This comment letter responds to a request from the Employee Benefits Security Administration, U.S. Department of Labor, for comments on its proposed rule “Fiduciary Duties Regarding Proxy Voting and Shareholder Rights” (hereinafter referenced here as the “Fiduciary Duties/Proxy Voting” rule), focusing on “the prudence and exclusive purpose duties under the Employee Retirement Income Security Act of 1974 (ERISA) to the exercise of shareholder rights, including proxy voting, the use of written proxy voting policies and guidelines, and the selection and monitoring of proxy advisory firms.”

My name is Benjamin Zycher. I am a resident scholar at the American Enterprise Institute in Washington, DC. I formerly was a senior economist at the RAND Corporation, an adjunct professor of economics at the University of California, Los Angeles (UCLA), and a senior staff economist at the President’s Council of Economic Advisers. I am a former member of the Board of Directors of the Western Economics Association International, and I now am a member of the Board of Trustees of the Foundation for Research in Economics Education. I hold a doctorate in economics from UCLA and a master’s degree in public policy from the University of California, Berkeley. The views that I express in this letter are my own and do not purport to represent those of any institution with which I am affiliated.

Some recent related activities on my part are as follows. I submitted a comment letter to the Securities and Exchange Commission on the SEC Staff Roundtable on the Proxy Process (File No. 4-725). I organized and moderated a panel discussion on “Environmental, Social, and Governance (ESG) Investing: The Proxy Advisory Process and the Interests of Investors,” held June 18, 2019 at the American Enterprise Institute, at which SEC Commissioner Hester Peirce delivered the keynote address. Subsequent to that I submitted to the SEC a formal comment on the SEC Proposed Rule: Amendments to Exemptions from the Proxy Rules for Proxy Voting Advice (File No. S7-22-19). And I submitted last July a comment letter to the Department of Labor on its proposed rule “Financial Factors in Selecting Plan Investments (RIN 1210-AB95).”

The new Fiduciary Duties/Proxy Voting rule proposed by the Department of Labor is timely and needed, and the central purpose of this comment letter is the presentation of analysis in support of the adoption of the proposed rule as a final rule, but with a needed clarification of the constraints to be placed upon automatic (or “robo-”) voting by fund managers in accordance with the recommendations of proxy advisors. This proposed rule is particularly important given (1) the growing number and complexity of proxy proposals confronted by corporate and fund managers, (2) the growing trend among such proposals to force Environmental, Social, and Governance (ESG) considerations into management decisions in place of narrow fiduciary considerations, (3) the growing trend on the part of managers governed by ERISA to rely on the advice of proxy advisor firms for recommendation decisions on proxy proposals, and in particular (4) the growing trend of such managers simply to accept such recommendations virtually wholesale, as manifested in automatic voting in accordance with those recommendations.