NYC Funds' 
domestic proxy voting guidelines'').
    \305\ See 2007 GAO Report, supra note 304, at 2; see also letter 
in response to the SEC Staff Roundtable on the Proxy Process from 
Ohio Public Retirement (Dec. 13, 2018) (``OPERS also depends heavily 
on the research reports we receive from our proxy advisory firm. 
These reports are critical to the internal analyses we perform 
before any vote is submitted. Without access to the timely and 
independent research provided by our proxy advisory firm, it would 
be virtually impossible to meet our obligations to our members.''); 
Transcript of SEC Roundtable on the Proxy Process at 194 (Nov. 15, 
2018), available at https://www.sec.gov/files/proxy-round-table-transcript-111518.pdf (comments of Mr. Scot Draeger, stating that: 
``If you've ever actually reviewed the benchmarks, whether it's ISS 
or anybody else, they're very extensive and much more detailed than 
small firm[s] like ours could ever develop with our own independent 
research.'').

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[[Page 43189]]

    To the extent that the 2020 Final Rules increase compliance costs 
and costs related to litigation risk for PVABs that could be passed on 
to clients, the amendments would reverse those increases along with any 
related decrease in demand for PVABs' advice. If PVABs offer economies 
of scale relative to their clients performing certain functions 
themselves, increased demand for, and reliance on, PVABs' services 
could lead to greater efficiencies in the proxy voting process.
    To the extent that the Rule 14a-2(b)(9)(ii) conditions impair the 
independence of proxy voting advice or reduce the diversity of thought 
in the market for proxy voting advice (e.g., by PVABs erring on the 
side of caution in complex or contentious matters), eliminating those 
conditions could reverse those effects, resulting in advice from PVABs 
that contributes to more informed proxy voting decisions by their 
clients. If clients perceive the amendments as positively affecting 
PVABs' objectivity and independence, demand for proxy voting advice 
could increase, and the proxy voting process may become more 
efficient.\306\
---------------------------------------------------------------------------

    \306\ As noted above, we do not have financial data about PVABs, 
including financial data by services provided or by client type. 
This makes assessments on a quantitative basis difficult.
---------------------------------------------------------------------------

    On the other hand, the amendments could make the proxy voting 
process less efficient if they reduce the overall mix of information 
available to PVABs' clients and investors in general and the 
information lost is valuable to investors. For example, rescinding the 
Rule 14a-2(b)(9)(ii) conditions, may limit prompt registrant responses 
to proxy voting advice and investor access to such responses, which 
could make it more costly for investors to obtain such information and 
make timely voting decisions.
    In addition, any reduction in costs for PVABs due to the rescission 
of the Rule 14a-2(b)(9)(ii) conditions could increase competition for 
proxy voting advice compared to the current baseline, which includes 
the effect of the 2020 Final Rules. In particular, if PVABs pass costs 
incurred to comply with the conditions on to their clients, the 
reduction of these costs due to the amendments could encourage some 
investors to retain the services of PVABs, which could reduce the use 
of internal resources for voting. Also, any improvement in the 
independence of proxy voting advice that preserves investors' 
confidence in the integrity of such advice could cause PVABs to compete 
more on this dimension. Finally, any reduction in compliance costs and 
costs related to litigation risk, if large enough, may increase 
competition among PVABs by encouraging entry into the market for proxy 
voting advice.\307\ However, given the fact that there are only three 
major PVABs in the United States, we do not expect that the amendments 
would significantly increase the likelihood of new entry into this 
market.
---------------------------------------------------------------------------

    \307\ See letter in response to the 2019 Proposing Release from 
Minerva Analytics (Feb. 22, 2020), available at https://www.sec.gov/comments/s7-22-19/s72219-6615792-202950.pdf. In its comment letter, 
Minerva, a PVAB in the U.S. market prior to 2010, stated that the 
threat of litigation for ``errors'' is a factor influencing its 
views on whether to reenter the U.S. market. Id.
---------------------------------------------------------------------------

    If the amendments facilitate the ability of PVABs' clients to make 
informed voting determinations, investment outcomes could improve for 
investors, which could lead to a greater allocation of resources to 
investment. To the extent that the amendments lead to more investment, 
we could expect greater demand for securities, which could, in turn, 
promote capital formation. Overall, given the many factors that can 
influence the rate of capital formation, we expect any effect of the 
amendments on capital formation to be small.
    In addition, we do not expect the deletion of Note (e) to have any 
significant economic effect on efficiency, competition, and capital 
formation.
    Finally, one commenter stated that the Commission had properly 
characterized the effects of the proposed amendments on efficiency, 
competition, and capital formation.\308\ Another commenter expressed 
concern regarding the duopolistic nature of the PVAB market and 
asserted that the proposed amendments would constitute an anti-
competitive stance by the Commission.\309\ We disagree with such an 
assessment. As noted above, any reduction of compliance costs due to 
the amendments could encourage some investors to retain the services of 
PVABs, and any improvement in the independence of proxy voting advice 
that preserves investors' confidence in the integrity of such advice 
could increase competition in the PVAB market.
---------------------------------------------------------------------------

    \308\ See letter from CII.
    \309\ See letter from BIO.
---------------------------------------------------------------------------

