A bipartisan group of lawmakers introduced legislation Wednesday to increase federal oversight of proxy advisers, amplifying pressure on the influential firms in the run-up to a Securities and Exchange Commission review of their operations.
The measure — sponsored by Republican Sens. David Perdue of Georgia, Thom Tillis of North Carolina, and John Kennedy of Louisiana and Democratic Sens. Jack Reed of Rhode Island, Doug Jones of Alabama, and Heidi Heitkamp of North Dakota — would require the SEC to periodically examine companies like Glass Lewis and Institutional Shareholder Services for potential conflicts of interest, addressing a complaint by industry critics that the firms operate with little oversight.
“As a former CEO of publicly listed companies, I understand the value that proxy advisory firms provide to the investment community,” Perdue, the former chief executive officer of Dollar General, said in a statement. “At the same time, greater oversight is needed to monitor the industry and ensure that the advice provided is transparent and free from conflicts of interest.”
Proxy firms provide recommendations on matters from executive pay to selection of corporate boards and environmental impact that shareholders — who ultimately own the companies in which they invest — are asked to vote on at annual meetings. Their advice is often followed by major institutional investors, who own stock in hundreds of companies and lack the time or staffing to fully research all of them.
But corporate executives, who make recommendations of their own before such votes, want more input into proxy advisers’ reports, particularly when their suggestions run counter to the company’s plans.
A Glass Lewis spokesperson did not immediately respond to a request for comment. ISS said federal legislation is unnecessary, but if it’s passed, the firm would “comply in full with the law and with the highest standards of the proxy advisory industry while fulfilling our fiduciary responsibilities to clients.”
The SEC is slated to hold a meeting on Thursday on the proxy process. In advance of the roundtable, the National Association of Manufacturers and the U.S. Chamber of Commerce launched a six-figure ad campaign against ISS and Glass Lewis.
ISS called the effort part of “a desire to see no shareholder dissent on CEO pay,” which can total tens of millions of dollars in some cases, and other issues.
