Gail Bernstein, general counsel of the Investment Adviser Association. (Courtesy photo)

Gail Bernstein, general counsel of the Investment Adviser Association, worries that proposed changes in proxy rules will make it so expensive and burdensome for advisers that they will simply decline to vote their clients' shares in the future.

"I am definitely hearing concern from our members, who are thinking about whether or not they can continue to vote proxies," Bernstein told Corporate Counsel Wednesday.

A day earlier, the U.S. Securities and Exchange Commission voted along party lines to modernize the rules that govern the process for shareholder proposals to be included in a company's proxy statement. The commission said the changes would "improve the accuracy and transparency of proxy voting advice."

Part of the proposal would place new requirements on proxy advisory firms, whose research and mechanisms help shareholders, especially big institutional investors like pension funds, cast their votes in corporate elections.

Bernstein, whose nonprofit trade association represents investment advisory firms, said, "We are concerned that advisers will be collateral damage here in the broader debate over public issuers and shareholders."

The debate pits shareholders against large corporations, which are tired of being pressured by proxy proposals from activist shareholder groups on issues like climate change or pay equality.

Tuesday's proposals, subject to a 60-day comment period before being enacted, came on top of strong commission guidance issued to investment advisers in August.

Bernstein said, "We intend to be actively engaged in the [comment] process."

Commission Chairman Jay Clayton, a Republican, issued a statement Tuesday saying the proposals were designed to ensure investors receive "the material information that would be expected to affect their investment decisions." They also will facilitate "constructive, information-rich engagement among shareholders and issuers," he added.

Attorney Danielle Fugere, who serves as president of the shareholder group As You Sow, said the changes also impose new burdens on shareholders. Fugere doesn't expect the commission to change its vote.

"The timing of this was designed to hit during the holidays," she said. "I think the commission under Clayton has no intention to respond to shareholders' concerns."

She called the proposals "shocking and unnecessary. The commission hasn't even proven that there is a problem."

Fugere said the commission was responding to large companies that have sought to limit shareholder rights "because there has been such strong shareholder respect for proxy proposals, especially on ESG [environmental, social, corporate governance] issues. Not all companies want to do these things."

Shareholders, she said, are bewildered by the new rules. She said the proposals have the potential to increase shareholder and company risk, particularly regarding climate change. "We don't believe that [the rules] will withstand public or legal scrutiny," she added.

On the other hand, the U.S. Chamber of Commerce praised the proposals in a statement, saying they would improve the proxy submission process that has not been updated in over 50 years.

The statement quotes Tom Quaadman, U.S. Chamber Center for Capital Markets Competitiveness executive vice president, as saying, "The proxy advisory firm industry is a duopoly, with only two companies controlling 97% of the market. They play a critical role in the system and yet they have been allowed to operate with material undisclosed conflicts of interest and opaquely develop one-size-fits-all voting recommendations. … Today's action advances the SEC's mission of investor protection as well as promoting competition and capital formation."

Two Democratic members of the commission dissented on the vote. Commissioner Robert Jackson Jr., who is on leave from teaching securities law at the New York University School of Law, said in a statement that the changes would tilt corporate elections toward management and "take CEO accountability off the corporate ballot."

Jackson presented new research showing that, "on average, inclusion of shareholder proposals by an American public company tends to increase long-term value."

He added, "Rather than engage carefully with the evidence … [Tuesday's] proposal simply shields CEOs from accountability to investors. Whatever problems plague corporate America today, too much accountability is not one of them."

Democratic commissioner Allison Herren Lee said in her statement that the proposals will make it more costly and difficult for shareholders to get their issues onto corporate ballots.

The data show "that the vote recommended by management carries the day some 90 percent of the time … That is the context in which we consider these two proposals that would tilt the scales even further against shareholders."