D. Reasonable Alternatives

1. Interpretive Guidance Regarding Whether Systems and Processes 
Satisfy the Rule 14a-2(b)(9)(ii) Conditions
    As an alternative to rescinding the Rule 14a-2(b)(9)(ii) 
conditions, we could issue interpretive guidance regarding whether the 
systems and processes that PVABs have in place satisfy the Rule 14a-
2(b)(9)(ii) conditions, which could reduce compliance costs and address 
concerns regarding the independence of proxy voting advice. This 
approach could reduce PVABs' initial or ongoing costs of complying with 
these conditions if we determine that their current systems and 
processes already satisfy them to the extent that PVABs have not 
already modified their existing business models. Such guidance also 
could mitigate concerns that these conditions could impair the 
independence of proxy voting advice by indicating that PVABs need not 
modify their practices.
    However, this approach would only eliminate the potential adverse 
effects associated with the Rule 14a-2(b)(9)(ii) conditions if we were 
to determine that PVABs' pre-existing systems and processes already 
fully satisfy the conditions. But, as discussed above, while we believe 
that PVABs' current practices advance a number of the goals that 
underlie the Rule 14a-2(b)(9)(ii) conditions and will mitigate any 
adverse impact from their rescission, those practices do not replicate 
the Rule 14a-2(b)(9)(ii) conditions in all respects. And PVABs' 
consistent opposition to the 2020 Final Rules further supports that 
conclusion.
2. Exempting Certain Portions of PVABs' Proxy Voting Advice From Rule 
14a-9 Liability
    Rather than, or in addition to, deleting Note (e) to Rule 14a-9, we 
could exempt certain portions of proxy voting advice from Rule 14a-9 
liability. For example, we could amend Rule 14a-9 to expressly state 
that a PVAB would not be subject to liability under that rule for any 
subjective determinations it makes in formulating its recommendations, 
including its decision to use a specific analysis, methodology or 
information. Several commenters generally supported this 
alternative.\310\ The benefit of this alternative could be that it may 
give PVABs additional comfort that they will not be subject to 
liability under Rule 14a-9 on the basis of mere

[[Page 43190]]

a disagreement regarding their analysis, methodology or sources of 
information.
---------------------------------------------------------------------------

    \310\ See letters from ICGN; Ohio Public Retirement; CII.
---------------------------------------------------------------------------

    This alternative, however, could result in uncertainty and 
litigation over the scope of any exemption from Rule 14a-9 liability. 
Moreover, as discussed above, we believe that existing law regarding 
the application of Rule 14a-9 to statements of opinion adequately 
addresses the concerns that PVABs, their clients, and others have 
expressed regarding the potential for perceived litigation risks to 
impair the independence of proxy voting advice, particularly in 
conjunction with our deletion of Note (e). Exempting all or parts of 
proxy voting advice from Rule 14a-9 liability entirely could eliminate 
liability even in the narrow circumstances considered in Omnicare and 
Virginia Bankshares in which statements of opinion in such advice 
contain a material misstatement or omission. We believe that it is 
appropriate to continue to subject proxy voting advice to Rule 14a-9 
liability for material misstatements or omissions to help ensure that 
PVABs' clients are provided with the information they need to make 
fully informed voting decisions and to mitigate some of the concerns 
that opposing commenters raised in their comment letters.

V. Paperwork Reduction Act

A. Background

    Certain provisions of our rules, schedules and forms that will be 
affected by the final amendments contain ``collection of information'' 
requirements within the meaning of the PRA. We published a notice 
requesting comment on changes to these collection of information 
requirements in the Proposing Release and submitted these requirements 
to the Office of Management and Budget (``OMB'') for review in 
accordance with the PRA.\311\ The hours and costs associated with 
maintaining, disclosing, or providing the information required by the 
final amendments constitute paperwork burdens imposed by such 
collection of information. An agency may not conduct or sponsor, and a 
person is not required to comply with, a collection of information 
unless it displays a currently valid OMB control number. The title for 
the affected collection of information is: ``Regulation 14A (Commission 
Rules 14a-1 through 14a-21 and Schedule 14A)'' (OMB Control No. 3235-
0059).
---------------------------------------------------------------------------

    \311\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    We adopted existing Regulation 14A \312\ pursuant to the Exchange 
Act. Regulation 14A and its related schedules set forth the disclosure 
and other requirements for proxy statements, as well as the exemptions 
therefrom, filed by registrants and other soliciting persons to help 
investors make informed voting decisions.\313\ A detailed description 
of the final amendments, including the need for the information and its 
proposed use, as well as a description of the likely respondents, can 
be found in Section II, and a discussion of the expected economic 
effects of the final amendments can be found in Section IV.
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    \312\ 17 CFR 240.14a-1 et seq.
    \313\ To the extent that a person or entity incurs a burden 
imposed by Regulation 14A, it is encompassed within the collection 
of information estimates for Regulation 14A. This includes 
registrants and other soliciting persons preparing, filing, 
processing and circulating their definitive proxy and information 
statements and additional soliciting materials, as well as the 
efforts of third parties such as PVABs whose proxy voting advice 
falls within the ambit of the Federal rules and regulations that 
govern proxy solicitations.
---------------------------------------------------------------------------

B. Summary of Comment Letters on PRA Estimates

    We did not receive any comment letters in response to the request 
for comment on the PRA estimates and analysis included in the 2021 
Proposing Release. We did, however, receive one comment letter stating 
that ``the proposal requests comments on an array of complex issues 
that cannot be addressed within 30 days,'' and noting that the 30-day 
comment period on the 2021 Proposed Amendments ``also applies to 
comments on the proposed burden analysis for the information 
collections associated with the Proposal.'' \314\ That commenter 
expressed concern that ``[t]here is no guarantee'' as to how quickly 
the Commission's Office of FOIA Services will process requests for 
materials submitted to OMB by the Commission regarding the collection 
of information required by the 2021 Proposed Amendments. For the 
reasons discussed above, we believe that the comment period provided 
adequate opportunity for interested parties to share their views.\315\
---------------------------------------------------------------------------

    \314\ See letter from CCMC I.
    \315\ See discussion supra note 71.
---------------------------------------------------------------------------

