IB 
Union Calendar No. 621 
114TH CONGRESS 
2D SESSION 
H. R. 5311 
[Report No. 114–798] 
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 account-
ability, transparency, responsiveness, and competition in the proxy advi-
sory 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 
SEPTEMBER 28, 2016 
Reported with an amendment, committed to the Committee of the Whole 
House on the State of the Union, and ordered to be printed 
[Strike out all after the enacting clause and insert the part printed in italic] 
[For text of introduced bill, see copy of bill as introduced on May 24, 2016] 
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A BILL 
To improve the quality of proxy advisory firms for the protec-
tion of investors and the U.S. economy, and in the public 
interest, by fostering accountability, transparency, re-
sponsiveness, and competition in the proxy advisory firm 
industry. 
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Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Corporate Governance 
Reform and Transparency Act of 2016’’. 
SEC. 2. DEFINITIONS. 
(a) SECURITIES EXCHANGE ACT OF 1934.—Section 
3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 
78c(a)) is amended by adding at the end the following new 
paragraphs: 
‘‘(81) PROXY ADVISORY FIRM.—The term ‘proxy 
advisory firm’ means any person registered under sec-
tion 15H who is engaged in the business of providing 
proxy voting research, analysis, or recommendations 
to clients, which conduct constitutes a solicitation 
within the meaning of section 14 and the Commis-
sion’s rules and regulations thereunder, except to the 
extent that the person is exempted by such rules and 
regulations from requirements otherwise applicable to 
persons engaged in a solicitation. 
‘‘(82) PERSON ASSOCIATED WITH A PROXY ADVI-
SORY
FIRM.—The term ‘person associated with’ a 
proxy advisory firm means any partner, officer, or 
director of a proxy advisory firm (or any person oc-
cupying a similar status or performing similar func-
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tions), any person directly or indirectly controlling, 
controlled by, or under common control with a proxy 
advisory firm, or any employee of a proxy advisory 
firm, except that persons associated with a proxy ad-
visory firm whose functions are clerical or ministerial 
shall not be included in the meaning of such term. 
The Commission may by rules and regulations clas-
sify, for purposes or any portion or portions of this 
Act, persons, including employees controlled by a 
proxy advisory firm.’’. 
(b) APPLICABLE DEFINITIONS.—As used in this Act— 
(1) the term ‘‘Commission’’ means the Securities 
and Exchange Commission; and 
(2) the term ‘‘proxy advisory firm’’ has the same 
meaning as in section 3(a)(81) of the Securities Ex-
change Act of 1934, as added by this Act. 
SEC. 3. REGISTRATION OF PROXY ADVISORY FIRMS. 
(a) AMENDMENT.—The Securities Exchange Act of 
1934 is amended by inserting after section 15G the fol-
lowing new section: 
‘‘SEC. 15H. REGISTRATION OF PROXY ADVISORY FIRMS. 
‘‘(a) CONDUCT PROHIBITED.—It shall be unlawful for 
a proxy advisory firm to make use of the mails or any 
means or instrumentality of interstate commerce to provide 
proxy voting research, analysis, or recommendations to any 
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client, unless such proxy advisory firm is registered under 
this section. 
‘‘(b) REGISTRATION PROCEDURES.— 
‘‘(1) APPLICATION FOR REGISTRATION.— 
‘‘(A) IN GENERAL.—A proxy advisory firm 
must file with the Commission an application 
for registration, in such form as the Commission 
shall require, by rule or regulation, and con-
taining the information described in subpara-
graph (B). 
‘‘(B) REQUIRED INFORMATION.—An appli-
cation for registration under this section shall 
contain information regarding— 
‘‘(i) a certification that the applicant 
has adequate financial and managerial re-
sources to consistently provide proxy advice 
based on accurate information; 
‘‘(ii) the procedures and methodologies 
that the applicant uses in developing proxy 
voting recommendations, including whether 
and how the applicant considers the size of 
a company when making proxy voting rec-
ommendations; 
‘‘(iii) the organizational structure of 
the applicant; 
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‘‘(iv) whether or not the applicant has 
in effect a code of ethics, and if not, the rea-
sons therefor; 
‘‘(v) any potential or actual conflict of 
interest relating to the ownership structure 
of the applicant or the provision of proxy 
advisory services by the applicant, includ-
ing whether the proxy advisory firm en-
gages in services ancillary to the provision 
of proxy advisory services such as con-
sulting services for corporate issuers, and if 
so the revenues derived therefrom; 
‘‘(vi) the policies and procedures in 
place to manage conflicts of interest under 
subsection (f); and 
‘‘(vii) any other information and docu-
ments concerning the applicant and any 
person associated with such applicant as the 
Commission, by rule, may prescribe as nec-
essary or appropriate in the public interest 
or for the protection of investors. 
