The U.S. House of Representatives advanced Wednesday a bill designed to increase transparency in the shareholder proxy voting system.
The Corporate Governance Reform and Transparency Act of 2017 (H.R. 4015) requires proxy advisory firms to register with the Securities and Exchange Commission (SEC), disclose potential conflicts of interest and codes of ethics, and make available to the public their methodologies for formulating proxy recommendations and analyses.
This should help ensure that the voting recommendations that proxy firms provide are in the interests of shareholders.
“Proxy advisory firms play an important role in advising their clients but they are susceptible to conflicts of interest,” Rep. Sean Duffy (R-WI), the bill’s sponsor, said. “Investors in Wisconsin and across America expect and deserve certainty that their rights as shareholders won’t be compromised by advisors issuing conflicting recommendations and executing votes. My bill will foster greater accountability, transparency, responsiveness, and competition in the proxy advisory firm industry.”
It was advanced by a vote of 238-182.
Institutional investors often use investment advisors – known as proxy advisory firms – to vote on their behalf at shareholder meetings. However, the market is dominated by two players, who serve about 97 percent of the industry. Given the dominance of the two firms in the proxy system, greater transparency is necessary to protect shareholders.
“The [House Financial Services] Committee is aware of numerous instances whereby the two largest proxy advisory firms have issued vote recommendations to shareholders that include errors, misstatements of fact, and incomplete analysis,” Financial Services Committee Chairman Rep. Jeb Hensarling (R-TX) said. “Some proxy advisory firms’ recommendations have been made without any contact to the public company at all, and these same proxy advisory firms encourage companies to join their service in order to have the privilege to ‘influence’ an advisory firm’s recommendations.”