I 

114TH CONGRESS 

2D SESSION H. R. 5311 

To improve the quality of proxy advisory firms for the protection of investors 

and the U.S. economy, and in the public interest, by fostering accountability, transparency, responsiveness, and competition in the proxy advisory firm industry. 

IN THE HOUSE OF REPRESENTATIVES 

MAY 24, 2016 

Mr. DUFFY (for himself and Mr. CARNEY) introduced the following bill; which 

was referred to the Committee on Financial Services 

A BILL 

To improve the quality of proxy advisory firms for the protection of investors and the U.S. economy, and in the public 

interest, by fostering accountability, transparency, responsiveness, and competition in the proxy advisory firm 

industry. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Corporate Governance 

5 Reform and Transparency Act of 2016’’. 


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1 SEC. 2. DEFINITIONS. 

2 (a) SECURITIES EXCHANGE ACT OF 1934.—Section 

3 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 

4 78c(a)) is amended by adding at the end the following new 

5 paragraphs: 

6 ‘‘(81) PROXY ADVISORY FIRM.—The term 

7 ‘proxy advisory firm’ means any person registered 

8 under section 15H who is engaged in the business 

9 of providing proxy voting research, analysis, or rec10 ommendations to clients, which conduct constitutes 

11 a solicitation within the meaning of section 14 and 

12 the Commission’s rules and regulations thereunder, 

13 except to the extent that the person is exempted by 

14 such rules and regulations from requirements other15 wise applicable to persons engaged in a solicitation. 

16 ‘‘(82) PERSON ASSOCIATED WITH A PROXY AD17 VISORY FIRM.—The term ‘person associated with’ a 

18 proxy advisory firm means any partner, officer, or 

19 director of a proxy advisory firm (or any person oc20 cupying a similar status or performing similar func21 tions), any person directly or indirectly controlling, 

22 controlled by, or under common control with a proxy 

23 advisory firm, or any employee of a proxy advisory 

24 firm, except that persons associated with a proxy ad25 visory firm whose functions are clerical or ministe26 rial shall not be included in the meaning of such 


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1 term. The Commission may by rules and regulations 

2 classify, for purposes or any portion or portions of 

3 this Act, persons, including employees controlled by 

4 a proxy advisory firm.’’. 

5 (b) APPLICABLE DEFINITIONS.—As used in this 

6 Act— 

7 (1) the term ‘‘Commission’’ means the Securi8 ties and Exchange Commission; and 

9 (2) the term ‘‘proxy advisory firm’’ has the 

10 same meaning as in section 3(a)(81) of the Securi11 ties Exchange Act of 1934, as added by this Act. 

12 SEC. 3. REGISTRATION OF PROXY ADVISORY FIRMS. 

13 (a) AMENDMENT.—The Securities Exchange Act of 

14 1934 is amended by inserting after section 15G the fol15 lowing new section: 

16 ‘‘SEC. 15H. REGISTRATION OF PROXY ADVISORY FIRMS. 

17 ‘‘(a) CONDUCT PROHIBITED.—It shall be unlawful 

18 for a proxy advisory firm to make use of the mails or any 

19 means or instrumentality of interstate commerce to pro20 vide proxy voting research, analysis, or recommendations 

21 to any client, unless such proxy advisory firm is registered 

22 under this section. 

23 ‘‘(b) REGISTRATION PROCEDURES.— 

24 ‘‘(1) APPLICATION FOR REGISTRATION.— 


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1 ‘‘(A) IN GENERAL.—A proxy advisory firm 

2 must file with the Commission an application 

3 for registration, in such form as the Commis4 sion shall require, by rule or regulation, and 

5 containing the information described in sub6 paragraph (B). 

7 ‘‘(B) REQUIRED INFORMATION.—An appli8 cation for registration under this section shall 

9 contain information regarding— 

10 ‘‘(i) a certification that the applicant 

11 has adequate financial and managerial re12 sources to consistently provide proxy advice 

13 based on accurate information; 

14 ‘‘(ii) the procedures and methodolo15 gies that the applicant uses in developing 

16 proxy voting recommendations, including 

17 whether and how the applicant considers 

18 the size of a company when making proxy 

19 voting recommendations; 

20 ‘‘(iii) the organizational structure of 

21 the applicant; 

22 ‘‘(iv) whether or not the applicant has 

23 in effect a code of ethics, and if not, the 

24 reasons therefor; 


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1 ‘‘(v) any potential or actual conflict of 

2 interest relating to the ownership structure 

3 of the applicant or the provision of proxy 

4 advisory services by the applicant, includ5 ing whether the proxy advisory firm en6 gages in services ancillary to the provision 

7 of proxy advisory services such as con8 sulting services for corporate issuers, and 

9 if so the revenues derived therefrom; 

10 ‘‘(vi) the policies and procedures in 

11 place to manage conflicts of interest under 

12 subsection (f); and 

13 ‘‘(vii) any other information and docu14 ments concerning the applicant and any 

15 person associated with such applicant as 

16 the Commission, by rule, may prescribe as 

17 necessary or appropriate in the public in18 terest or for the protection of investors. 