C. Burden and Cost Estimates for the Final Amendments

    Below we estimate the incremental and aggregate effect on paperwork 
burden as a result of the final amendments, which, as discussed in 
Section II, we are adopting as proposed. Most, if not all, of the 
effect on paperwork burden as a result of the final amendments derives 
from the rescission of the Rule 14a-2(b)(9)(ii) conditions and the 
related safe harbors set forth in Rules 14a-2(b)(9)(iii) and (iv), as 
we expect those amendments will reduce the paperwork burden associated 
with Rule 14a-2(b)(9).
    As discussed in Section II, we are adopting the 2021 Proposed 
Amendments as proposed. Further, because we did not receive any comment 
letters directly addressing the PRA estimates and analysis included in 
the 2021 Proposing Release, we have not adjusted those estimates to 
account for comments. In the 2021 Proposing Release, the Commission 
noted that ``because Rule 14a-2(b)(9) has not yet become effective, 
that rule has not yet resulted in any paperwork burden, and there is 
nothing yet to reduce.'' \316\ As such, the PRA analysis in the 2021 
Proposing Release ``instead set forth the estimated amount of paperwork 
burden that the parties affected by Rule 14a-2(b)(9) would avoid as a 
result of [the] proposed amendments to Rule 14a-2(b)(9).'' \317\ 
However, Rule 14a-2(b)(9) became effective on December 1, 2021, after 
the Commission issued the 2021 Proposing Release. We have, therefore, 
revised the PRA analysis to reflect our expectation that the final 
amendments will reduce, rather than avoid, the burdens associated with 
Rule 14a-2(b)(9).
---------------------------------------------------------------------------

    \316\ 2021 Proposing Release at 67396.
    \317\ Id.
---------------------------------------------------------------------------

1. Impact on Affected Parties
    As discussed in Section IV.A.1, the final amendments may directly 
or indirectly affect a variety of parties. These parties include PVABs; 
the clients to whom PVABs provide proxy voting advice; investors and 
other groups on whose behalf the clients of PVABs make voting 
determinations; registrants who are conducting solicitations and are 
the subject of proxy voting advice; and the registrants' shareholders, 
who ultimately bear the costs and benefits to the registrant associated 
with the outcome of voting matters covered by proxy voting advice. Of 
these parties, we expect that PVABs will experience some reduction in 
paperwork burden as a result of the final amendments.\318\ As discussed 
further

[[Page 43191]]

below, we believe that any incremental decrease in these burdens would 
be attributable to the rescission of Rule 14a-2(b)(9)(ii). We do not 
expect that the deletion of Note (e) to Rule 14a-9 will have a 
significant economic impact because it will not change existing law 
and, therefore, will not change respondents' legal obligations.\319\ 
Moreover, any impact arising from this amendment should not materially 
change the average PRA burden hour estimates associated with Regulation 
14A. Thus, we have not made any adjustments to our PRA burden estimates 
as a result of the deletion of Note (e).
---------------------------------------------------------------------------

    \318\ The PRA requires that we estimate ``the total annual 
reporting and recordkeeping burden that will result from the 
collection of information.'' 5 CFR 1320.5(a)(1)(iv)(B)(5). A 
``collection of information'' includes any requirement or request 
for persons to obtain, maintain, retain, report or publicly disclose 
information. 5 CFR 1320.3(c). OMB's current inventory for Regulation 
14A, therefore, is an assessment of the paperwork burden associated 
with such requirements and requests under the regulation, and this 
PRA is an assessment of changes to such inventory expected to result 
from these amendments. While other parties, such as the clients of 
PVABs, may experience benefits and costs associated with the 
amendments, see supra Section IV.B, only PVABs and registrants will 
avoid any additional paperwork burden as a result of the amendments.
    \319\ The deletion of Note (e) may relieve PVABs of direct costs 
to the extent that Note (e) prompted PVABs to provide additional 
disclosure about the bases for their proxy voting advice. However, 
we expect any such costs would be minimal because the adoption of 
that Note neither represented a change to existing law nor broadened 
the concept of materiality or created a new cause of action. See 
2020 Adopting Release at 55146, n.685. Similarly, we expect that any 
avoidance of incremental burdens associated with this amendment 
would be minimal because our deletion of Note (e) does not alter the 
application of Rule 14a-9 to proxy voting advice. See supra Section 
II.B.3.
---------------------------------------------------------------------------

a. Proxy Voting Advice Businesses
    We expect that our amendments to Rule 14a-2(b)(9) will decrease the 
paperwork burden for PVABs. Rule 14a-2(b)(9) applies to anyone relying 
on the exemptions in Rules 14a-2(b)(1) or (b)(3) who furnishes proxy 
voting advice covered by Rule 14a-1(l)(1)(iii)(A). The amount by which 
a PVAB's burden will decrease depends on a number of factors that are 
firm-specific and highly variable, which makes it difficult to provide 
reliable quantitative estimates.\320\
---------------------------------------------------------------------------

    \320\ See generally supra Section IV.B.1 (discussing the 
difficulty in providing quantitative estimates of the benefits to 
PVABs associated with the amendments).
---------------------------------------------------------------------------

    Two components of the amendments to Rule 14a-2(b)(9) should 
decrease PVABs' paperwork burden. First, under Rule 14a-2(b)(9)(ii)(A), 
PVABs are required to adopt and publicly disclose written policies and 
procedures reasonably designed to ensure that registrants that are the 
subject of the proxy voting advice have such advice made available to 
them at or prior to the time such advice is disseminated to the PVABs' 
clients. Second, under Rule 14a-2(b)(9)(ii)(B), PVABs are required to 
adopt and publicly disclose written policies and procedures reasonably 
designed to ensure that PVABs provide their clients with a mechanism by 
which they can reasonably be expected to become aware of a registrant's 
written statements about the proxy voting advice in a timely manner 
before the shareholder meeting. The final amendments will rescind both 
of these rules, thereby relieving PVABs of the obligation to comply 
with these requirements. The final amendments will also rescind the 
non-exclusive safe harbors set forth in Rules 14a-2(b)(9)(iii) and (iv) 
that PVABs may use to satisfy the Rule 14a-2(b)(9)(ii) conditions. We 
address each of these components in turn.
    In the 2020 Adopting Release,\321\ the Commission estimated that 
PVABs would incur an annual incremental paperwork burden to comply with 
Rules 14a-2(b)(9)(ii), (iii) and (iv) as follows:
---------------------------------------------------------------------------

    \321\ 2020 Adopting Release at 55148-49.

------------------------------------------------------------------------
                                             PVAB estimated incremental
                Requirement                   annual compliance burden
------------------------------------------------------------------------
Rule 14a-2(b)(9)(ii)(A)--Notice to          Increase in paperwork burden
 Registrants and Rule-14a 2(b)(9)(iii)       corresponding to:
 Safe Harbor.
------------------------------------------------------------------------
The PVAB has adopted and publicly           To the extent that the
 disclosed written policies and procedures   PVAB's current practices
 reasonably designed to ensure that          and procedures are not
 registrants who are the subject of proxy    already sufficient:
 voting advice have such advice made        [cir] Developing new or
 available to them at or prior to the time   modifying existing systems,
 the advice is disseminated to clients of    policies and methods, or
 the PVAB.                                   developing and maintaining
Safe Harbor--The PVAB has written policies   new systems, policies and
 and procedures that are reasonably          methods to ensure that it
 designed to provide a registrant with a     has the capability to
 copy of the PVAB's proxy voting advice,     timely provide each
 at no charge, no later than the time it     registrant with information
 is disseminated to the PVAB's clients.      about its proxy voting
 Such policies and procedures may include    advice necessary to satisfy
 conditions requiring that:                  the requirement in Rule 14a-
(A) The registrant has filed its             2(b)(9)(ii)(A) and/or the
 definitive proxy statement at least 40      safe harbor in Rule 14a-
 calendar days before the security holder    2(b)(9)(iii);
 meeting date (or if no meeting is held,    [cir] If applicable,
 at least 40 calendar days before the date   obtaining acknowledgments
 the votes, consents, or authorizations      or agreements with respect
 may be used to effect the proposed          to use of any information
 action); and                                shared with the registrant;
(B) The registrant has acknowledged that     and
 it will only use the copy of the proxy     [cir] Delivering copies of
 voting advice for its internal purposes     proxy voting advice to
 and/or in connection with the               registrants.
 solicitation and it will not be published  We estimate the increase in
 or otherwise shared except with the         paperwork burden to be
 registrant's employees or advisers.         8,535 hours per PVAB,
                                             consisting of 2,845 hours
                                             for system updates and
                                             5,690 hours for
                                             acknowledgments regarding
                                             sharing information.
------------------------------------------------------------------------
Rule 14a-2(b)(9)(ii)(B)--Notice to Clients  Increase in paperwork burden
 of Proxy Voting Advice Businesses and       corresponding to:
 Rule 14a-2(b)(9)(iv) Safe Harbor
------------------------------------------------------------------------

[[Page 43192]]

 
The PVAB has adopted and publicly           To the extent that the
 disclosed written policies and procedures   PVAB's current practices
 reasonably designed to ensure that the      and procedures are not
 PVAB provides clients with a mechanism by   already sufficient:
 which they can reasonably be expected to   Developing new or modifying
 become aware of any written statements      existing systems, policies
 regarding proxy voting advice by            and methods, or developing
 registrants who are the subject of such     and maintaining new
 advice, in a timely manner before the       systems, policies and
 shareholder meeting.                        methods capable of:
Safe Harbor--The PVAB has written policies  [cir] Tracking whether the
 and procedures that are reasonably          registrant has filed
 designed to inform clients who receive      additional soliciting
 the proxy voting advice when a registrant   materials;
 that is the subject of such voting advice  [cir] Ensuring that PVABs
 notifies the proxy voting advice business   provide clients with a
 that it intends to file or has filed        means to learn of a
 additional soliciting materials with the    registrant's written
 Commission setting forth the registrant's   statements about proxy
 statement regarding the voting advice,      voting advice in a timely
 by:                                         manner that satisfies the
(A) providing notice to its clients on its   requirement in Rule 14a-
 electronic client platform that the         2(b)(9)(ii)(B) and/or the
 registrant intends to file or has filed     safe harbor in Rule 14a-
 such additional soliciting materials and    2(b)(9)(iv).
 including an active hyperlink to those     If relying on the safe
 materials on EDGAR when available; or       harbor in Rule 14a-
(B) The PVAB providing notice to its         2(b)(9)(iv)(A) or (B), the
 clients through email or other electronic   associated paperwork burden
 means that the registrant intends to file   would include the time and
 or has filed such additional soliciting     effort required of the PVAB
 materials and including an active           to:
 hyperlink to those materials on EDGAR      [cir] provide notice to its
 when available.                             clients through the PVAB's
                                             electronic client platform
                                             or email or other
                                             electronic medium, as
                                             appropriate, that the
                                             registrant intends to file
                                             or has filed additional
                                             soliciting materials
                                             setting forth its views
                                             about the proxy voting
                                             advice; and
                                            [cir] include a hyperlink to
                                             the registrant's statement
                                             on EDGAR
                                            We estimate the increase in
                                             paperwork burden to be
                                             2,845 hours per PVAB.
                                           -----------------------------
    Total                                   11,380 hours per PVAB.
------------------------------------------------------------------------

    Altogether, the Commission estimated an annual total increase of 
34,140 hours \322\ in compliance burden to be incurred by PVABs that 
would be subject to Rules 14a-2(b)(9)(ii), (iii), and (iv). 
Accordingly, we expect that the final amendments will decrease PVABs' 
burdens by the same amount.
---------------------------------------------------------------------------

