Proxy Advisory Firm Registration Bill Passes House

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By Andrew Ramonas

The House Dec. 20 approved legislation that would require SEC registration for firms that give investors voting advice on corporate shareholder proposals.

Lawmakers voted 238-182 to send the Corporate Governance Reform and Transparency Act, H.R. 4015, to the Senate for consideration. Rep. Sean Duffy (R-Wis.) reintroduced the bill this fall after it failed to get a vote on the House floor in the previous Congress.

Institutional Shareholder Services Inc. and Glass Lewis & Co. are the largest proxy advisory firms that would be subject to registration if the bill becomes law. The firms account for about 97 percent of the proxy advisory industry, according to a House Financial Services Committee report. They and other proxy advisers also would have to disclose their methodologies and potential conflicts of interest to the Securities and Exchange Commission, under the measure.

“We’re asking for transparency, responsiveness, and competition in the proxy advisory space,” Duffy said on the House floor. “And by doing that, we’ll improve corporate governance, and in the end, we’re going to protect investors.”

The U.S. Chamber of Commerce, Business Roundtable, and other supporters of the legislation have raised concerns about the influence proxy firms have over companies. Negative proxy adviser recommendations on executive pay can reduce votes in favor of compensation proposals by as much as 25 percent, a government review of recent studies showed.

The Council of Institutional Investors, a trade group that counts ISS and Glass Lewis among its members, opposes the legislation, saying it would increase costs for pension plans and other institutional investors.

“The so-called Corporate Governance Reform and Transparency Act would create an untested, inappropriate, and burdensome regulatory framework for proxy advisory firms, making it much more difficult for shareholders to obtain unbiased research used to make well-informed voting decisions about the companies they own,” Rep. Maxine Waters of California, the top Democrat on the House Financial Services Committee, said on the House floor.

Senate Prospects

The bill faces an uncertain future in the Senate, where no parallel legislation was offered, either in this Congress or the last.

The Financial Choice Act, H.R. 10, also would require proxy advisory firm registration. The measure passed the House earlier this year and was referred to the Senate Banking Committee, where it remains.

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bloomberglaw.com

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