Fifth Circuit Reinstates the Notice-and-Awareness Proxy Adviser Regulation that the SEC First Adopted and then Rescinded

In 2020, the SEC amended its proxy rules, generally requiring a proxy advisory firm (such as ISS and Glass Lewis) to make its proxy voting advice about a company available to the company no later than the time the advice goes to its clients and to provide a mechanism to inform its clients if the registrant files a response (the so-called “notice-and-awareness” requirements).  See here for our publication describing the final rules.

In 2022, and under new leadership, the SEC adopted amendments to remove these requirements (just one month before the requirements were supposed to go into effect). Shortly thereafter, the National Association of Manufacturers and the Natural Gas Services Group, Inc. sued the SEC, challenging the 2022 amendments. While the claims involve several technical nuances not described here, the overall argument was that the SEC failed to provide an adequate explanation for contradicting its 2020 factual finding (which was the result of 10 years’ of review) and failed to justify the 2022 amendments on their own terms.  

Most recently, in June 2024, the U.S. Court of Appeals for the Fifth Circuit ruled that the SEC acted arbitrarily and capriciously in removing its previously approved notice-and-awareness requirements for proxy advisory firms, violating the Administrative Procedure Act (National Association of Manufacturers et al. v. U.S. Securities and Exchange Commission). The Court vacated the 2022 recission of the notice-and-awareness requirements and remanded the matter back to the SEC (the court did not vacate and remand with respect to certain other aspects of the 2022 amendments).  A case from the U.S. Chamber of Commerce also challenging the 2022 recission of the notice-and-awareness requirements remains pending in the U.S. Court of Appeals for the Sixth Circuit.

Unless the SEC takes further steps or obtains a different result in the Sixth Circuit case, it would appear that the notice-and-awareness requirements will be reinstated.  It is possible, however, that we will see the SEC make another attempt to rescind the 2020 rules, presumably providing a more detailed explanation for doing so.

Samantha Nussbaum
Principal

 Samantha Nussbaum has consulted on behalf of public and private companies, compensation committees, and senior management on all aspects of executive compensation. Samantha’s consulting and legal background includes advising on executive compensation in the context of mergers and acquisitions, spin-offs, and initial public offerings; executive employment, severance, and change in control agreements; equity incentive plans; deferred compensation; and securities laws, including reporting and disclosure implications.

Dina Bernstein
Principal

Dina Bernstein has extensive experience advising on all aspects of executive compensation, working with companies on an ongoing basis, as well as in the context of mergers and acquisitions, spin-offs, initial public offerings, and other corporate events. Dina provides guidance to private and public companies across various industries regarding cash and equity incentive compensation arrangements, employment, severance and change in control agreements, overall compensation program design, pay governance practices, taxation, stock exchange listing requirements and securities regulation compliance.