How the Sec Can Help Mitigate the 'Proactive' Agency Costs of Agency Capitalism

21 Pages Posted: 14 Feb 2019 Last revised: 7 Apr 2019

Date Written: April 5, 2019


To combat the “proactive” agency costs of agency capitalism, this Article proposes that the United States Securities and Exchange Commission (“SEC” or “Commission”), in whatever form it deems appropriate, require mutual fund advisers to disclose, under the Proxy Voting Rule, their policies and procedures to: Avoid the opportunistic use of their voting power at public companies as a means to obtain new business from activists such as public pension funds and investment funds associated with labor unions; Eliminate pressures to support the activism of its own shareholders at its portfolio companies; and Identify an actual link between support for a shareholder proposal under Rule 14a-8 and the enhancement of shareholder value before voting in favor of any such proposal.

This Article is distinguished from prior articles by its recognition of additional types of agency costs of agency capitalism that fall into the “proactive” category, as well as the use of the term “proactive, and by categorizing the agency costs generated by the economic disincentives that discourage mutual fund advisers from becoming sufficiently informed voters as falling in the “passive” category.

Keywords: proxy process, shareholder voting, Investment Advisers Act of 1940, agency costs, agency capitalism, SEC, Proxy Voting Rule, mutual fund advisers, investment advisers

JEL Classification: K2, K22

Suggested Citation

Sharfman, Bernard S., How the Sec Can Help Mitigate the 'Proactive' Agency Costs of Agency Capitalism (April 5, 2019). American University Business Law Review, Forthcoming, Available at SSRN:

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