    \322\ This represented the annual total burden increase expected 
to be incurred by PVABs (as an average of the yearly burden 
predicted over the three-year period following adoption of the 2020 
Final Rules) and was intended to be inclusive of all burdens 
reasonably anticipated to be associated with compliance with the 
Rule 14a-2(b)(9)(ii) conditions. We are aware of three PVABs in the 
U.S. (i.e., Glass Lewis, ISS, and Egan-Jones) whose activities fall 
within the scope of proxy voting advice constituting a solicitation 
under amended Rule 14a-1(l)(1)(iii)(A). The Commission estimated 
that each of these would have a burden of 11,380 hours per year 
associated with Rules 14a-2(b)(9)(ii), (iii), and (iv). See 2020 
Adopting Release at n.700. The Commission recognized that there 
could be other PVABs, including both smaller firms and firms 
operating outside the U.S., which may also be subject to those 
rules. However, that number was expected to be small. Accordingly, 
rather than increasing the estimate of the number of affected PVABs 
beyond the three discussed above, the Commission increased the 
annual total burden estimate by 500 hours to account for those 
businesses. However, that 500 hour increase also accounted for the 
burden imposed by Rule 14a-2(b)(9)(i), which is not affected by the 
amendments. Because the Commission did not indicate, in the 2020 
Adopting Release, what portion of that 500 hour increase would be 
attributable to the various conditions in Rule 14a-2(b)(9), we do 
not include that 500 hour increase in this PRA analysis in order to 
avoid overestimating the amount of burden that PVABs would be 
relieved of as a result of the amendments.
---------------------------------------------------------------------------

b. Registrants
    In addition to PVABs, we anticipate that the final amendments to 
Rule 14a-2(b)(9) will decrease the paperwork burden for registrants. In 
the 2020 Adopting Release, the Commission noted that registrants could, 
as a result of the adoption of Rule 14a-2(b)(9), experience increased 
burdens associated with coordinating with PVABs to receive proxy voting 
advice, reviewing proxy voting advice, and preparing and filing 
supplementary proxy materials in response to proxy voting advice, if 
they choose to do so.\323\ Because Rule 14a-2(b)(9) does not require 
registrants to engage with PVABs or take any action in response to 
proxy voting advice, the Commission stated that it expected a 
registrant would bear additional paperwork burden only if such 
registrant anticipated the benefits of engaging with the PVABs would 
exceed the costs of participation. The Commission noted that these 
costs would vary depending upon the particular facts and circumstances 
of the proxy voting advice and any issues identified therein, as well 
as the resources of the registrant, which made it difficult to provide 
a reliable quantifiable estimate of these costs.
---------------------------------------------------------------------------

    \323\ 2020 Adopting Release at 55149.
---------------------------------------------------------------------------

    Notwithstanding those difficulties, the Commission estimated an 
average increase of 50 hours per registrant in connection with Rule 
14a-2(b)(9) for a total annual increase of 284,500 hours, assuming that 
a registrant's annual meeting of shareholders is covered by at least 
two of the three major PVABs in the United States, and the registrant 
has opted to review both sets of proxy voting advice and file 
additional soliciting materials in response.\324\ Accordingly, we 
expect that by rescinding the Rule 14a-2(b)(9)(ii) conditions, the 
final amendments will decrease registrants' paperwork burdens by the 
same amount.
---------------------------------------------------------------------------

    \324\ Id. at 55149-50. The Commission also noted that such 
burden increase would be offset against any corresponding reduction 
in burden resulting from the registrant forgoing other methods of 
responding to the proxy voting advice (such as investor outreach) 
that the registrant determines are no longer necessary or are less 
preferable in light of Rule 14a-2(b)(9). Id. at 55150, n.705.
---------------------------------------------------------------------------

2. Aggregate Decrease in Burden
    Table 1 summarizes the calculations and assumptions used to derive 
our estimates of the aggregate decrease in burden for all affected 
parties due to our rescission of the Rule 14a-2(b)(9)(ii) conditions.

[[Page 43193]]

    PRA Table 1--Calculation of Aggregate Decrease in Burden Hours Resulting From Rescission of the Rule 14a-
                                 2(b)(9)(ii) Conditions and Related Safe Harbors
----------------------------------------------------------------------------------------------------------------
                                                                              Affected parties
                                                           -----------------------------------------------------
                                                               Proxy voting advice
                                                                    businesses                Registrants
                                                                                  (A)                        (B)
----------------------------------------------------------------------------------------------------------------
Burden Hour Decrease......................................                     34,140                    284,500
                                                           -----------------------------------------------------
Aggregate Decrease in Burden Hours........................   [Column Total (A)] + [Column Total (B)] = [318,640]
----------------------------------------------------------------------------------------------------------------

3. Decrease in Annual Responses
    We believe that the final amendments will decrease the number of 
annual responses \325\ to the existing collection of information for 
Regulation 14A. In the 2020 Adopting Release, the Commission stated 
that it did not expect registrants to file any different number of 
proxy statements as a result of the 2020 Final Rules. The Commission 
did state, however, that it anticipated that the number of additional 
soliciting materials filed under 17 CFR 240.14a-6 may increase in 
proportion to the number of times that registrants choose to provide a 
statement in response to a PVAB's proxy voting advice as contemplated 
by Rule 14a-2(b)(9)(ii)(B) or the safe harbor under Rule 14a-
2(b)(9)(iv). For purposes of the PRA analysis in that release, the 
Commission estimated that there would be an additional 783 annual 
responses to the collection of information as a result of the 2020 
Final Rules.\326\ Accordingly, we expect that the final amendments will 
decrease the number of annual responses to the collection of 
information for Regulation 14A by the same amount.
---------------------------------------------------------------------------

    \325\ For purposes of the Regulation 14A collection of 
information, the number of annual responses corresponds to the 
estimated number of new filings that will be made each year under 
Regulation 14A. When calculating PRA burden for any particular 
collection of information, the total number of annual burden hours 
estimated is divided by the total number of annual responses 
estimated, which provides the average estimated annual burden per 
response. The current inventory of approved collections of 
information is maintained by the Office of Information and 
Regulatory Affairs (``OIRA''), a division of OMB. The total annual 
burden hours and number of responses associated with Regulation 14A, 
as updated from time to time, can be found at https://www.reginfo.gov/public/do/PRAMain.
    \326\ 2020 Adopting Release at 55150, n.707.
---------------------------------------------------------------------------