‘‘(2) REVIEW OF APPLICATION.— 
‘‘(A) INITIAL
DETERMINATION.—Not later 
than 90 days after the date on which the appli-
cation for registration is filed with the Commis-
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sion under paragraph (1) (or within such longer 
period as to which the applicant consents) the 
Commission shall— 
‘‘(i) by order, grant registration; or 
‘‘(ii) institute proceedings to determine 
whether registration should be denied. 
‘‘(B) CONDUCT OF PROCEEDINGS.— 
‘‘(i) CONTENT.—Proceedings referred to 
in subparagraph (A)(ii) shall— 
‘‘(I) include notice of the grounds 
for denial under consideration and an 
opportunity for hearing; and 
‘‘(II) be concluded not later than 
120 days after the date on which the 
application for registration is filed 
with the Commission under paragraph 
(1). 
‘‘(ii) DETERMINATION.—At the conclu-
sion of such proceedings, the Commission, 
by order, shall grant or deny such applica-
tion for registration. 
‘‘(iii) EXTENSION
AUTHORIZED.—The 
Commission may extend the time for con-
clusion of such proceedings for not longer 
than 90 days, if it finds good cause for such 
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extension and publishes its reasons for so 
finding, or for such longer period as to 
which the applicant consents. 
‘‘(C) GROUNDS FOR DECISION.—The Com-
mission shall grant registration under this sub-
section— 
‘‘(i) if the Commission finds that the 
requirements of this section are satisfied; 
and 
‘‘(ii) unless the Commission finds (in 
which case the Commission shall deny such 
registration) that— 
‘‘(I) the applicant has failed to 
certify to the Commission’s satisfaction 
that it has adequate financial and 
managerial resources to consistently 
provide proxy advice based on accurate 
information and to materially comply 
with the procedures and methodologies 
disclosed under paragraph (1)(B) and 
with subsections (f) and (g); or 
‘‘(II) if the applicant were so reg-
istered, its registration would be sub-
ject to suspension or revocation under 
subsection (e). 
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‘‘(3) PUBLIC AVAILABILITY OF INFORMATION.— 
Subject to section 24, the Commission shall make the 
information and documents submitted to the Commis-
sion by a proxy advisory firm in its completed appli-
cation for registration, or in any amendment sub-
mitted under paragraph (1) or (2) of subsection (c), 
publicly available on the Commission’s website, or 
through another comparable, readily accessible means. 
‘‘(c) UPDATE OF REGISTRATION.— 
‘‘(1) UPDATE.—Each registered proxy advisory 
firm shall promptly amend and update its applica-
tion for registration under this section if any infor-
mation or document provided therein becomes materi-
ally inaccurate, except that a registered proxy advi-
sory firm is not required to amend the information 
required to be filed under subsection (b)(1)(B)(i) by 
filing information under this paragraph, but shall 
amend such information in the annual submission of 
the organization under paragraph (2) of this sub-
section. 
‘‘(2) CERTIFICATION.—Not later than 90 cal-
endar days after the end of each calendar year, each 
registered proxy advisory firm shall file with the 
Commission an amendment to its registration, in 
such form as the Commission, by rule, may prescribe 
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as necessary or appropriate in the public interest or 
for the protection of investors— 
‘‘(A) certifying that the information and 
documents in the application for registration of 
such registered proxy advisory firm continue to 
be accurate in all material respects; and 
‘‘(B) listing any material change that oc-
curred to such information or documents during 
the previous calendar year. 
