[How we think the recent SEC Proxy Advisory Services Roundtable should have gone, at least in our heads.]

Higgins: Good morning, I’m Keith Higgins, Director of the Division of Corporate Finance here at the SEC. We’d like to welcome all of our guests and also Chairman White, sitting to my right. Our first speaker will be Darla Stuckey, of the Society of Corporate Secretaries.

White: Sorry to interrupt, and I don’t want to hijack your meeting, but I have a few questions.

Higgins: Um, thanks Chairman White...

White: Ms. Stuckey, your organization represents corporate issuers, right?

Stuckey: That’s right.

White: We have your written comments, in which you contend that proxy advisors are unregulated and unsupervised, presumably by my agency, so thanks for those. What’s your members’ relationship to proxy advisors? Do they pay them a fee for their assessment, like they pay rating agencies when they issue debt?

Stuckey: No, the proxy advisors just write reports about our members, for their clients. They do make clear the standards by which they assess our members’ governance, and also solicit our members’ input into their assessments. Our members also can hire proxy advisors to help with corporate governance.

White: I see that representatives from the proxy advisors have joined us. Let me ask them some questions, too. Mr. Retelny, you work at ISS. Do you provide services to corporations that Ms. Stuckey represents?

Retelny: We do, and we disclose this clearly and operate that business pursuant to strict codes of conduct.

White: Alright. Mr. Retelny, does the SEC regulate your company?

Retelny: Yes, we’re a registered investment advisor, have been for many years.

White: Mr. Higgins, has the SEC ever received a complaint about ISS as an RIA? Say, about their consulting work for corporations, or anything else related to their securities license?

Higgins: Actually, no. Last year they did have a problem with an employee disclosing confidential information, but it had nothing to do with conflicts of interest, the nature of their analysis, or anything else related to how they analyze their clients’ portfolio companies.

White: I see. We also have some investors in the room, so I have some questions for them. Anne Sheehan, you work for one of the largest US pension funds, CalSTRS. You must be a client of ISS or its competitor Glass Lewis. What’s your relationship with these firms?

Sheehan: We view them as a consulting firm, to which we pay fees, and from which we receive advice based on their analysis of public information of our portfolio companies. We typically take their advice about how to vote proxies, but aren’t bound to, and don’t always. Either way, we and all of their clients have significant input into the standards that they use to assess companies, so their views generally reflect ours.

White: So, let me get this straight. Proxy advisors deliver private consulting services to investors. If their clients disagree with the analysis or advice, these clients can and do disregard it. The SEC already regulates at least one firm as an RIA, and we have never received as much as a single complaint from their clients, the investors that make up this agency’s principal constituency.

I don’t understand the problem, Ms. Stuckey. It doesn’t sound like these firms are unsupervised and unregulated, it sounds like your members sometimes don’t like what proxy advisors tell investors about your members’ governance. And your members want us to regulate these firms more closely?

Stuckey: Well, if you put it that way...

White: Look, equity analysts work for RIAs, do you want us to regulate them more closely just because they slap a “sell” on one of your members’ stock? Especially if their clients, the investors whose interests our agency is chartered to defend, have never complained about them?

Stuckey: Um, no, it’s not the same...

White: The SEC has a very tough mandate, with a great number of regulations to issue, new and different markets to oversee, and all manner of market fraud to investigate and prosecute. Congress has delegated to us increasing responsibility, and not nearly enough budget. Now corporations want us to impose tighter regulations on firms that Congress hasn’t even seen fit to mandate us to regulate more closely?

It seems to me that companies want us to regulate proxy advisors more because they don’t like that they advise and represent their clients diligently and faithfully. This merely looks like a way to turn the screws on investors.

Well, we don’t have time, energy, or resources for this nonsense. Let’s end this now, and move on to more important items, ones that truly involve protecting investors from fraud and abuse.

Higgins: Well, thank you Chairman White, I think. Looks we can adjourn this meeting.

[The Roundtable ended after ten minutes.]