While we wait for the release of the “final” version of the Tax Cuts and Jobs Act from the Conference Committee, H.R. 4015, the Corporate Governance Reform and Transparency Act of 2017, is also supposedly headed for a floor vote of the full House of Representatives next week. H.R. 4015 was approved last week by the House Financial Services Committee in a bipartisan vote. (A similar bill was by approved House Financial Services Committee in May 2016, also with bipartisan support.)

The Corporate Governance Reform and Transparency Act would add a new Section 15H to the Exchange Act, which would impose the following requirements (among others) on proxy advisory firms:

  • File a registration with the SEC certifying that the firm is able to consistently provide proxy advice based on accurate information, describing the procedures and methodologies that the firm uses in developing proxy voting recommendations, and disclosing any potential or actual conflict of interest relating to the provision of proxy advisory services by the firm, including whether the firm engages in ancillary services, such as consulting services for corporate issuers, and if so, the revenues derived therefrom.
  • Maintain procedures sufficient to permit companies that are the subject proxy advisory firm recommendations access within three business days to the firm’s “draft recommendations,” and to provide them an opportunity to comment on the draft recommendations and present details to the person responsible for developing the recommendation in person or telephonically.
  • Employ an ombudsman to receive complaints from the subjects of the proxy advisory firm’s voting recommendations as to the accuracy of voting information used in making recommendations, and seek to resolve those complaints in a timely fashion and prior to voting on the matter to which the recommendation relates. If the ombudsman is unable to resolve such complaints prior to voting on the matter, the proxy advisory firm must include in its final report to its clients a statement from the company detailing its complaints, if the company so requests.
  • Prohibit a proxy advisory firm from conditioning or modifying a voting recommendation on the purchase by a company of other services or products of the proxy advisory firm or any person associated with the firm.
  • Maintain staff sufficient to produce proxy voting recommendations that are based on accurate and current information.


Longtime readers may recall that in July 2014, we posted on SEC Staff Legal Bulletin No. 20, “Proxy Voting Responsibilities of Investment Advisers and Availability of Exemptions from the Proxy Rules for Proxy Advisory Firms,” released by the Division of Investment Management and the Division of Corporation Finance. This is a continuation of that effort.