Reed & Tillis Make Push for Corporate Governance Fairness Act

WASHINGTON, DC -- In an effort to protect investors, enhance corporate governance, and hold proxy advisory firms accountable, U.S. Senators Jack Reed (D-RI) and Thom Tillis (R-NC) are teaming up on the bipartisan Corporate Governance Fairness Act (S.3055). This bill would help ensure that investors may confidently rely on the advice of proxy advisory firms by requiring the U.S. Securities and Exchange Commission (SEC) to regulate all major proxy advisory firms under the Investment Advisers Act (IAA). This advice is critical for investors as they decide how to vote their shares on important corporate governance matters, such as director elections or whether to sell the company.

Proxy advisory firms are an essential tool for investors, and the senators want to ensure they are well-regulated and ensure that the information that they provide to their institutional clients is factual and unbiased.

The Corporate Governance Fairness Act would direct the SEC to conduct periodic examinations, which must include a serious review of the conflicts of interest policies of registered proxy advisory firms and whether firms knowingly made false statements to any of its clients. It also requires the SEC to consult with all relevant stakeholders and report back periodically to the Senate Banking Committee and the House Financial Services Committee with recommendations for any additional investor protections beyond continued access to proxy advisory firms so that investors have the tools to make informed investment decisions and exercise their rights as shareholders.

"Given the importance that investors have placed on continued access to proxy advisory firms, it is critical that proxy advisory firms are appropriately transparent, well-regulated, and held accountable to investors. The bipartisan Corporate Governance Fairness Act would help ensure conflicts of interest are avoided while boosting confidence in our public markets," said Senator Reed, a leading member of the Banking Committee. "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. So as to not discourage new entrants into the proxy advisory business, our bill provides smaller proxy advisory firms the choice to voluntarily register under the IAA, but does not require them to do so. The Congressional intent of this legislation is to preserve the critical role played by proxy advisory firms and to hold them accountable to investors."

"Investors deserve confidence that the advice they receive from proxy advisory firms is accurate and free from conflicts of interest," said Senator Tillis. "This bipartisan legislation strengthens oversight and accountability to ensure our markets remain fair, competitive, and trustworthy."

Under the Reed-Tillis bill, all major proxy advisory firms would be required to register as investment advisers under the Advisers Act. They will owe a fiduciary duty to their clients, and that duty will be enforceable under federal law.

The legislation also directs the SEC to conduct periodic examinations, which must include a serious review of the conflicts of interest policies of registered proxy advisory firms and whether firms knowingly made false statements to any of its clients.

The bill also requires the SEC to consult with all relevant stakeholders and report back periodically to the Senate Banking Committee and the House Financial Services Committee with recommendations for any additional investor protections beyond continued access to proxy advisory firms so that investors have the tools to make informed investment decisions and exercise their rights as shareholders.

• Print
• Email
• Share
• Tweet