H.R. 4098: Stopping Proxy Advisor Racketeering Act

This bill, titled the "Stopping Proxy Advisor Racketeering Act," seeks to amend the Securities Exchange Act of 1934 to impose new regulations on proxy advisory firms. It primarily aims to prohibit these firms from providing proxy voting advice if they have certain conflicts of interest. The specific provisions of the bill are as follows:

Prohibited Conduct for Proxy Advisory Firms

The bill outlines specific actions that would be unlawful for proxy advisory firms:

• Providing proxy voting advice if the firm has a direct or indirect conflict of interest, which includes:
• Offering consulting services to the company (or a related entity) whose voting issues they are advising on.
• Changing their voting recommendations or methodologies based on whether the company subscribes to their services.
• Issuing voting advice while also offering engagement or stewardship services to another party involved in the voting matter.
• Belonging to any organization that endorses a proposal related to the voting advice they provide.

Enforcement and Penalties

If a proxy advisory firm is found to have violated these rules, the Securities and Exchange Commission (SEC) can impose civil penalties. These penalties will be in addition to any other enforcement actions that may be taken.

Definitions

The bill provides several definitions relevant to its provisions:

• Consulting services: This term includes providing any non-public information about the firm’s policies or recommendations regarding corporate governance and other significant issues.
• Proxy advisory firm: Refers to businesses that specialize in offering proxy voting advice as a distinct service, separate from other investment advice.
• Proxy voting advice: Advice that recommends how a security holder should vote or consent on specific matters requiring shareholder approval.
• Registrant: The company whose securities are being voted on.

This bill is intended to ensure that proxy advisory firms operate without conflicts of interest that could compromise the integrity of their voting advice.

Relevant Companies

None found