Statements on Introduced Bills and Joint Resolutions

Floor Speech

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Mr. REED. Mr. President, today I am joined by Senators Perdue, Heitkamp, Tillis, and Jones in introducing the bipartisan Corporate Governance Fairness Act to ensure investors can continue to rely with confidence on the advice of proxy advisory firms by requiring the Securities and Exchange Commission (SEC) to regulate all major proxy advisory firms under the Investment Advisers Act (IAA). This advice is critical for investors as they decide how to vote their shares on important corporate governance matters, such as director elections or whether to sell the company.

Indeed, the International Brotherhood of Teamsters has stated that the ``independence of the research provided by proxy advisors is a critical element of our right, as shareholders, to hold the board of directors accountable and to cast informed proxy votes on corporate governance and proxy voting policies.'' According to the Council of Institutional Investors, ``ensuring unencumbered shareholder access to independent research is a crucial underpinning of effective corporate governance.'' And the National Association of State Treasurers has emphasized the need to ``maintain the integrity and efficacy of the relationship between institutional investors and proxy advisory firms.'' In short, proxy advisory firms are clearly an essential tool for investors.

Given the importance that investors have placed on continued access to proxy advisory firms, it is critical that proxy advisory firms are appropriately regulated and held accountable, and this is the purpose of the bipartisan Corporate Governance Fairness Act. Under our legislation, all major proxy advisory firms would be required to register as investment advisers under the IAA, and therefore have a fiduciary duty to their clients. So as to not discourage new entrants into the proxy advisory business, our bill provides smaller proxy advisory firms the choice to voluntarily register under the IAA but does not require them to do so. The legislation also directs the SEC to conduct periodic examinations, which must include a serious review of the conflicts of interest policies of registered proxy advisory firms and whether firms knowingly made false statements to any of its clients. Lastly, our bill requires the SEC to consult with all relevant stakeholders and report back periodically to the Senate Banking Committee and the House Financial Services Committee with recommendations for any additional investor protections beyond continued access to proxy advisory firms so that investors have the tools to make informed investment decisions and exercise their rights as shareholders. In short, the Congressional intent of this legislation is to preserve the critical role played by proxy advisory firms and to hold them accountable to investors.

I would like to thank Senators Perdue, Heitkamp, Tillis, and Jones for working with me in crafting this bipartisan legislation, which is supported by the Consumer Federation of America, Harvard Law School Securities Regulation Professor John Coates, who is also a member of the SEC Investor Advisory Committee, the New York Stock Exchange, and the Society for Corporate Governance. I urge all of our Senate colleagues to join us in working to pass the Corporate Governance Fairness Act.

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