[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4767 Reported in House (RH)]

<DOC>





                                                 Union Calendar No. 263
118th CONGRESS
  1st Session
                                H. R. 4767

                          [Report No. 118-324]

   To make revisions to the Federal securities laws with respect to 
  shareholder proposals, proxy voting, and the registration of proxy 
                advisory firms, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                             July 20, 2023

  Mr. Steil introduced the following bill; which was referred to the 
                    Committee on Financial Services

                           December 19, 2023

  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 July 
                               20, 2023]


_______________________________________________________________________

                                 A BILL


 
   To make revisions to the Federal securities laws with respect to 
  shareholder proposals, proxy voting, and the registration of proxy 
                advisory firms, and for other purposes.


 


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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Protecting 
Americans' Retirement Savings from Politics Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; Table of contents.

                   TITLE I--PERFORMANCE OVER POLITICS

Sec. 101. Exclusion of certain substantially similar shareholder 
                            proposals.

              TITLE II--NO EXPENSIVE, STIFLING GOVERNANCE

Sec. 201. Exclusion of certain shareholder proposals.

       TITLE III--EXCLUSION OF CERTAIN ESG SHAREHOLDER PROPOSALS

Sec. 301. Exclusion of certain ESG shareholder proposals.

TITLE IV--EXCLUSIONS AVAILABLE REGARDLESS OF SIGNIFICANT SOCIAL POLICY 
                                 ISSUE

Sec. 401. Exclusions available regardless of significant social policy 
                            issue.

               TITLE V--CORPORATE GOVERNANCE EXAMINATION

Sec. 501. Study of certain issues with respect to shareholder 
                            proposals, proxy advisory firms, and the 
                            proxy process.

             TITLE VI--REGISTRATION OF PROXY ADVISORY FIRMS

Sec. 601. Registration of proxy advisory firms.

    TITLE VII--LIABILITY FOR CERTAIN FAILURES TO DISCLOSE MATERIAL 
            INFORMATION OR MAKING OF MATERIAL MISSTATEMENTS

Sec. 701. Liability for certain failures to disclose material 
                            information or making of material 
                            misstatements.

TITLE VIII--DUTIES OF INVESTMENT ADVISORS, ASSET MANAGERS, AND PENSION 
                                 FUNDS

Sec. 801. Duties of investment advisors, asset managers, and pension 
                            funds.

                TITLE IX--PROTECTING AMERICANS' SAVINGS

Sec. 901. Requirements related to proxy voting.

                    TITLE X--EMPOWERING SHAREHOLDERS

Sec. 1001. Proxy voting of passively managed funds.

             TITLE XI--PROTECTING RETAIL INVESTORS' SAVINGS

Sec. 1101. Best interest based on pecuniary factors.
Sec. 1102. Study on climate change and other environmental disclosures 
                            in municipal bond market.
Sec. 1103. Study on solicitation of municipal securities business.

                   TITLE I--PERFORMANCE OVER POLITICS

SEC. 101. EXCLUSION OF CERTAIN SUBSTANTIALLY SIMILAR SHAREHOLDER 
              PROPOSALS.

    The Securities and Exchange Commission shall revise the 
resubmission requirements in section 240.14a-8(i)(12) of title 17, Code 
of Federal Regulations, to provide that a shareholder proposal may be 
excluded by an issuer from its proxy or consent solicitation material 
for a meeting of the shareholders of such issuer if the shareholder 
proposal addresses substantially the same subject matter as a proposal, 
or proposals, previously included in the proxy or consent solicitation 
material for a meeting of the shareholders of such issuer--
            (1) for a meeting of the shareholders conducted in the 
        preceding 5 calendar years; and
            (2) if the most recent vote--
                    (A) occurred in the preceding 3 calendar years; and
                    (B)(i) if voted on once during such 5-year period, 
                received less than 10 percent of the votes cast;
                    (ii) if voted on twice during such 5-year period, 
                received less than 20 percent of the votes cast; or
                    (iii) if voted on three or more times during such 
                5-year period, received less than 40 percent of the 
                votes cast.

              TITLE II--NO EXPENSIVE, STIFLING GOVERNANCE

SEC. 201. EXCLUSION OF CERTAIN SHAREHOLDER PROPOSALS.

    (a) Exclusion of Certain Shareholder Proposals.--A shareholder 
proposal submitted to an issuer pursuant to section 240.14a-8 of title 
17, Code of Federal Regulations, may be excluded by an issuer from its 
proxy or consent solicitation material for a meeting of the 
shareholders of such issuer if the shareholder proposal--
            (1) has been substantially implemented by the issuer by 
        implementing policies, practices, or procedures that compare 
        favorably with the guidelines of the proposal and address the 
        proposal's underlying concerns; or
            (2) substantially duplicates by having the same principal 
        thrust or principal focus as another proposal previously 
        submitted to the issuer by another proponent that will be 
        included in such material.
    (b) Nullification of Proposed Rule.--The Securities and Exchange 
Commission may not finalize or apply the positions contained in the 
proposed rule entitled ``Substantial Implementation, Duplication, and 
Resubmission of Shareholder Proposals under Exchange Act Rule 14a-8'' 
(87 Fed. Reg. 45052), issue any substantially similar rule, or apply 
any substantially similar rule, including with respect to a no-action 
or other interpretive request.

