Bipartisan Senate Proxy Advisory Firm Bill Rises Above the Fray in Senate Banking Committee Hearing

December 07, 2018

The Senate Banking Committee held a hearing this week featuring discernible support for action on proxy advisory firms that stood out from the partisan debates common to the hotly-contested topic.

Committee Ranking Democrat Sherrod Brown (D-OH) complimented Senator Jack Reed’s (D-RI) “Corporate Governance Fairness Act,” which would give the SEC new powers to examine proxy advisory firm advice and conflict of interest policies, as a bipartisan achievement.  Senator Brown’s praise came only after he harshly criticized corporate buybacks and what he characterized as efforts to encroach on the “independence” of proxy advisory firm advice under the guise of correcting errors and miscalculations.

Conflict of interest problems acknowledged by Senators and witnesses: Senators pressed the witnesses on conflicts of interest, specifically those presented by ISS and its consulting services. 

“The practice of selling services to companies they provide ratings on does constitute a conflict of interest,” said Mike Garland, Assistant Comptroller, Corporate Governance and Responsible Investment for the New York City Comptroller's office, while answering questions from Senator John Kennedy (R-LA).  He also called for “transparency with respect to conflicts with the issuers.”  However, in written testimony, he characterized conflicts as "our problem as investor clients" of proxy advisory firms, not something about which issuers should be concerned.

Shadow of House proxy advisory firm bill present in hearing:  The House proxy advisory firm reform bill was discussed, especially by Senate Democrats, including Senator Chris Van Hollen (D-MD), who referenced a letter from an institutional investor in his state criticizing the bill.  The criticisms of the House bill in the hearing seemed to have the effect of buttressing support for the Senate’s proxy advisory firm bill.

Bill positioned for re-introduction in 2019:  With little time remaining this year, the Senate’s proxy advisory firm reform now shifts to the next session of Congress where proponents hope to pick up more supporters from both sides of the aisle.  The Association’s Center On Executive Compensation will continue to work with policy makers to pursue effective proxy advisory firm reform.