4. Incremental Change in Compliance Burden for Collection of 
Information
    PRA Table 2 below illustrates our estimated incremental change to 
the total annual compliance burden for the Regulation 14A collection of 
information in hours and in costs \327\ as a result of our rescission 
of the Rule 14a-2(b)(9)(ii) conditions. The table sets forth the 
percentage estimates we typically use for the burden allocation for 
each response.
---------------------------------------------------------------------------

    \327\ For purposes of the PRA, the paperwork burden for the 
information collection is to be allocated between internal burden 
hours and outside professional costs. The Commission's estimates in 
the 2020 Adopting Release assumed that 75% of the burden of 
Regulation 14A would be borne internally by the company and 25% 
would be outside professional costs. The Commission recognized that 
the costs of retaining outside professionals may vary depending on 
the nature of the professional services, but for purposes of the PRA 
analysis, the Commission estimated that such costs would be an 
average of $400 per hour. This estimate was based on consultations 
with several registrants, law firms, and other persons who regularly 
assist registrants in preparing and filing reports with the 
Commission. See id. at 55150, n.708. We use these same estimates for 
the final amendments.

           PRA Table 2--Decrease in Burden Hours Resulting From the Rescission of the Rule 14a-2(b)(9)(ii) Conditions and Related Safe Harbors
--------------------------------------------------------------------------------------------------------------------------------------------------------
   Number of estimated    Total decrease in burden  Decrease in burden hours    Decrease in internal          Decrease in              Decrease in
        responses                   hours                 per response                  hours              professional hours       professional costs
(A) [dagger]              (B) [dagger][dagger]                         (C) = (B)/((D) = (B) x 0.75          (E) = (B) x 0.25         (F) = (E) x $400
--------------------------------------------------------------------------------------------------------------------------------------------------------
               5,586                   318,640                        57                   238,980                    79,660              $31,864,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
[dagger] This number reflects an estimated decrease of 783 annual responses to the existing Regulation 14A collection of information as a result of the
  rescission of the Rule 14a-2(b)(9)(ii) conditions. The current OMB inventory for Regulation 14A reflects 6,369 annual responses.
[dagger][dagger] Calculated as the sum of annual burden increases estimated for PVABs (34,140 hours) and registrants (284,500 hours). See supra PRA
  Table 1.
[dagger][dagger][dagger] The estimated increases in Columns (C), (D), and (E) are rounded to the nearest whole number.

5. Program Change and Revised Burden Estimates
    PRA Table 3 summarizes the estimated change to the total annual 
compliance burden of the Regulation 14A collection of information, in 
hours and in costs, as a result of the rescission of the Rule 14a-
2(b)(9)(ii) conditions.

[[Page 43194]]

                                   PRA Table 3--Paperwork Burden as a Result of the Rescission of the Rule 14a-2(b)(9)(ii) Conditions and Related Safe Harbors
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Current burden                                           Program change                                             Revised burden
                             -------------------------------------------------------------------------------------------------------------------------------------------------------------------
          Reg. 14A               Current
                                 annual        Current      Current cost     Decrease in      Decrease in internal    Decrease in professional   Annual responses  Burden hours    Cost burden
                                responses   burden hours       burden         responses               hours                     costs
                                      (A)           (B)                (C) (D)    (E)        minus>                              (E)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                    6,369       778,802     $103,805,312              783                   238,980               $31,864,000              5,586       539,822      $71,941,312
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
 See Column (A) in PRA Table 2 noting an estimated decrease of 783 annual responses to the Regulation 14A collection of information as a result of the rescission of the Rule 14a-
  2(b)(9)(ii) conditions.
 See Column (D) in PRA Table 2.
 From Column (F) in PRA Table 2.

[[Page 43195]]

VI. Final Regulatory Flexibility Analysis

    This Final Regulatory Flexibility Analysis (``FRFA'') has been 
prepared in accordance with the Regulatory Flexibility Act 
(``RFA'').\328\ It relates to the amendments to the proxy solicitation 
exemptions in Rule 14a-2(b) and the prohibition on false or misleading 
statements in solicitations in Rule 14a-9 of Regulation 14A under the 
Exchange Act. Specifically, we are amending Rules 14a-2 and 14a-9 to 
rescind the Rule 14a-2(b)(9)(ii) conditions (as well as the related 
safe harbors and exclusions set forth in Rules 14a-2(b)(9)(iii) through 
(vi)) and to delete Note (e) to Rule 14a-9. An Initial Regulatory 
Flexibility Analysis (``IRFA'') was prepared in accordance with the RFA 
and included in the 2021 Proposing Release.
---------------------------------------------------------------------------

    \328\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

A. Need for, and Objectives of, the Final Amendments

    The intent of the final amendments is to avoid burdens on PVABs 
that may impede and impair the timeliness and independence of their 
proxy voting advice and avoid misperceptions regarding the application 
of Rule 14a-9 liability to proxy voting advice, while also preserving 
investors' confidence in the integrity of such advice. We discuss the 
need for, and objectives of, these amendments in more detail in 
Sections I and II. We address the economic impact of these amendments 
in Sections IV and V.

