DC Circuit Affirms Proxy Voting Advice Is Not “Solicitation”

The DC Circuit recently clarified the boundaries of Section 14(a) of the Securities Exchange Act of 1934, holding that proxy voting advice provided for a fee does not constitute “solicitation.”

Vedder Price explains that the decision in Institutional Shareholder Services, Inc. V. Securities and Exchange Commission and National Association of Manufacturers puts limits on the Securities and Exchange Commission’s authority, and highlights the distinction between advisory recommendations and directed requests for proxy authority in shareholder voting.

From 2019 through July 2022, the SEC issued guidance and amended proxy rules to extend the definition of “solicit” to include paid proxy voting advice, reasoning that such advice is marketed to influence shareholder votes and should therefore fall within the anti-fraud protections of Rule 14a-9.

A proxy advisory firm challenged this extension, asserting that its recommendations do not constitute a solicitation because it neither seeks proxy authority nor directs shareholders on how to vote.

In February 2024, the US District Court for the District of Columbia granted summary judgment for the firm, vacating portions of the SEC’s amendments, and concluding that the statutory meaning of “solicit” does not encompass paid proxy advice.

The SEC initially appealed but later withdrew, leaving the National Association of Manufacturers to defend the rule.

Reviewing the case de novo, the DC Circuit affirmed the District Court’s decision, emphasizing that “solicit” refers to a request for proxy authority or a directed plea to exercise it in a particular way.

The Court concluded that paid proxy voting recommendations are advisory and that the SEC’s attempt to broaden the term exceeded statutory authority.

Counsel can consider the ruling a clear benchmark on regulatory boundaries in proxy contexts. It confirms that statutory definitions, particularly for Section 14(a), are anchored in ordinary meaning and legislative intent.

The ruling also provides guidance for corporate governance compliance and signals caution regarding the SEC’s future efforts to extend its authority over proxy advisory services.