Proxy advisors (e.g., Institutional Shareholder Services (“ISS”) and Glass, Lewis & Co (“Glass Lewis”)) have played a substantial role in the design of executive compensation for many years.   This has been due to the strong reliance of institutional investors (as well as investment advisors) on the proxy voting recommendations of firms such as ISS and Glass Lewis.  Some commentators have viewed the proxy advisors as being quasi-regulators without any formal oversight of their potential conflicts of interest.

The current structure goes back a number of years, and two SEC no-action letters from 2004 issued to Egan-Jones Proxy Services (May 27, 2004) and Institutional Shareholder Services, Inc. (Sept. 15, 2004) confirmed that proxy advisory firms could still be considered independent third parties under Rule 206(4)-6 of the Investment Advisers Act of 1940 even if the proxy advisory firm receives compensation from an issuer for providing advice on corporate governance issues.

Although there have been some legislative proposals to address the above concerns (e.g., H.R. 4015-Corporate Governance Reform and Transparency Act of 2017), these have progressed slowly.

Some recent SEC actions have observers wondering if the SEC might make some changes which will reduce the influence of proxy advisors.  As a starting point, in July, the SEC announced its intention for its staff to host a Roundtable on the proxy process in general and solicited comments from interested parties. The announcement outlined potential topics for the Roundtable, and this included the topic of the overall role of proxy advisors.

Secondly, earlier this month, the SEC Division of Investment Management issued an Information Update (IM-Info-2018-02), which indicated that the two 2004 no-action letters discussed above were being withdrawn:

“Taking into account developments since 2004, the staff has determined to withdraw these letters, effective today. The staff is providing this notice of withdrawal of the letters in order to facilitate the discussion at the Roundtable and looks forward to receiving information and feedback from stakeholders with multiple perspectives at the Roundtable.”

There is no immediate impact from this change, particularly since some other related guidance (Staff Legal Bulletin No. 20) is still in place.  However, it does suggest that we can expect some focus on the proxy advisory role in the upcoming Roundtable which is expected to be in November.


Narendra Acharya focuses his practice on matters relating to US and international employee benefits and executive compensation — including global stock plans and pensions, as well as matters pertaining to pensions, executive compensation and employment issues in mergers and acquisitions. Mr. Acharya assists US and non-US companies – both publicly traded and private – in the design and implementation of employee stock plans. He has extensive experience advising clients on income tax, social security, payroll withholding and reporting, local corporate tax deduction, employment law, securities and other regulatory issues applicable to equity awards in numerous jurisdictions.


Victor Flores is a partner in Baker McKenzie’s Employment & Compensation Practice, with a focus on Executive Compensation and Employee Benefits. Victor advises global US and non-US companies – both public and private – on all aspects of executive compensation and benefits matters, including the corporate, securities and tax law, and ERISA issues arising in the implementation and administration of compensation programs. He regularly helps clients with the design and implementation of equity and non-equity based incentive compensation programs and nonqualified deferred compensation programs. Victor also has extensive experience advising on compensations and benefits issues in mergers and acquisitions, corporate reorganizations, private equity and other corporate transactions.


Sinead Kelly is a partner in Baker McKenzie’s Compensation practice in San Francisco. She advises on U.S. executive compensation and global equity and has practiced in the compensation field since 2005. In her practice, Sinead counsels U.S. and non-U.S. public and private companies on all aspects of equity and executive compensation plans and arrangements, including plan design, drafting, administration and governance. In this regard, Sinead advises on and assists companies with compliance with U.S. federal and state securities and tax laws relating to compensation arrangements, as well as with preparing SEC disclosures, complying with stock exchange rules and addressing non-U.S. tax and regulatory requirements. She has been repeatedly recognized by Legal 500 as a leading lawyer for Executive Compensation and Employee Benefits.


Maura Ann McBreen is a partner in the Firm’s Chicago office and has over 30 years' experience in executive compensation and employee benefits. Maura Ann focuses on executive compensation and employee benefits, especially with regard to single employer, multi-employer, and multinational benefits. She addresses operational and fiduciary issues as they arise under tax-qualified retirement plans, including employee stock ownership plans, and leads our global pensions practice. She designs deferred compensation and equity-based incentive compensation plans, advises on issues under Code Sections 162(m), 280G, 409A and 457A and negotiates executive employment agreements.