As reported in today's Society Alert, a new, bipartisan-supported proxy advisory reform bill - the Corporate Governance Fairness Act - was introduced yesterday in the Senate by Sen. Jack Reed [D-RI] with co-sponsors Sens. Perdue [R-GA], Jones [D-AL], Tillis [R-NC], Heitkamp [D-ND], and Kennedy [R-LA]. The bill, which has been referred to the Senate Banking Committee, subjects major proxy advisory firms (PAFs) to the Investment Advisers Act of 1940 (IIA), giving the SEC examination authority and a basis for future rulemaking as appropriate to improve transparency, address conflicts of interest, and adopt additional investor protections.
Key provisions of the bill include:
- Requires registration of major PAFs (as defined in Sec. 2 of the bill) as investment advisors under the IIA
- Directs the SEC to conduct periodic inspections of PAFs for: (1) misleading communications from PAFs to clients, and (2) policies & practices related to conflicts of interest
- Gives the SEC explicit discretionary authority to conduct additional, special and other examinations in addition to the mandatory inspections
- Directs the SEC to - within 2 years after enactment of the Act (and updated periodically thereafter) - submit a report to Congress on: (i) PAF policies & practices regarding conflicts of interest and avoidance of misleading communications to clients, and (ii) whether additional protections to investors would be helpful
As noted in Sen. Reed's release, the Society supports the bill. Society for Corporate Governance President & CEO Darla Stuckey stated:
The Society applauds the bipartisan introduction of the Corporate Governance Fairness Act and commends the members of the Senate Banking Committee for coming together to provide real reform that strengthens America's capital markets, our public companies, and their shareholders. At a time when the influence of proxy advisory firms reaches all-time highs, the CGFA will provide the transparency and fairness to both investors and public companies that are the hallmarks of American capital markets. The Society for Corporate Governance supports the enactment of this bill.