Press Releases

House Passes Corporate Governance Reform and Transparency Act


Washington, December 20, 2017 -

On Wednesday, the House voted to pass H.R. 4015, the Corporate Governance Reform and Transparency Act of 2017.

Institutional investors typically hold shares in a large number of public companies and often use investment advisors – known as proxy advisory firms – to vote on their behalf at shareholder meetings. However, the two largest proxy advisory firms make up approximately 97% of the proxy advisory industry and can control a significant percentage of shareholder votes in corporate elections.

As Financial Services Committee Chairman Jeb Hensarling (R-TX) explained, “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. Some proxy advisory firms' recommendations have been made without any contact to 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.”

Given the importance of proxy advisory firms to institutional investors and the dominance of two firms in the proxy system, greater transparency is necessary to protect shareholders.

The Corporate Governance Reform and Transparency Act of 2017 increases transparency in the shareholder proxy system and helps ensure that the voting recommendations that proxy firms provide are indeed in the interests of long-term shareholders by requiring proxy advisory firms to register with the Securities and Exchange Commission (SEC), disclose potential conflicts of interest and codes of ethics, and make publically available their methodologies for formulating proxy recommendations and analyses.

 “Proxy advisory firms play an important role in advising their clients but they are susceptible to conflicts of interest,” said Congressman Sean Duffy (R-WI), sponsor of H.R. 4015. “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. My bill will foster greater accountability, transparency, responsiveness, and competition in the proxy advisory firm industry.”

The bill passed the House 238-182. 

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