This week, House Financial Services Oversight and Investigations Subcommittee Chair Sean Duffy (R-WI) and Rep. John Carney (D-DE) introduced bipartisan legislation supported by the Center, which would impose a more rigorous SEC registration and oversight process for proxy advisory firms. As explained in the attached Center Policy Brief, the Corporate Governance Reform and Transparency Act (H.R. 5311) 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;
- A private right of action for employees to sue proxy advisory firms for equitable relief or actual damages in the event inaccurate research reports cause significant harm to the company.
The bill would also repeal the two staff "No Action" letters that currently set the regulatory framework for proxy advisory firms and encourage institutional investors to use such firms to discharge their fiduciary duty to vote proxies. Center CEO Tim Bartl testified in support of the bill before the House Financial Services Subcommittee on Capital Markets on May 17. The introduction of a bipartisan bill is an important indication that Congress is watching the proxy advisory firm industry carefully.