19 ‘‘(2) REVIEW OF APPLICATION.— 

20 ‘‘(A) INITIAL DETERMINATION.—Not later 

21 than 90 days after the date on which the appli22 cation for registration is filed with the Commis23 sion under paragraph (1) (or within such longer 

24 period as to which the applicant consents) the 

25 Commission shall— 


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1 ‘‘(i) by order, grant registration; or 

2 ‘‘(ii) institute proceedings to deter3 mine whether registration should be de4 nied. 

5 ‘‘(B) CONDUCT OF PROCEEDINGS.— 

6 ‘‘(i) CONTENT.—Proceedings referred 

7 to in subparagraph (A)(ii) shall— 

8 ‘‘(I) include notice of the grounds 

9 for denial under consideration and an 

10 opportunity for hearing; and 

11 ‘‘(II) be concluded not later than 

12 120 days after the date on which the 

13 application for registration is filed 

14 with the Commission under paragraph 

15 (1). 

16 ‘‘(ii) DETERMINATION.—At the con17 clusion of such proceedings, the Commis18 sion, by order, shall grant or deny such ap19 plication for registration. 

20 ‘‘(iii) EXTENSION AUTHORIZED.—The 

21 Commission may extend the time for con22 clusion of such proceedings for not longer 

23 than 90 days, if it finds good cause for 

24 such extension and publishes its reasons 


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1 for so finding, or for such longer period as 

2 to which the applicant consents. 

3 ‘‘(C) GROUNDS FOR DECISION.—The Com4 mission shall grant registration under this sub5 section— 

6 ‘‘(i) if the Commission finds that the 

7 requirements of this section are satisfied; 

8 and 

9 ‘‘(ii) unless the Commission finds (in 

10 which case the Commission shall deny such 

11 registration) that— 

12 ‘‘(I) the applicant has failed to 

13 certify to the Commission’s satisfac14 tion that it has adequate financial and 

15 managerial resources to consistently 

16 provide proxy advice based on accu17 rate information and to materially 

18 comply with the procedures and meth19 odologies disclosed under paragraph 

20 (1)(B) and with subsections (f) and 

21 (g); or 

22 ‘‘(II) if the applicant were so reg23 istered, its registration would be sub24 ject to suspension or revocation under 

25 subsection (e). 


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1 ‘‘(3) PUBLIC AVAILABILITY OF INFORMATION.— 

2 Subject to section 24, the Commission shall make 

3 the information and documents submitted to the 

4 Commission by a proxy advisory firm in its com5 pleted application for registration, or in any amend6 ment submitted under paragraph (1) or (2) of sub7 section (c), publicly available on the Commission’s 

8 website, or through another comparable, readily ac9 cessible means. 

10 ‘‘(c) UPDATE OF REGISTRATION.— 

11 ‘‘(1) UPDATE.—Each registered proxy advisory 

12 firm shall promptly amend and update its applica13 tion for registration under this section if any infor14 mation or document provided therein becomes mate15 rially inaccurate, except that a registered proxy advi16 sory firm is not required to amend the information 

17 required to be filed under subsection (b)(1)(B)(i) by 

18 filing information under this paragraph, but shall 

19 amend such information in the annual submission of 

20 the organization under paragraph (2) of this sub21 section. 

22 ‘‘(2) CERTIFICATION.—Not later than 90 cal23 endar days after the end of each calendar year, each 

24 registered proxy advisory firm shall file with the 

25 Commission an amendment to its registration, in 


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1 such form as the Commission, by rule, may prescribe 

2 as necessary or appropriate in the public interest or 

3 for the protection of investors— 

4 ‘‘(A) certifying that the information and 

5 documents in the application for registration of 

6 such registered proxy advisory firm continue to 

7 be accurate in all material respects; and 

8 ‘‘(B) listing any material change that oc9 curred to such information or documents during 

10 the previous calendar year. 

