U.S. Rep. Sean Duffy’s (R-WI) legislation to protect American business investors from conflicts of interest passed the U.S. House of Representatives on Dec. 20 by a 238-182 vote.
The Corporate Governance Reform and Transparency Act of 2017, H.R. 4015, would increase the transparency of shareholder proxy advisory firms — also known as investment advisors — which vote on behalf of investors who own shares in many public companies.
Currently, the nation’s two largest proxy advisory firms handle about 97 percent of the industry’s business, controlling a large percentage of shareholder votes in corporate elections, according to the House Financial Services Committee.
“Proxy advisory firms play an important role in advising their clients, but they are susceptible to conflicts of interest,” said Duffy, who serves on the committee and is chairman of its on Housing and Insurance Subcommittee.
H.R. 4015 would require proxy advisory firms to register with the U.S. Securities and Exchange Commission and disclose more information to the public to ensure their decisions reflect the interests of the shareholders they represent.
“Investors in Wisconsin and across America expect and deserve certainty that their rights as shareholders won’t be compromised by advisors issuing conflicting recommendations and executing votes,” Duffy said. “My bill will foster greater accountability, transparency, responsiveness, and competition in the proxy advisory firm industry.”
House Financial Services Committee Chairman Jeb Hensarling (R-TX) also spoke about the need for Duffy’s bill, which was introduced on Oct. 11.
“The committee is aware of numerous instances whereby the two largest proxy advisory firms have issued vote recommendations to shareholders that include errors, misstatements of fact and incomplete analysis,” said Hensarling.
In fact, the committee chairman added, some of these recommendations have been made without any contact with the public company at all.
“And these same proxy advisory firms encourage companies to join their service in order to have the privilege to ‘influence’ an advisory firm’s recommendations,” Hensarling said.
House Republican Conference Chair Cathy McMorris Rodgers (R-WA) also said Duffy’s bill will “promote greater transparency” by requiring investment advisors to disclose more information that ensures their decisions “align with the shareholders they represent.”
H.R. 4015 is now awaiting Senate consideration.