‘‘(d) CENSURE, DENIAL, OR SUSPENSION OF REG-
ISTRATION; NOTICE AND HEARING.—The Commission, by 
order, shall censure, place limitations on the activities, 
functions, or operations of, suspend for a period not exceed-
ing 12 months, or revoke the registration of any registered 
proxy advisory firm if the Commission finds, on the record 
after notice and opportunity for hearing, that such censure, 
placing of limitations, suspension, or revocation is nec-
essary for the protection of investors and in the public inter-
est and that such registered proxy advisory firm, or any 
person associated with such an organization, whether prior 
to or subsequent to becoming so associated— 
‘‘(1) has committed or omitted any act, or is 
subject to an order or finding, enumerated in sub-
paragraph (A), (D), (E), (H), or (G) of section 
15(b)(4), has been convicted of any offense specified in 
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section 15(b)(4)(B), or is enjoined from any action, 
conduct, or practice specified in subparagraph (C) of 
section 15(b)(4), during the 10-year period preceding 
the date of commencement of the proceedings under 
this subsection, or at any time thereafter; 
‘‘(2) has been convicted during the 10-year pe-
riod preceding the date on which an application for 
registration is filed with the Commission under this 
section, or at any time thereafter, of— 
‘‘(A) any crime that is punishable by im-
prisonment for one or more years, and that is 
not described in section 15(b)(4)(B); or 
‘‘(B) a substantially equivalent crime by a 
foreign court of competent jurisdiction; 
‘‘(3) is subject to any order of the Commission 
barring or suspending the right of the person to be as-
sociated with a registered proxy advisory firm; 
‘‘(4) fails to furnish the certifications required 
under subsections (b)(2)(C)(ii)(I) and (c)(2); 
‘‘(5) has engaged in one or more prohibited acts 
enumerated in paragraph (1); or 
‘‘(6) fails to maintain adequate financial and 
managerial resources to consistently offer advisory 
services with integrity, including by failing to comply 
with subsections (f) or (g). 
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‘‘(e) TERMINATION OF REGISTRATION.— 
‘‘(1) VOLUNTARY
WITHDRAWAL.—A registered 
proxy advisory firm may, upon such terms and con-
ditions as the Commission may establish as necessary 
in the public interest or for the protection of investors, 
which terms and conditions shall include at a min-
imum that the registered proxy advisory firm will no 
longer conduct such activities as to bring it within 
the definition of proxy advisory firm in section 
3(a)(81) of the Securities Exchange Act of 1934, with-
draw from registration by filing a written notice of 
withdrawal to the Commission. 
‘‘(2) COMMISSION AUTHORITY.—In addition to 
any other authority of the Commission under this 
title, if the Commission finds that a registered proxy 
advisory firm is no longer in existence or has ceased 
to do business as a proxy advisory firm, the Commis-
sion, by order, shall cancel the registration under this 
section of such registered proxy advisory firm. 
‘‘(f) MANAGEMENT OF CONFLICTS OF INTEREST.— 
‘‘(1) ORGANIZATION
POLICIES
AND
PROCE-
DURES.—Each registered proxy advisory firm shall 
establish, maintain, and enforce written policies and 
procedures reasonably designed, taking into consider-
ation the nature of the business of such registered 
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proxy advisory firm and associated persons, to ad-
dress and manage any conflicts of interest that can 
arise from such business. 
‘‘(2) COMMISSION AUTHORITY.—The Commission 
shall issue final rules to prohibit, or require the man-
agement and disclosure of, any conflicts of interest re-
lating to the offering of proxy advisory services by a 
registered proxy advisory firm, including, without 
limitation, conflicts of interest relating to— 
‘‘(A) the manner in which a registered 
proxy advisory firm is compensated by the cli-
ent, or any affiliate of the client, for providing 
proxy advisory services; 
‘‘(B) the provision of consulting, advisory, 
or other services by a registered proxy advisory 
firm, or any person associated with such reg-
istered proxy advisory firm, to the client; 
‘‘(C) business relationships, ownership in-
terests, or any other financial or personal inter-
ests between a registered proxy advisory firm, or 
any person associated with such registered proxy 
advisory firm, and any client, or any affiliate of 
such client; 
‘‘(D) transparency around the formulation 
of proxy voting policies; 
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‘‘(E) the execution of proxy votes if such 
votes are based upon recommendations made by 
the proxy advisory firm in which someone other 
than the issuer is a proponent; 
‘‘(F) issuing recommendations where proxy 
advisory firms provide advisory services to a 
company; and 
‘‘(G) any other potential conflict of interest, 
as the Commission deems necessary or appro-
priate in the public interest or for the protection 
of investors. 
