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Enhancing Proxy Voting Transparency




In 2021, the Securities and Exchange Commission (SEC) proposed new rules aimed at increasing transparency in corporate governance, specifically related to proxy voting. The changes were designed to make the voting process more understandable and accessible for investors, particularly in the context of executive compensation.

What is Proxy Voting?

Proxy voting is a process where shareholders vote on various matters related to the companies they are invested in. For example, if you own shares in a mutual fund, that fund owns stock in multiple companies, which gives you indirect exposure to these companies. The mutual fund, on behalf of all its investors, is responsible for voting on significant corporate matters such as electing the board of directors, approving mergers, and other key decisions. These votes are known as proxy votes.

A Mandate from Congress

The first aspect of the SEC’s proposal stemmed from a mandate from Congress, initiated after the 2008 financial crisis. In response to the crisis, Congress directed the SEC to require institutional investment managers to report how they voted on specific executive compensation issues to their investors. These votes, commonly referred to as "say on pay," allow shareholders to have a voice in executive pay decisions.

While the SEC had previously established rules requiring companies to hold these "say on pay" votes, until last week, there had been no requirement for investment managers to report their votes on these matters. The new proposal seeks to fill this gap by mandating that investment managers disclose how they voted on executive compensation, thereby increasing transparency for investors.

Enhancing Usability and Transparency

The second part of the SEC’s proposal focused on improving the consistency, transparency, and usability of the forms used by funds to publicly report their proxy votes. According to the SEC, investors have expressed concerns about the accessibility of this information. Current filings can be cumbersome, sometimes exceeding 1,000 pages, with votes on the same issue reported inconsistently across different funds. Moreover, many of these reports are not provided in a machine-readable format, making it difficult for investors to analyze the data.


The rules aim to ensure that proxy voting reports are not only more consistent but also easier to use and understand. The SEC is pushing for these reports to be presented in a machine-readable format, reflecting the technological advancements of the 2020s. This modernization effort is intended to make it simpler for investors to access and comprehend the information they need to make informed decisions.

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