11 ‘‘(d) CENSURE, DENIAL, OR SUSPENSION OF REG12 ISTRATION; NOTICE AND HEARING.—The Commission, by 

13 order, shall censure, place limitations on the activities, 

14 functions, or operations of, suspend for a period not ex15 ceeding 12 months, or revoke the registration of any reg16 istered proxy advisory firm if the Commission finds, on 

17 the record after notice and opportunity for hearing, that 

18 such censure, placing of limitations, suspension, or revoca19 tion is necessary for the protection of investors and in the 

20 public interest and that such registered proxy advisory 

21 firm, or any person associated with such an organization, 

22 whether prior to or subsequent to becoming so associ23 ated— 

24 ‘‘(1) has committed or omitted any act, or is 

25 subject to an order or finding, enumerated in subVerDate Sep 11 2014 06:01 May 25, 2016 Jkt 059200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H5311.IH H5311

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1 paragraph (A), (D), (E), (H), or (G) of section 

2 15(b)(4), has been convicted of any offense specified 

3 in section 15(b)(4)(B), or is enjoined from any ac4 tion, conduct, or practice specified in subparagraph 

5 (C) of section 15(b)(4), during the 10-year period 

6 preceding the date of commencement of the pro7 ceedings under this subsection, or at any time there8 after; 

9 ‘‘(2) has been convicted during the 10-year pe10 riod preceding the date on which an application for 

11 registration is filed with the Commission under this 

12 section, or at any time thereafter, of— 

13 ‘‘(A) any crime that is punishable by im14 prisonment for one or more years, and that is 

15 not described in section 15(b)(4)(B); or 

16 ‘‘(B) a substantially equivalent crime by a 

17 foreign court of competent jurisdiction; 

18 ‘‘(3) is subject to any order of the Commission 

19 barring or suspending the right of the person to be 

20 associated with a registered proxy advisory firm; 

21 ‘‘(4) fails to furnish the certifications required 

22 under subsections (b)(2)(C)(ii)(I) and (c)(2); 

23 ‘‘(5) has engaged in one or more prohibited acts 

24 enumerated in paragraph (1); or 


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1 ‘‘(6) fails to maintain adequate financial and 

2 managerial resources to consistently offer advisory 

3 services with integrity, including by failing to comply 

4 with subsections (f) or (g). 

5 ‘‘(e) TERMINATION OF REGISTRATION.— 

6 ‘‘(1) VOLUNTARY WITHDRAWAL.—A registered 

7 proxy advisory firm may, upon such terms and con8 ditions as the Commission may establish as nec9 essary in the public interest or for the protection of 

10 investors, which terms and conditions shall include 

11 at a minimum that the registered proxy advisory 

12 firm will no longer conduct such activities as to 

13 bring it within the definition of proxy advisory firm 

14 in section 3(a)(81) of the Exchange Act, withdraw 

15 from registration by filing a written notice of with16 drawal to the Commission. 

17 ‘‘(2) COMMISSION AUTHORITY.—In addition to 

18 any other authority of the Commission under this 

19 title, if the Commission finds that a registered proxy 

20 advisory firm is no longer in existence or has ceased 

21 to do business as a proxy advisory firm, the Com22 mission, by order, shall cancel the registration under 

23 this section of such registered proxy advisory firm. 

24 ‘‘(f) MANAGEMENT OF CONFLICTS OF INTEREST.— 


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1 ‘‘(1) ORGANIZATION POLICIES AND PROCE2 DURES.—Each registered proxy advisory firm shall 

3 establish, maintain, and enforce written policies and 

4 procedures reasonably designed, taking into consid5 eration the nature of the business of such registered 

6 proxy advisory firm and associated persons, to ad7 dress and manage any conflicts of interest that can 

8 arise from such business. 

9 ‘‘(2) COMMISSION AUTHORITY.—The Commis10 sion shall issue final rules to prohibit, or require the 

11 management and disclosure of, any conflicts of inter12 est relating to the offering of proxy advisory services 

13 by a registered proxy advisory firm, including, with14 out limitation, conflicts of interest relating to— 

15 ‘‘(A) the manner in which a registered 

16 proxy advisory firm is compensated by the cli17 ent, or any affiliate of the client, for providing 

18 proxy advisory services; 

19 ‘‘(B) the provision of consulting, advisory, 

20 or other services by a registered proxy advisory 

21 firm, or any person associated with such reg22 istered proxy advisory firm, to the client; 

23 ‘‘(C) business relationships, ownership in24 terests, or any other financial or personal inter25 ests between a registered proxy advisory firm, 


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1 or any person associated with such registered 

2 proxy advisory firm, and any client, or any af3 filiate of such client; 

4 ‘‘(D) transparency around the formulation 

5 of proxy voting policies; 

6 ‘‘(E) the execution of proxy votes if such 

7 votes are based upon recommendations made by 

8 the proxy advisory firm in which someone other 

9 than the issuer is a proponent; 

10 ‘‘(F) issuing recommendations where proxy 

11 advisory firms provide advisory services to a 

12 company; and 

13 ‘‘(G) any other potential conflict of inter14 est, as the Commission deems necessary or ap15 propriate in the public interest or for the pro16 tection of investors. 

