11/14/2018 — 

WASHINGTON, DC -- In an effort to protect investors, improve corporate governance, and hold proxy advisory firms accountable, U.S. Senators Jack Reed (D-RI), David Perdue (R-GA), Doug Jones (D-AL), Thom Tillis (R-NC), Heidi Heitkamp (D-ND), and John Kennedy (R-LA) are introducing the bipartisan Corporate Governance Fairness Act.  The bill would help ensure that investors may confidently rely on the advice of proxy advisory firms by requiring the U.S. Securities and Exchange Commission (SEC) to regulate all major proxy advisory firms under the Investment Advisers Act (IAA).  This advice is critical for investors as they decide how to vote their shares on important corporate governance matters, such as director elections or whether to sell the company.

Proxy advisory firms are an essential tool for investors, and the senators want to ensure they are well-regulated and held accountable as fiduciaries to the investors who rely on their advice.

The SEC is scheduled to hold a roundtable discussion on proxy advisory firms on November 15, and the bipartisan sponsors of the Corporate Governance Fairness Act are sending a strong signal that they want robust oversight of proxy advisory firms.  The Corporate Governance Fairness Act would direct the SEC to conduct periodic examinations, which must include a serious review of the conflicts of interest policies of registered proxy advisory firms and whether firms knowingly made false statements to any of its clients.  It also requires the SEC to consult with all relevant stakeholders and report back periodically to the Senate Banking Committee and the House Financial Services Committee with recommendations for any additional investor protections beyond continued access to proxy advisory firms so that investors have the tools to make informed investment decisions and exercise their rights as shareholders.

“Given the importance that investors have placed on continued access to proxy advisory firms, it is critical that proxy advisory firms are appropriately regulated and held accountable to investors, and this is the purpose of the bipartisan Corporate Governance Fairness Act,” said Senator Reed, a senior member of the Banking Committee.  “Under our legislation, all major proxy advisory firms would be required to register as investment advisers under the IAA, and therefore have a fiduciary duty to their clients.  So as to not discourage new entrants into the proxy advisory business, our bill provides smaller proxy advisory firms the choice to voluntarily register under the IAA but does not require them to do so.  The Congressional intent of this legislation is to preserve the critical role played by proxy advisory firms and to hold them accountable to investors.”

“As a former CEO of publicly-listed companies, I understand the value that proxy advisory firms provide to the investment community,” said Senator Perdue, member of the Senate Banking Committee. “At the same time, greater oversight is needed to monitor the industry and ensure that the advice provided is transparent and free from conflicts of interest. Millions of hardworking Americans rely on this guidance for safeguarding their retirement savings.”

Said Senator Jones: “For our public markets to thrive, investors need timely, accurate information about public companies. Proxy advisory firms play a critical role in providing that information to investors. Given their essential role in the marketplace, I believe it is prudent that these firms are properly regulated by the Securities and Exchange Commission, making sure that conflicts of interest are avoided and that proxy advisory firms are legally required to serve in their clients best interests. This commonsense oversight measure will increase confidence in our public markets, benefiting both investors and growing companies.”

“Proxy advisory firms play a crucial role in recommending investment decisions to investors, and it is important that clients can safely rely that the information being provided is in their best interest,” said Senator Tillis. “The bipartisan Corporate Governance Fairness Act would hold proxy advisory firms accountable and strengthen the transparency of corporate governance matters so when investors might be voting on a new board member or deciding whether to sell a company they are invested in, they have all the information available.”

“Increasing transparency and accountability in corporate governance decisions is critical to the continued healthy operation of our public markets.  I’m proud to join my colleagues to introduce the Corporate Governance Fairness Act, which would take meaningful steps to right-size the regulation of proxy advisors, support investors, and strengthen corporate decision-making at our publicly traded companies,” said Senator Heitkamp.

“Proxy advisers are a dependable resource for many shareholders across the investment community.  However, their work should not remain unchecked,” said Senator Kennedy, a member of the Banking Committee.  “Requiring proxy advisers to register with the SEC will help reinforce these firms’ integrity by addressing any potential conflicts of interest and by assessing the accuracy of their communications.  This bipartisan legislation will protect investors by holding proxy advisory firms responsible for the services that they provide to clients.”

The Corporate Governance Fairness Act is supported by the Consumer Federation of America; SEC Investor Advisory Committee Member John Coates; the New York Stock Exchange; and the Society for Corporate Governance. 

“This is a thoughtful and balanced bill that brings the benefits of government oversight to the proxy advisory business while recognizing, and strengthening, the fiduciary duty that these firms owe to their investor clients.  The Consumer Federation of America strongly supports its adoption,” said Barbara Roper, Director of Investor Protection for the Consumer Federation of America.

“This well-considered bill would improve oversight of proxy advisors without impairing their ability to assist fiduciaries in carrying out their important roles in corporate governance,” said Harvard Law School Securities Regulation Professor John Coates, who is also a member of the SEC Investor Advisory Committee.

“We strongly support this bipartisan bill that advances the regulation of proxy advisory firms under the Investment Advisers Act of 1940.  Working together, the Corporate Governance Fairness Act strikes an important balance between the interests of our issuers and the value that proxy advisory firms offer to institutional investors.  It will also place the oversight of these firms in the hands of the SEC, and ensure that the information that they provide to their institutional clients is factual and unbiased,” said Stacey Cunningham, President of the New York Stock Exchange.

Darla Stuckey, President & CEO of the Society for Corporate Governance stated: “The Society applauds the bipartisan introduction of the Corporate Governance Fairness Act and commends the members of the Senate Banking Committee for coming together to provide real reform that strengthens America's capital markets, our public companies, and their shareholders.  At a time when the influence of proxy advisory firms reaches all-time highs, the CGFA will provide the transparency and fairness to both investors and public companies that are the hallmarks of American capital markets.  The Society for Corporate Governance supports the enactment of this bill.”