B. Significant Issues Raised by Public Comments

    In the 2021 Proposing Release, the Commission requested comments on 
the IRFA, including on the extent to which PVABs' current internal 
policies and procedures would mitigate any costs imposed on PVABs' 
clients as a result of the proposed amendments to Rule 14a-2(b)(9). The 
Commission also requested comments on how the 2021 Proposed Amendments 
may affect PVABs, their clients, and registrants.
    We did not receive comments on the IRFA or any comments that 
directly responded to the Commission's requests for comments in the 
IRFA. However, several commenters generally discussed PVABs' current 
internal policies and procedures and the potential impact of the 
amendments on PVABs, their clients, and registrants.\329\ In developing 
the FRFA, we considered these comments as well as the other comments on 
the 2021 Proposed Amendments.\330\
---------------------------------------------------------------------------

    \329\ See supra Sections II.A.2 and II.B.2.
    \330\ See supra Sections II, III, and IV.
---------------------------------------------------------------------------

C. Small Entities Subject to the Final Amendments

    The final amendments are likely to affect some small entities that 
are either: (i) PVABs; or (ii) registrants conducting solicitations 
that are the subject of proxy voting advice.
    The RFA defines ``small entity'' to mean ``small business,'' 
``small organization,'' or ``small governmental jurisdiction.'' \331\ 
For purposes of the RFA, under our rules, an issuer of securities or a 
person, other than an investment company or an investment adviser, is a 
``small business'' or ``small organization'' if it had total assets of 
$5 million or less on the last day of its most recent fiscal year.\332\ 
An investment company, including a BDC, is considered to be a ``small 
business'' if it, together with other investment companies in the same 
group of related investment companies, has net assets of $50 million or 
less as of the end of its most recent fiscal year.\333\ An investment 
adviser generally is a small entity if it: (1) has assets under 
management having a total value of less than $25 million; (2) did not 
have total assets of $5 million or more on the last day of the most 
recent fiscal year; and (3) does not control, is not controlled by, and 
is not under common control with another investment adviser that has 
assets under management of $25 million or more, or any person (other 
than a natural person) that had total assets of $5 million or more on 
the last day of its most recent fiscal year.\334\ We estimate that 
there are 772 issuers that file with the Commission, other than 
investment companies and investment advisers, that may be considered 
small entities.\335\ In addition, we estimate that, as of December 
2021, there were 80 registered investment companies that would be 
subject to the final amendments that may be considered small 
entities.\336\ Finally, we estimate that, as of December 2021, there 
were 594 investment advisers that may be considered small 
entities.\337\ As discussed above, one of the three major PVABs in the 
United States--ISS--is a registered investment adviser.\338\
---------------------------------------------------------------------------

    \331\ 5 U.S.C. 601(6).
    \332\ See Exchange Act Rule 0-10(a) [17 CFR 240.0-10(a)].
    \333\ See Investment Company Act Rule 0-10(a) [17 CFR 270.0-
10(a)].
    \334\ See Advisers Act Rule 0-7(a) [17 CFR 275.0-7(a)].
    \335\ This estimate is based on staff analysis of issuers 
potentially subject to the final amendments, excluding co-
registrants, with EDGAR filings on Form 10-K, or amendments thereto, 
filed during the calendar year of Jan. 1, 2021 to Dec. 31, 2021. 
This analysis is based on data from XBRL filings, Compustat, Ives 
Group Audit Analytics, and manual review of filings submitted to the 
Commission.
    \336\ This estimate is derived from an analysis of data obtained 
from Morningstar Direct as well as data filed with the Commission 
(Forms N-Q and N-CSR) for the last quarter of 2021.
    \337\ We based this estimate on registered investment adviser 
responses to Items 5.F. and 12 of Form ADV.
    \338\ See supra Section IV.A.1.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    Because we are rescinding the Rule 14a-2(b)(9)(ii) conditions (as 
well as the related safe harbors and exemptions set forth in Rules 14a-
2(b)(9)(iii) through (vi)) and deleting Note (e) to Rule 14a-9, the 
final amendments will not impose reporting, recordkeeping, or other 
compliance requirements on entities of any size, including small 
entities. To the contrary, the final amendments will alleviate the need 
for entities of any size, including small entities, to incur any costs 
needed to comply with the requirements of the rules that we are 
rescinding.\339\ For example, as discussed in our PRA analysis, we 
expect that the rescission of the Rule 14a-2(b)(9)(ii) conditions and 
related safe harbors will decrease the paperwork burdens for PVABs and 
registrants by the amounts that the Commission estimated that PVABs and 
registrants would incur as a result of these rules when adopting 
them.\340\ Accordingly, we believe that the final amendments will 
reduce the reporting, recordkeeping, and other compliance requirements 
applicable to small entities.
---------------------------------------------------------------------------

    \339\ See supra Sections IV.B and V.
    \340\ See supra Section V.
---------------------------------------------------------------------------

    The amendments could have other economic effects beyond simply 
reducing compliance requirements. We refer to the discussion of the 
final amendments' economic effects on all affected parties, including 
small entities, in Sections IV and V.\341\ Consistent with that 
discussion, we anticipate that the economic benefits and costs likely 
would vary widely among small entities based on a number of factors, 
including the nature and conduct of their businesses, which makes it 
difficult to project the economic impact on small entities with 
precision.\342\
---------------------------------------------------------------------------

    \341\ In particular, we discuss the estimated benefits and costs 
of the final amendments on affected parties in Section IV.B. We also 
discuss the estimated compliance burden associated with the final 
amendments for purposes of the PRA in Section V.
    \342\ See supra Section IV.C.
---------------------------------------------------------------------------

    As a general matter, however, we recognize that any costs of the 
final

[[Page 43196]]

amendments borne by the affected entities could have a proportionally 
greater effect on small entities, as they may be less able to bear such 
costs relative to larger entities. For example, as discussed in Section 
IV.B.2, the final amendments to Rule 14a-2(b)(9) could potentially 
reduce the overall mix of information available to PVABs' clients as 
they assess proxy voting advice and make determinations about how to 
cast votes. Further, as noted in Section IV.C, small institutions tend 
to rely more heavily on PVABs' proxy voting advice than larger 
institutions because those smaller institutions have more limited 
resources to conduct their own research. As such, to the extent the 
amendments to Rule 14a-2(b)(9) reduce the overall mix of information 
available to PVABs' clients in connection with PVABs' proxy voting 
advice, the costs associated by such reduction will be borne 
disproportionately by smaller institutions. That said, as discussed in 
Section IV.B.2, we expect that any such costs imposed on PVABs' clients 
would be mitigated to the extent that PVABs currently have internal 
policies and procedures aimed at enabling feedback from certain 
registrants before they issue proxy voting advice.
    Although we do not expect that PVABs or registrants will incur 
significant costs as a result of the final amendments, compliance with 
the amended rules may require the use of professional skills, including 
legal skills.

