SEC Proxy Advisory Firm Limits Violate Law, DC Circuit Says (2)

A federal appeals court on Tuesday blocked SEC curbs on the firms that guide shareholder voting, rejecting a corporate bid to salvage rules from the first Trump administration.

The Securities and Exchange Commission defied securities law with the 2020 proxy advisory firm regulations, judges of the US Court of Appeals for the District of Columbia Circuit found. The 3-0 ruling upheld a 2024 decision tossing the regulations, which had targeted Institutional Shareholder Services Inc. and Glass, Lewis & Co., the leading providers of voting advice to pension funds and other big investors.

Companies have fought to restrict ISS and Glass Lewis for years. The proxy firms use their dominance to improperly shape annual meeting votes on board directors and environmental, social, and governance proposals, according to the National Association of Manufacturers, which pushed for the 2020 rules. ISS and Glass Lewis have disputed those claims.

ISS sued the SEC to scrap the regulations, and the National Association of Manufacturers joined the case to help the agency defend them. The business group urged the DC Circuit to save the rules, after the SEC stopped fighting for them in court during the Biden administration. Proxy firm regulation faces major hurdles without the rules or new laws, according to the manufacturers’ organization.

The regulations had anti-fraud and public filing requirements that put proxy firms in a regulatory regime for activist investors and company managers seeking to shape the outcome of annual meeting votes through a process known as solicitation. Proxy voting advice isn’t solicitation under the Exchange Act of 1934, Judge Karen Henderson wrote in an opinion for the three-judge panel that heard the case at the DC Circuit.

“It is simply a recommendation,” Henderson wrote. “The SEC’s effort to expand ‘solicitation’ to include such advice cannot be reconciled with the statutory text and its adoption of that definition in the 2020 Rule was contrary to law.”

The National Association of Manufacturers is “extremely disappointed” with the DC Circuit ruling, said Linda Kelly, the organization’s chief legal officer.

“The NAM will continue our work to bring appropriate oversight to these powerful actors,” she said in a statement.

ISS is pleased the court affirmed its “longstanding view that the provision of independent voting advice does not constitute a proxy solicitation,” a spokesperson for the firm said in a statement.

Henderson heard the case with Judges Bradley Garcia and Neomi Rao. President Joe Biden appointed Garcia, President George H.W. Bush picked Henderson, and President Donald Trump tapped Rao.

The DC Circuit decision came after Judge Amit P. Mehta of the US District Court for the District of Columbia ruled last year that the regulations were invalid. The SEC overstepped its authority to issue the rules, he said.

The case is Institutional Shareholder Services, Inc. v. SEC, D.C. Cir., No. 24-5105, opinion issued 7/1/25.