Congress Targets Proxy Advisors in Reform Push Backed by HRPA

The U.S. House Committee on Financial Services held a hearing on April 29^th focused on what Rep. Ann Wagner (R-MO) described as “the unchecked power of proxy advisory firms, especially ISS and Glass Lewis.” 

• These two firms control 97% of the proxy advisory market and numerous studies have shown that their recommendations have a significant impact on shareholder votes. 

• The hearing also highlighted six House bills that propose various requirements aimed at increasing transparency and reporting by proxy advisory firms.

Why it matters: Despite the growing influence wielded by ISS and Glass Lewis through providing voting recommendations to investors, consulting services to companies, and ownership of voting software platforms, the firms remain unregulated.

HR Policy Association view: HRPA believes that proxy advisory reform is necessary and long overdue. Our policy recommendations are designed to create a more principled process:

• Provide for Issuer Review – Issuers must be able to review draft proxy reports to ensure the data is properly validated before investors use it to make fiduciary voting decision. Proxy advisory firms should include a link to the issuer’s’ response in their final report to investors.

• Require Conflict Disclosure – Proxy advisory firms should be required to disclose potential conflicted conflicts of interest in each report, such as consulting services provided to issuers and shareholder proponents while also providing voting recommendations.

• Reinstate Security and Exchange Commission (SEC) Authority – The SEC’s 2020 rules on proxy advisors should be reinstated and, if they are not, Congress should clarify the SEC’s authority to regulate the firms.

What’s next: The SEC’s ability to regulate proxy advisors is in litigation. If the U.S. District Court of Appeals for the D.C. Circuit rules that the SEC lacks the authority to regulate these firms, any guardrails on advisory firm actions will require Congressional action. HRPA will continue to work with members of Congress seeking to increase proxy advisory firm transparency.