‘‘(g) RELIABILITY OF PROXY ADVISORY FIRM SERV-
ICES.— 
‘‘(1) IN GENERAL.—Each registered proxy advi-
sory firm shall have staff sufficient to produce proxy 
voting recommendations that are based on accurate 
and current information. Each registered proxy advi-
sory firm shall detail procedures sufficient to permit 
companies 
receiving 
proxy 
advisory 
firm 
rec-
ommendations access in a reasonable time to the draft 
recommendations, with an opportunity to provide 
meaningful comment thereon, including the oppor-
tunity to present details to the person responsible for 
developing the recommendation in person or tele-
phonically. Each registered proxy advisory firm shall 
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employ an ombudsman to receive complaints about 
the accuracy of voting information used in making 
recommendations from the subjects of the proxy advi-
sory firm’s voting recommendations, and shall resolve 
those complaints in a timely fashion and in any 
event prior to voting on the matter to which the rec-
ommendation relates. 
‘‘(2) DRAFT RECOMMENDATIONS DEFINED.—For 
purposes of this subsection, the term ‘draft rec-
ommendations’— 
‘‘(A) means the overall conclusions of proxy 
voting recommendations prepared for the clients 
of a proxy advisory firm, including any public 
data cited therein, any company information or 
substantive analysis impacting the recommenda-
tion, and the specific voting recommendations on 
individual proxy ballot issues; and 
‘‘(B) does not include the entirety of the 
proxy advisory firm’s final report to its clients. 
‘‘(h) DESIGNATION OF COMPLIANCE OFFICER.—Each 
registered proxy advisory firm shall designate an indi-
vidual responsible for administering the policies and proce-
dures that are required to be established pursuant to sub-
sections (f) and (g), and for ensuring compliance with the 
securities laws and the rules and regulations thereunder, 
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including those promulgated by the Commission pursuant 
to this section. 
‘‘(i) PROHIBITED CONDUCT.— 
‘‘(1) PROHIBITED
ACTS
AND
PRACTICES.—The 
Commission shall issue final rules to prohibit any act 
or practice relating to the offering of proxy advisory 
services by a registered proxy advisory firm that the 
Commission determines to be unfair, coercive, or abu-
sive, including any act or practice relating to— 
‘‘(A) conditioning a voting recommendation 
or other proxy advisory firm recommendation on 
the purchase by an issuer or an affiliate thereof 
of other services or products, of the registered 
proxy advisory firm or any person associated 
with such registered proxy advisory firm; and 
‘‘(B) modifying a voting recommendation or 
otherwise departing from its adopted systematic 
procedures and methodologies in the provision of 
proxy advisory services, based on whether an 
issuer, or affiliate thereof, subscribes or will sub-
scribe to other services or product of the reg-
istered proxy advisory firm or any person asso-
ciated with such organization. 
‘‘(2) RULE
OF
CONSTRUCTION.—Nothing in 
paragraph (1), or in any rules or regulations adopted 
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thereunder, may be construed to modify, impair, or 
supersede the operation of any of the antitrust laws 
(as defined in the first section of the Clayton Act, ex-
cept that such term includes section 5 of the Federal 
Trade Commission Act, to the extent that such section 
5 applies to unfair methods of competition). 
‘‘(j) STATEMENTS OF FINANCIAL CONDITION.—Each 
registered proxy advisory firm shall, on a confidential 
basis, file with the Commission, at intervals determined by 
the Commission, such financial statements, certified (if re-
quired by the rules or regulations of the Commission) by 
an independent public auditor, and information concerning 
its financial condition, as the Commission, by rule, may 
prescribe as necessary or appropriate in the public interest 
or for the protection of investors. 
