We talk a lot about bad policy proposals that will harm the industry (ahem, foreign reference pricing for drugs) but here’s some good ones that might actually create greater transparency and help investment in the biotech space.
New rules recently proposed by the SEC will help make proxy advisory firms more accountable and improve the accuracy of their recommendations to investors. Since capital is the lifeblood of young biotechs, it’s essential the information proxy advisory firms provide to clients is as accurate and complete as possible.
The background: Proxy advisory firms provide institutional investors with research and recommendations on proposals by management and shareholders. With the rise in institutional ownership over the years, proxy firms play a more significant role in the proxy voting process now than they have in the past.
The problem: As BIO has long argued, proxy advisory firms have a growing influence on the proxy voting process, even though these firms can be plagued with opaque processes and conflicts of interest that can harm emerging companies like biotechs.
Biotech companies have unique business models that are often disregarded by proxy voting advice businesses. Instead, proxy voting advice businesses issue one-size-fits-all recommendations, and companies do not have an opportunity to correct material errors or incomplete analysis in the data underpinning their voting recommendations.
Proxy firms also have fundamental conflicts of interest such as maintaining a related consulting service that charges companies a fee to learn how to best comply with its voting policies and obtain favorable recommendations in the future.
The action: The SEC proposed several amendments that would require proxy advisory firms to provide greater transparency about conflicts of interest and how they make their recommendations. These recommendations are consistent with BIO’s efforts to reform the process to make it fairer, more accurate and more transparent.
Why it matters: If the amendments pass as proposed, they’ll improve transparency by requiring proxy advisory firms to comply with certain requirements for disclosing conflicts of interest, allowing companies the right to review and respond to recommendations, and requiring these firms to include the company’s response in the firms’ materials provided to clients. These amendments won’t diminish investor protections and, in fact, will help make sure investors are better informed.
Read BIO's comment to the SEC.
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