17 ‘‘(g) RELIABILITY OF PROXY ADVISORY FIRM SERV18 ICES.—Each registered proxy advisory firm shall have 

19 staff sufficient to produce proxy voting recommendations 

20 that are based on accurate and current information. Each 

21 registered proxy advisory firm shall detail procedures suf22 ficient to permit companies receiving proxy advisory firm 

23 recommendations access in a reasonable time to the draft 

24 recommendations, with an opportunity to provide mean25 ingful comment thereon, including the opportunity to 


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1 present details to the person(s) responsible for developing 

2 the recommendation in person or telephonically. Each reg3 istered proxy advisory firm shall employ an ombudsman 

4 to receive complaints about the accuracy of voting infor5 mation used in making recommendations from the sub6 jects of the proxy advisory firm’s voting recommendations, 

7 and shall resolve those complaints in a timely fashion and 

8 in any event prior to voting on the matter to which the 

9 recommendation relates. 

10 ‘‘(h) DESIGNATION OF COMPLIANCE OFFICER.— 

11 Each registered proxy advisory firm shall designate an in12 dividual responsible for administering the policies and pro13 cedures that are required to be established pursuant to 

14 subsections (f) and (g), and for ensuring compliance with 

15 the securities laws and the rules and regulations there16 under, including those promulgated by the Commission 

17 pursuant to this section. 

18 ‘‘(i) PROHIBITED CONDUCT.— 

19 ‘‘(1) PROHIBITED ACTS AND PRACTICES.—The 

20 Commission shall issue final rules to prohibit any 

21 act or practice relating to the offering of proxy advi22 sory services by a registered proxy advisory firm 

23 that the Commission determines to be unfair, coer24 cive, or abusive, including any act or practice relat25 ing to— 


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1 ‘‘(A) conditioning a voting recommendation 

2 or other proxy advisory firm recommendation 

3 on the purchase by an issuer or an affiliate 

4 thereof of other services or products, of the reg5 istered proxy advisory firm or any person asso6 ciated with such registered proxy advisory firm; 

7 and 

8 ‘‘(B) modifying a voting recommendation 

9 or otherwise departing from its adopted system10 atic procedures and methodologies in the provi11 sion of proxy advisory services, based on wheth12 er an issuer, or affiliate thereof, subscribes or 

13 will subscribe to other services or product of the 

14 registered proxy advisory firm or any person as15 sociated with such organization. 

16 ‘‘(2) RULE OF CONSTRUCTION.—Nothing in 

17 paragraph (1), or in any rules or regulations adopt18 ed thereunder, may be construed to modify, impair, 

19 or supersede the operation of any of the antitrust 

20 laws (as defined in the first section of the Clayton 

21 Act, except that such term includes section 5 of the 

22 Federal Trade Commission Act, to the extent that 

23 such section 5 applies to unfair methods of competi24 tion). 


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1 ‘‘(j) STATEMENTS OF FINANCIAL CONDITION.—Each 

2 registered proxy advisory firm shall, on a confidential 

3 basis, file with the Commission, at intervals determined 

4 by the Commission, such financial statements, certified (if 

5 required by the rules or regulations of the Commission) 

6 by an independent public auditor, and information con7 cerning its financial condition, as the Commission, by rule, 

8 may prescribe as necessary or appropriate in the public 

9 interest or for the protection of investors. 

10 ‘‘(k) ANNUAL REPORT.—Each registered proxy advi11 sory firm shall, at the beginning of each fiscal year of such 

12 firm, report to the Commission on the number of share13 holder proposals its staff reviewed in the prior fiscal year, 

14 the number of recommendations made in the prior fiscal 

15 year, the number of staff who reviewed and made rec16 ommendations on such proposals in the prior fiscal year, 

17 and the number of recommendations made in the prior 

18 fiscal year where the proponent of such recommendation 

19 was a client of or received services from the proxy advisory 

20 firm. 

21 ‘‘(l) TRANSPARENT POLICIES.—Each registered 

22 proxy advisory firm shall file with the Commission and 

23 make publicly available its methodology for the formula24 tion of proxy voting policies and voting recommendations. 