‘‘(k) ANNUAL REPORT.—Each registered proxy advi-
sory firm shall, at the beginning of each fiscal year of such 
firm, report to the Commission on the number of share-
holder proposals its staff reviewed in the prior fiscal year, 
the number of recommendations made in the prior fiscal 
year, the number of staff who reviewed and made rec-
ommendations on such proposals in the prior fiscal year, 
and the number of recommendations made in the prior fis-
cal year where the proponent of such recommendation was 
a client of or received services from the proxy advisory firm. 
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‘‘(l) TRANSPARENT POLICIES.—Each registered proxy 
advisory firm shall file with the Commission and make 
publicly available its methodology for the formulation of 
proxy voting policies and voting recommendations. 
‘‘(m) RULES OF CONSTRUCTION.— 
‘‘(1) NO WAIVER OF RIGHTS, PRIVILEGES, OR DE-
FENSES.—Registration under and compliance with 
this section does not constitute a waiver of, or other-
wise diminish, any right, privilege, or defense that a 
registered proxy advisory firm may otherwise have 
under any provision of State or Federal law, includ-
ing any rule, regulation, or order thereunder. 
‘‘(2) NO PRIVATE RIGHT OF ACTION.—Nothing in 
this section may be construed as creating any private 
right of action, and no report filed by a registered 
proxy advisory firm in accordance with this section 
or section 17 shall create a private right of action 
under section 18 or any other provision of law. 
‘‘(n) REGULATIONS.— 
‘‘(1) NEW PROVISIONS.—Such rules and regula-
tions as are required by this section or are otherwise 
necessary to carry out this section, including the ap-
plication form required under subsection (a)— 
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‘‘(A) shall be issued by the Commission, not 
later than 180 days after the date of enactment 
of this section; and 
‘‘(B) shall become effective not later than 1 
year after the date of enactment of this section. 
‘‘(2) REVIEW OF EXISTING REGULATIONS.—Not 
later than 270 days after the date of enactment of this 
section, the Commission shall— 
‘‘(A) review its existing rules and regula-
tions which affect the operations of proxy advi-
sory firms; 
‘‘(B) amend or revise such rules and regula-
tions in accordance with the purposes of this sec-
tion, and issue such guidance, as the Commis-
sion may prescribe as necessary or appropriate 
in the public interest or for the protection of in-
vestors; and 
‘‘(C) direct Commission staff to withdraw 
the Egan Jones Proxy Services (May 27, 2004) 
and Institutional Shareholder Services, Inc. 
(September 15, 2004) no-action letters. 
‘‘(o) APPLICABILITY.—This section, other than sub-
section (n), which shall apply on the date of enactment of 
this section, shall apply on the earlier of— 
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‘‘(1) the date on which regulations are issued in 
final form under subsection (n)(1); or 
‘‘(2) 270 days after the date of enactment of this 
section.’’. 
(b) CONFORMING AMENDMENT.—Section 17(a)(1) of 
the Securities Exchange Act of 1934 (15 U.S.C. 78q(a)(1)) 
is amended by inserting ‘‘proxy advisory firm,’’ after ‘‘na-
tionally recognized statistical rating organization,’’. 
SEC. 4. COMMISSION ANNUAL REPORT. 
The Commission shall make an annual report publicly 
available on the Commission’s Internet website. Such report 
shall, with respect to the year to which the report relates— 
(1) identify applicants for registration under 
section 15H of the Securities Exchange Act of 1934, 
as added by this Act; 
(2) specify the number of and actions taken on 
such applications; 
(3) specify the views of the Commission on the 
state of competition, transparency, policies and meth-
odologies, and conflicts of interest among proxy advi-
sory firms; 
(4) include the determination of the Commission 
with regards to— 
(A) the quality of proxy advisory services 
issued by proxy advisory firms; 
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Union Calendar No. 621 
114TH CONGRESS 
2D SESSION 
H. R. 5311 
[Report No. 114–798] 
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 account-
ability, transparency, responsiveness, and com-
petition in the proxy advisory firm industry. 
SEPTEMBER 28, 2016 
Reported with an amendment, committed to the Com-
mittee of the Whole House on the State of the Union, 
and ordered to be printed 
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