Six U.S. senators introduced a bipartisan bill on Wednesday to put proxy advisors under the regulatory jurisdiction of the Securities and Exchange Commission.
The Corporate Governance Fairness Act, co-sponsored by Democrats Jack Reed of Rhode Island, Doug Jones of Alabama, and Heidi Heitkamp of North Dakota as well as Republicans John Kennedy of Louisiana, David Perdue of Georgia, and Thom Tillis of North Carolina, is endorsed by the pro-business U.S. Chamber of Commerce as well as the Consumer Federation of America .
The bill puts the advice provided by proxy advisory firms under the Investment Advisers Act which is enforced by the SEC. The bill directs the SEC to conduct periodic inspections of firms such as Glass Lewis, Institutional Shareholder Services including reviews of potential conflicts of interests.
In a statement provided for the SEC’s Staff Roundtable on the Proxy Process held November 14, Glass Lewis dismissed concerns about conflicts and said it does not offer consulting services to corporate issuers, directors, dissident shareholders or shareholder proposal proponents. “Glass Lewis has robust policies and procedures in place to help monitor, manage and address any potential conflicts that may arise in the course of its business,” the statement said.
ISS disagrees with a recent U.S. Chamber statement that proxy advisory firms have “taken advantage of a broken regulatory system for far too long.”
In a statement on its site, ISS said it is “a firm committed to helping institutional investors exercise their fiduciary duties” and that it could not disagree more with the U.S. Chamber of Commerce’s assertions that the corporate governance system is broken.”
Perdue, in a statement on his website, took a conciliatory tone. “As a former CEO of publicly-listed companies, I understand the value that proxy advisory firms provide to the investment community,” said Perdue. “At the same time, greater oversight is needed to monitor the industry and ensure that the advice provided is transparent and free from conflicts of interest.”
“Under our legislation, all major proxy advisory firms would be required to register as investment advisers under the IAA, and therefore have a fiduciary duty to their clients,” said Reed, a senior member of the Banking Committee in a press release about the bill.
In a statement on its site the New York Stock Exchange also voiced its support for the bill. “Reform is needed now to concentrate the oversight of proxy advisory firms at the SEC. The proposed legislation will implement changes that will improve the quality of information that proxy advisory firms provide to their institutional clients, and will compel these firms to manage their conflicts of interest.”
Barbara Roper, director of investor protection for the Consumer Federation of America is quoted in the press release for the bill. “This is a thoughtful and balanced bill that brings the benefits of government oversight to the proxy advisory business while recognizing, and strengthening, the fiduciary duty that these firms owe to their investor clients. The Consumer Federation of America strongly supports its adoption,” said Roper.