25 ‘‘(m) RULES OF CONSTRUCTION.— 


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1 ‘‘(1) NO WAIVER OF RIGHTS, PRIVILEGES, OR

2 DEFENSES.—Registration under and compliance 

3 with this section does not constitute a waiver of, or 

4 otherwise diminish, any right, privilege, or defense 

5 that a registered proxy advisory firm may otherwise 

6 have under any provision of State or Federal law, 

7 including any rule, regulation, or order thereunder. 

8 ‘‘(2) NO PRIVATE RIGHT OF ACTION.—Nothing 

9 in this section may be construed as creating any pri10 vate right of action, and no report filed by a reg11 istered proxy advisory firm in accordance with this 

12 section or section 17 shall create a private right of 

13 action under section 18 or any other provision of 

14 law. Provided, however, that a subject of a proxy ad15 visory firm voting recommendations aggrieved by a 

16 proxy advisory firm’s failure to comply in full with 

17 subsection (g), or rules issued by the Commission 

18 thereunder, may bring an action in Federal district 

19 court to enforce said provisions through equitable re20 lief, money damages, or such other relief determined 

21 by the court to be appropriate. 

22 ‘‘(n) REGULATIONS.— 

23 ‘‘(1) NEW PROVISIONS.—Such rules and regula24 tions as are required by this section or are otherwise 


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1 necessary to carry out this section, including the ap2 plication form required under subsection (a)— 

3 ‘‘(A) shall be issued by the Commission, 

4 not later than 180 days after the date of enact5 ment of this section; and 

6 ‘‘(B) shall become effective not later than 

7 1 year after the date of enactment of this sec8 tion. 

9 ‘‘(2) REVIEW OF EXISTING REGULATIONS.—Not 

10 later than 270 days after the date of enactment of 

11 this section, the Commission shall— 

12 ‘‘(A) review its existing rules and regula13 tions which affect the operations of proxy advi14 sory firms; 

15 ‘‘(B) amend or revise such rules and regu16 lations in accordance with the purposes of this 

17 section, and issue such guidance, as the Com18 mission may prescribe as necessary or appro19 priate in the public interest or for the protec20 tion of investors; and 

21 ‘‘(C) direct Commission staff to withdraw 

22 the Egan Jones Proxy Services (May 27, 2004) 

23 and Institutional Shareholder Services, Inc. 

24 (September 15, 2004) no-action letters. 


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1 ‘‘(o) APPLICABILITY.—This section, other than sub2 section (n), which shall apply on the date of enactment 

3 of this section, shall apply on the earlier of— 

4 ‘‘(1) the date on which regulations are issued in 

5 final form under subsection (n)(1); or 

6 ‘‘(2) 270 days after the date of enactment of 

7 this section.’’. 

8 (b) CONFORMING AMENDMENT.—Section 17(a)(1) of 

9 the Securities Exchange Act of 1934 (15 U.S.C. 

10 78q(a)(1)) is amended by inserting ‘‘proxy advisory firm,’’ 

11 after ‘‘nationally recognized statistical rating organiza12 tion,’’. 

13 SEC. 4. COMMISSION ANNUAL REPORT. 

14 The Commission shall make an annual report publicly 

15 available on the Commission’s Internet website. Such re16 port shall, with respect to the year to which the report 

17 relates— 

18 (1) identify applicants for registration under 

19 section 15H of the Securities Exchange Act of 1934, 

20 as added by this Act; 

21 (2) specify the number of and actions taken on 

22 such applications; 

23 (3) specify the views of the Commission on the 

24 state of competition, transparency, policies and 


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1 methodologies, and conflicts of interest among proxy 

2 advisory firms; 

3 (4) include the determination of the Commis4 sion with regards to— 

5 (A) the quality of proxy advisory services 

6 issued by proxy advisory firms; 

7 (B) the financial markets; 

8 (C) competition among proxy advisory 

9 firms; 

10 (D) the incidence of undisclosed conflicts 

11 of interest by proxy advisory firms; 

12 (E) the process for registering as a proxy 

13 advisory firm; and 

14 (F) such other matters relevant to the im15 plementation of this Act and the amendments 

16 made by this Act, as the Commission deter17 mines necessary to bring to the attention of the 

18 Congress; 

19 (5) identify problems, if any, that have resulted 

20 from the implementation of this Act and the amend21 ments made by this Act; and 

22 (6) recommend solutions, including any legisla23 tive or regulatory solutions, to any problems identi24 fied under paragraphs (4) and (5). 

Æ 


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