       TITLE III--EXCLUSION OF CERTAIN ESG SHAREHOLDER PROPOSALS

SEC. 301. EXCLUSION OF CERTAIN ESG SHAREHOLDER PROPOSALS.

    A shareholder proposal submitted to an issuer pursuant to section 
240.14a-8 of title 17, Code of Federal Regulations, may be excluded by 
an issuer from its proxy or consent solicitation material for a meeting 
of the shareholders of such issuer if the subject matter of the 
shareholder proposal is environmental, social, or political (or a 
similar subject matter).

TITLE IV--EXCLUSIONS AVAILABLE REGARDLESS OF SIGNIFICANT SOCIAL POLICY 
                                 ISSUE

SEC. 401. EXCLUSIONS AVAILABLE REGARDLESS OF SIGNIFICANT SOCIAL POLICY 
              ISSUE.

    An issuer may exclude a shareholder proposal pursuant to section 
240.14a-8(i) of title 17, Code of Federal Regulations, without regard 
to whether such shareholder proposal relates to a significant social 
policy issue.

               TITLE V--CORPORATE GOVERNANCE EXAMINATION

SEC. 501. STUDY OF CERTAIN ISSUES WITH RESPECT TO SHAREHOLDER 
              PROPOSALS, PROXY ADVISORY FIRMS, AND THE PROXY PROCESS.

    Section 4(j) of the Securities Exchange Act of 1934 (15 U.S.C. 
78d(j)) is amended by adding at the end the following:
            ``(10) Study of certain issues with respect to shareholder 
        proposals, proxy advisory firms, and the proxy process.--
                    ``(A) In general.--Not later than 180 days after 
                the date of the enactment of this paragraph, and every 
                5 years thereafter, the Commission shall conduct a 
                comprehensive study on shareholder proposals, proxy 
                advisory firms, and the proxy process.
                    ``(B) Scope of study.--The studies required under 
                subparagraph (A) shall cover--
                            ``(i) the previous 10 years, with respect 
                        to the initial study; and
                            ``(ii) the previous 5 years, with respect 
                        to each other study.
                    ``(C) Contents.--Each study required under 
                subparagraph (A) shall address the following issues:
                            ``(i) The financial and other incentives 
                        and obligations of all groups involved in the 
                        proxy process.
                            ``(ii) A consideration of whether financial 
                        and other incentives have created a process 
                        that no longer serves the economic interests of 
                        long-term retail investors.
                            ``(iii) An analysis of whether regulations 
                        and financial incentives have created and 
                        protected the outsized influence of proxy 
                        advisors or a duopoly in proxy advice, and if 
                        so, what are the benefits and costs of that 
                        outsized influence or duopoly.
                            ``(iv) The costs incurred by issuers in 
                        responding to politically-, environmentally-, 
                        or socially-motivated shareholder proposals.
                            ``(v) An assessment, including a cost-
                        benefit analysis, of the adequacy of the 
                        current submission thresholds in Rule 14a-8 (17 
                        CFR 240.14a-8) to ensure that shareholder 
                        proponents have demonstrated a meaningful 
                        economic stake in a company, which is 
                        appropriate to effectively serve markets and 
                        shareholders at large.
                            ``(vi) An examination of the extent to 
                        which the politicization of the shareholder 
                        proposal process is increasing the operating 
                        costs of public companies.
                            ``(vii) An analysis of the impact that 
                        shareholder proposals have on discouraging 
                        private companies from going public.
                            ``(viii) An evaluation of the risk that 
                        shareholder proposals may contribute to the 
                        balkanization of the U.S. economy over time.
                            ``(ix) A thorough assessment of the 
                        economic analysis, if any, conducted by proxy 
                        advisory firms and institutional shareholders 
                        when recommending or voting in favor of 
                        shareholder proposals.
                            ``(x) A review of the extent to which 
                        institutional investors, who owe fiduciary 
                        duties, rely on proxy advisory firm 
                        recommendations.
                            ``(xi) An assessment of whether, in light 
                        of their significant influence on corporate 
                        actions and vote outcomes, proxy advisors are 
                        subject to sufficient and effective regulation 
                        to ensure that their policies and 
                        recommendations are accurate, free of 
                        conflicts, and benefit the economic best 
                        interest of shareholders at large.
                    ``(D) Report.--At the completion of each study 
                required under subparagraph (A) the Commission shall 
                issue a report to the Committee on Banking, Housing, 
                and Urban Affairs of the Senate and the Committee on 
                Financial Services of the House of Representatives that 
                includes the results of the study.''.

