Senate Banking Committee to Examine Proxy Advisory Firms

November 30, 2018

The Senate Banking Committee will hold a hearing next week to consider proxy process issues and Sens. Jack Reed (D-RI) and David Perdue's (R-GA) bipartisan “Corporate Governance Fairness Act,” which would give the SEC new powers to examine proxy advisory firm advice and conflict of interest policies.

The bill harkens back to a time when compromise was not a dirty word on Capitol Hill and represents a departure from the House’s proxy advisory firm bill, which sought to create a comprehensive SEC-led proxy advisory firm oversight regimen. 

The bipartisan Senate bill pursues proxy advisory firm reform through three primary objectives:

  • Require all proxy advisory firms to register as investment advisors under the Investment Advisors Act;

  • Provide the SEC with “periodic and special” examination powers to review proxy advisory firm advice, conflicts of interest policies, and anything else the SEC “may prescribe as necessary and appropriate in the public interest and for the protection of investors;” and

  • Require the SEC to submit a report to the Senate Banking Committee on proxy advisory firm conflicts of interest, policies aimed at avoiding “false statements” or omitting material facts, and whether additional protections are needed for investors.

The bill is unlikely to move before the close of this Congress.  However, bipartisan support for it bodes well for re-introduction early next year.

Why it matters: Proxy advisory firms are under pressure, with the introduction of the Senate bill plus the SEC’s proxy advisory firm roundtable.  The Association’s Center On Executive Compensation is advocating on the Hill and at the SEC for the proxy advisory firm industry reforms we outlined in comments submitted to the SEC roundtable earlier this month.