House to Vote on Proxy Advisory Firm Reform Bill Next Week

December 08, 2017

The House of Representatives will vote next week on HR Policy-supported legislation that would impose a more rigorous SEC registration and oversight process for proxy advisory firms.  As described in a Center On Executive Compensation policy brief, the bipartisan Corporate Governance Reform and Transparency Act (H.R. 4015) would require proxy advisory firms to:
  • File a detailed registration application with the SEC, confirming that they have sufficient resources to fulfill their fiduciary duties in analyzing proxies;
  • Disclose "potential or actual conflicts of interest" relating to the ownership structure of the proxy advisory firm, including whether the proxy advisor provides ancillary services, such as consulting, to corporate issuers, and if so the revenue derived from those services as well as how those conflicts will be addressed; and
  • Have sufficient resources to ensure proxy voting recommendations are based on accurate and current information.
The bill would also repeal the two staff "No Action" letters that currently set the regulatory framework for proxy advisory firms and effectively encourage institutional investors to use such firms to discharge their fiduciary duty to vote proxies.  The House Financial Services Committee approved the bill on November 15 on a 40-20 vote with the following Democrats voting in support of the bill: Representatives Gregory Meeks (D-NY), Jim Himes (D-CT), Bill Foster (D-IL), John Delaney (D-MD), Kyrsten Sinema (D-AZ), and Josh Gottheimer (D-NJ).  The bill was previously included in the comprehensive Financial Choice Act 2.0, the Dodd-Frank reform measure which passed the House earlier this year, but has not had any action taken in the Senate.