E. Agency Action To Minimize Effect on Small Entities

    As noted, the purpose of the final amendments is to avoid burdens 
on PVABs that may impede and impair the timeliness and independence of 
their proxy voting advice and avoid misperceptions regarding the 
application of Rule 14a-9 liability to proxy voting advice, while also 
preserving investors' confidence in the integrity of such advice. The 
RFA directs us to consider alternatives that would accomplish our 
stated objectives, while minimizing any significant adverse impact on 
small entities. In connection with the final amendments, we considered 
the following alternatives:
     Establishing different compliance or reporting 
requirements that take into account the resources available to small 
entities;
     Exempting small entities from all or part of the 
requirements;
     Using performance rather than design standards; and
     Clarifying, consolidating, or simplifying compliance and 
reporting requirements under the rules for small entities.
    As a primary matter, we do not expect that PVABs, investors, or 
registrants of any size will incur significant costs as a result of the 
deletion of Note (e) to Rule 14a-9. We recognize, however, that any 
costs of rescinding the Rule 14a-2(b)(9)(ii) conditions borne by the 
affected entities could have a proportionally greater effect on small 
entities as they may be less able to bear such costs relative to larger 
entities. While we acknowledge the potential costs that small entities 
may bear due to the rescission of the Rule 14a-2(b)(9)(ii) conditions, 
neither the above alternatives nor any other alternative to rescinding 
the conditions would be as effective in accomplishing our objectives. 
As discussed in more detail above, rescinding the Rule 14a-2(b)(9)(ii) 
conditions is appropriate because we believe that the potential 
informational benefits to investors of these conditions do not 
sufficiently justify the risks they pose to the cost, timeliness, and 
independence of proxy voting advice on which many investors rely.\343\ 
We also believe that deleting Note (e) is appropriate given our 
conclusion that, rather than reducing legal uncertainty and confusion, 
the addition of Note (e) has unnecessarily exacerbated it. We believe 
that rescinding these rules is the best course of action to address 
these concerns.
---------------------------------------------------------------------------

    \343\ See supra Section II.A.3.
---------------------------------------------------------------------------

    Thus, the above alternatives are not relevant because we are 
rescinding rules that imposed requirements (i.e., the Rule 14a-
2(b)(9)(ii) conditions) rather than adopting new requirements that 
could be modified to account for their potential impact on small 
entities. Our objectives, therefore, would not be served by 
establishing different compliance or reporting requirements for small 
entities, exempting small entities from all or part of the 
requirements, or clarifying, consolidating or simplifying compliance 
and reporting requirements for small entities. Similarly, because the 
final amendments do not set forth any standards, our objectives would 
not be served by establishing performance rather than design standards.

Statutory Authority

    We are adopting the rule amendments contained in this release under 
the authority set forth in Sections 3(b), 14, 23(a) and 36 of the 
Securities Exchange Act of 1934, as amended.

List of Subjects

17 CFR Part 240

    Brokers, Confidential business information, Fraud, Reporting and 
recordkeeping requirements, Securities.

17 CFR Part 276

    Securities.

Text of Rule Amendments

    In accordance with the foregoing, we are amending title 17, chapter 
II of the Code of Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS UNDER THE SECURITIES 
EXCHANGE ACT OF 1934

0
1. The general authority citation for part 240 continues to read as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78ll, 78mm, 80a-20, 
80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, 7201 et seq., and 
8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 1350; 
Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-106, 
sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *

0
2. Amend Sec.  240.14a-2 by revising paragraph (b)(9) to read as 
follows:

Sec.  240.14a-2  Solicitations to which Sec.  240.14a-3 to Sec.  
240.14a-15 apply.

* * * * *
    (b) * * *
    (9) Paragraphs (b)(1) and (b)(3) of this section shall not be 
available to a person furnishing proxy voting advice covered by Sec.  
240.14a-1(l)(1)(iii)(A) (``proxy voting advice business'') unless the 
proxy voting advice business includes in its proxy voting advice or in 
an electronic medium used to deliver the proxy voting advice prominent 
disclosure of:
    (i) Any information regarding an interest, transaction, or 
relationship of the proxy voting advice business (or its affiliates) 
that is material to assessing the objectivity of the proxy voting 
advice in light of the circumstances of the particular interest, 
transaction, or relationship; and
    (ii) Any policies and procedures used to identify, as well as the 
steps taken to address, any such material conflicts of interest arising 
from such interest, transaction, or relationship.

Sec.  240.14a-9  [Amended]

0
3. Amend Sec.  240.14a-9 by removing paragraph e. of the Note.

[[Page 43197]]

PART 276--INTERPRETATIVE RELEASES RELATING TO THE INVESTMENT 
ADVISERS ACT OF 1940 AND GENERAL RULES AND REGULATIONS THEREUNDER

0
4. The authority citation for part 276 continues to read as follows:

    Authority: 15 U.S.C. 80b et seq.

0
5. Amend the table by removing the entry for ``Supplement to Commission 
Guidance Regarding the Proxy Voting Responsibilities of Investment 
Advisers''.

    By the Commission.
    Dated: July 13, 2022.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2022-15311 Filed 7-18-22; 8:45 am]
BILLING CODE 8011-01-P