To amend the Securities Exchange Act of 1934 to require certain disclosures by institutional investment managers in connection with proxy advisory firms, and for other purposes.
The bill would add a new disclosure requirement to the Securities Exchange Act of 1934 for institutional investment managers that use proxy advisory firms and vote on securities. Specifically, it requires these managers to file an annual report with the SEC detailing how they voted on each shareholder proposal, how often their votes align with proxy advisory firm recommendations, and detailed explanations of how proxy advisory firm recommendations were considered. It also requires a certification that voting decisions are based on the best economic interests of shareholders. For the largest managers (those with assets under management at or above $100 billion), it adds additional duties: they must inform clients that they are not required to vote on every proposal, conduct an economic analysis before voting on each proposal (except for votes aligned with a majority-independent-board recommendation), and include these analyses in the annual report. The definitions of “best economic interest” and “proxy advisory firm” are provided to guide compliance. The aim is to increase transparency around how proxy voting decisions are made and the influence of proxy advisory firms.
Key Points
- 1Adds a new subsection to Section 13(f) requiring annual disclosure by institutional investment managers that engage proxy advisory firms and vote on equity securities.
- 2Required disclosures include: (i) how votes were cast on each shareholder proposal; (ii) the percentage of votes aligned with proxy advisory firm recommendations, for each firm; (iii) detailed explanations of how proxy advisory recommendations influenced voting, reliance on those recommendations, reconciling votes with fiduciary duties, changes to votes due to errors or new information, and involvement of investment professionals; and (iv) a certification that voting decisions are based on the best economic interests of shareholders.
- 3There is a separate set of requirements for larger managers (assets under management ≥ $100 billion), including: (i) informing clients that they are not required to vote on every proposal; (ii) performing an economic analysis for each voted shareholder proposal (excluding votes aligned with independent board recommendations) to justify the vote; and (iii) including these economic analyses in the annual report.
- 4Definitions provided for “best economic interest” (maximize returns consistent with investment objectives and risk management) and “proxy advisory firm” (a firm primarily engaged in providing proxy voting advice or similar services, with exceptions for certain exempt entities).
- 5The bill targets institutional investment managers using proxy advisory firms and expands disclosure and accountability around their voting decisions.