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ICI Files Friend of the Court Brief in Proxy Access Case

The Investment Company Institute (ICI), and it's affiliate, the Independent Directors Council, have submitted an amicus, or friend of court, brief in support of the Business Roundtable’s and the U.S. Chamber of Commerce’s lawsuit, which seeks to invalidate the proxy access rules adopted by the Securities and Exchange Commission.  In it's brief, the ICI opposes what it characterizes as the "one size fits all" approach it claims the SEC has taken with respect to proxy access, and attempts to demonstrate that "the SEC focused on how its new proxy access rules would apply to operating companies and failed to consider the very different context presented by funds.  As a result, the SEC adopted a 'one-size-fits-all' standard that fails to take into account the extensive regulatory requirements and governance structure that are unique to investment companies."

The ICI's argument focuses on five areas that the SEC's proxy access rules would affect related to mutual funds:


1. Federal law provides unique protection to fund shareholders. Existing federal law regulating funds sets independence requirements for fund boards; imposes specific responsibilities on independent directors; requires shareholder approval for key fund decisions; and provides an avenue for shareholder lawsuits against an investment adviser for receipt of excessive compensation. There are no comparable provisions with respect to public operating companies.

2. Funds and their shareholders would lose important efficiencies that are unique to funds. Fund complexes generally have adopted specific board structures (known as “unitary or cluster boards”) designed to efficiently oversee multiple funds. The many benefits of these structures—including increasing the board’s knowledge of fund operations across the complex, strengthening the board’s oversight of the investment adviser, and lowering fund shareholders’ expenses – are threatened by the rule, which invites the election of different directors for particular funds within the complex.

3. Applying the rules to funds is wholly inconsistent with a recent SEC action. As recently as July 2009, the SEC approved an exemption for funds from a New York Stock Exchange rule concerning director elections. In doing so, the SEC concluded that “the different regulatory regime for registered investment companies supports the exemption.” The SEC offered no explanation for its sudden change in policy.

4. The SEC relied on empirical studies that expressly excluded funds. The SEC failed to conduct studies assessing the rule’s impact on the fund industry and relied on empirical studies based on operating companies. Given the unique features of funds, as well as the size of the fund industry, the SEC cannot rationally rely on those studies without considering whether there are meaningful differences between funds and operating companies that require a different analysis.

5. The SEC failed to consider fully the rule’s effect on efficiency, competition, and capital formation. The SEC admitted the rule would “increase costs and potentially decrease efficiency” of fund boards. The SEC failed to consider whether current federal law provides “sufficient protections” for shareholders so as to outweigh the obvious efficiency costs of rule. The SEC compounded its error by failing to consider the extent of existing competition in its analysis, because if it had, it would have found that funds exist in a highly competitive market.

The ICI's announcement and description of its amicus brief is is available at:

The full text of the ICI brief is available at: