Institutional investment managers that file on Form 13F must make public filings on Form N-PX to report their “say-on-pay” proxy voting. Although the compliance date for this new filing requirement is not until August 2024, the initial filing will cover proxies voted from July 1, 2023 through June 30, 2024. As such, managers should consider implementing procedures necessary to comply with the new recordkeeping and reporting requirements of Form N-PX.

SCOPE OF NEW REPORTING REQUIREMENTS

Under new Rule 14Ad-1 under the Exchange Act, [1] “institutional investment managers” [2] required to file on Form 13F must report their proxy voting record regarding certain compensation-related matters (so-called “say-on-pay” votes).

The new rule includes non-exhaustive examples of reportable matters, including Section 14A executive compensation, Section 14A executive compensation vote frequency, and Section 14A extraordinary transaction executive compensation. The requirement applies when the institutional investment manager has exercised voting power. Voting power may be exercised directly or indirectly.

Voting power is also considered exercised when an institutional investment manager decides not to vote, including by deciding not to recall and vote securities on loan. Managers that did not vote on any reportable matter during the applicable period are still required to file. The filing obligation is limited, however, to a notice report indicating that no votes were cast.

REPORT FILING REQUIREMENTS

Reports must be filed no later than August 31 of each year and must cover the most recent one-year period running from July 1 to June 30. The first Form N-PX filing by institutional investment managers will report votes cast from July 1, 2023 to June 30, 2024.

Each Form N-PX filing will consist of a cover page, a summary page, and a voting information report. The cover page identifies whether the filer is a manager or a fund, [3] the type of report being filed, as well as certain identifying information and whether any other person is reporting on the filer’s behalf. The summary page identifies other institutional investment managers covered by the filing.

The voting information report includes identification of each voting matter (and a brief description if not otherwise provided on the proxy card for the matter), information on the number of shares voted or instructed to be voted, and information on shares on loan and not recalled. Form N-PX reports will be required to be filed in XML format.

To avoid duplicative filings, managers, affiliated managers, and funds are permitted to file jointly when:

• Single Manager: A single manager may report “say-on-pay” votes in cases where multiple managers exercise voting power.
• Affiliated Persons: Affiliated persons may file a single report on Form N-PX for all affiliated person managers within the group, notwithstanding that they do not exercise voting power over the same securities.
• Fund: A fund may report a manager’s “say-on-pay” votes on behalf of a manager exercising voting power over some or all the fund’s securities.

TAKEAWAYS

Third-party proxy voting services and other service providers are in the process of implementing procedures to accommodate the new requirements. For managers that utilize internal procedures to track and vote proxies, now is the time to prepare to implement the new requirements and solicit necessary advice to ensure that records properly reflect information required to be reported for proxies going forward.

Summer associate Praise Tillman contributed to this LawFlash.

[1] See Enhanced Reporting of Proxy Votes by Registered Management Investment Companies; Reporting of Executive Compensation Votes by Institutional Investment Managers, SEC Rel. Nos. 33-11131; 34-96206 (Nov. 2022) (Adopting Release). The new requirements complete the implementation of Section 951 of the Dodd-Frank Wall Street Reform and Consumer Protections Act, which requires institutional investment managers subject to Section 13(f) of the Securities Exchange Act of 1934 (Exchange Act) to report at least annually how they voted on advisory shareholder votes.

[2] An “institutional investment manager” is defined in the Adopting Release as an entity that either invests in, or buys and sells, securities for its own account. The term “institutional investment manager” also includes a natural person or an entity that exercises investment discretion over the account of any other natural person or entity (for example, an investment adviser). A natural person or entity that controls an institutional investment manager is itself an institutional investment manager.

[3] Registered investment companies report proxy voting information on Form N-PX and will continue to be required to do so. The Adopting Release also includes enhancements to Form N-PX intended to enable fund shareholders to identify proxy voting information most relevant to them. Votes must be classified into one of 14 standard categories, and filings must be made in XML format.