A measure requiring greater transparency from proxy-advisory firms was passed Wednesday by the House of Representatives along party lines by a 238-182 vote. There is no Senate counterpart currently.
Rep. Sean Duffy, R-Wis., sponsor of H.R. 4015, the Corporate Governance Reform and Transparency Act of 2017, said in a statement that while proxy-advisory firms play an important role in advising clients, "they are susceptible to conflicts of interest." Mr. Duffy said that along with more accountability and transparency from the firms, the bill if passed would create more competition in the proxy-advisory firm industry.
Financial Services Committee Chairman Jeb Hensarling, R-Texas, said in the same statement that his panel discovered "numerous instances whereby the two largest proxy-advisory firms (Institutional Shareholder Services and Glass Lewis) have issued vote recommendations to shareholders that include errors, misstatements of fact and incomplete analysis." The two largest firms make up approximately 97% of the proxy-advisory industry "and can control a significant percentage of shareholder votes in corporate elections," he said.
Under the bill, proxy firms would have to register with the Securities and Exchange Commission, disclose potential conflicts of interest and codes of ethics, and make public their methodologies for formulating proxy recommendations and analyses.
Ranking committee member Maxine Waters, D-Calif., said in her own statement that the bill would undermine sound corporate governance by creating an "untested and burdensome" regulatory framework that would undermine proxy-advisory firms and shareholders that rely on them for unbiased advice. The bill "would essentially fulfill the wishes of corporate management by regulating proxy-advisory firms out of existence," she said.