             TITLE VI--REGISTRATION OF PROXY ADVISORY FIRMS

SEC. 601. REGISTRATION OF PROXY ADVISORY FIRMS.

    (a) Amendment.--The Securities Exchange Act of 1934 (15 U.S.C. 78a 
et seq.) is amended by inserting after section 15G the following 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 advice, research, 
analysis, ratings or recommendations to any 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 shall file 
                with the Commission an application for registration, in 
                such form as the Commission shall require, by rule, and 
                containing the information described in subparagraph 
                (B).
                    ``(B) Required information.--An application for 
                registration under this section shall contain--
                            ``(i) a certification that the applicant is 
                        able to consistently provide proxy advice based 
                        on accurate information;
                            ``(ii) with respect to clients of the 
                        applicant that vote shares held on behalf of 
                        shareholders, a certification that the 
                        applicant--
                                    ``(I) will provide proxy voting 
                                advice only in the best economic 
                                interest of those shareholders; and
                                    ``(II) has the requisite expertise 
                                to ensure that voting recommendations 
                                are in the best economic interest of 
                                those shareholders;
                            ``(iii) information on the procedures and 
                        methodologies that the applicant uses to ensure 
                        that proxy voting recommendations are in the 
                        best economic interest of the ultimate 
                        shareholders;
                            ``(iv) information on the organizational 
                        structure of the applicant;
                            ``(v) an explanation of whether or not the 
                        applicant has in effect a code of ethics, and 
                        if not, the reasons therefor;
                            ``(vi) a description of any potential or 
                        actual conflict of interest relating to the 
                        provision of proxy advisory services, including 
                        those arising out of or resulting from the 
                        ownership structure of the applicant or the 
                        provision of other services by the applicant or 
                        any person associated with the applicant;
                            ``(vii) the policies and procedures in 
                        place to publicly disclose and manage conflicts 
                        of interest under subsection (f);
                            ``(viii) information related to the 
                        professional and academic qualifications of 
                        staff tasked with providing proxy advisory 
                        services; and
                            ``(ix) any other information and documents 
                        concerning the applicant and any person 
                        associated with such applicant as the 
                        Commission, by rule, may prescribe as necessary 
                        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 application for 
                registration is filed with the Commission 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 conclusion of 
                        such proceedings, the Commission, by order, 
                        shall grant or deny such application for 
                        registration.
                            ``(iii) Extension authorized.--The 
                        Commission may extend the time for conclusion 
                        of such proceedings for not longer than 90 
                        days, if the Commission finds good cause for 
                        such extension and publishes its reasons for so 
                        finding, or for such longer period as to which 
                        the applicant consents.
                    ``(C) Grounds for decision.--The Commission shall 
                grant registration under this subsection--
                            ``(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 is able 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 
                                registered, its registration would be 
                                subject to suspension or revocation 
                                under subsection (d).
            ``(3) Public availability of information.--Subject to 
        section 24, the Commission shall make the information and 
        documents submitted to the Commission by a proxy advisory firm 
        in its completed application for registration, or in any 
        amendment submitted 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 application for registration 
        under this section if any information or document provided 
        therein becomes materially inaccurate, except that a registered 
        proxy advisory 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 subsection.
            ``(2) Certification.--Not later than 90 calendar 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 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 occurred to 
                such information or documents during the previous 
                calendar year.
    ``(d) Censure, Denial, or Suspension of Registration; Notice and 
Hearing.--The Commission, by order, shall censure, place limitations on 
the activities, functions, or operations of, suspend for a period not 
exceeding 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 necessary for the protection of investors 
and in the public interest 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 subparagraph (A), (D), (E), 
        (H), or (G) of section 15(b)(4), has been convicted of any 
        offense specified in 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 period 
        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 imprisonment 
                for 1 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 associated 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);
            ``(6) fails to maintain adequate financial and managerial 
        resources to consistently offer advisory services to clients 
        that vote shares held on behalf of shareholders consistent with 
        the best economic interest of those shareholders, including by 
        failing to comply with subsections (f) or (g);
            ``(7) fails to maintain adequate expertise to ensure that 
        proxy advisory services for clients that vote shares held on 
        behalf of shareholders are tied to the best economic interest 
        of those shareholders; or
            ``(8) engages in a prohibited act enumerated in subsection 
        (j).
    ``(e) Termination of Registration.--
            ``(1) Voluntary withdrawal.--A registered proxy advisory 
        firm may, upon such terms and conditions 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 minimum 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)(82), 
        withdraw 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 Commission, 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 procedures.--Each 
        registered proxy advisory firm shall establish, maintain, and 
        enforce written policies and procedures reasonably designed, 
        taking into consideration the nature of the business of such 
        registered proxy advisory firm and associated persons, to 
        publicly disclose and manage any conflicts of interest that 
        arise or would reasonably be expected to arise from such 
        business.
            ``(2) Commission authority.--The Commission shall, within 
        one year of the date of enactment of this section, issue final 
        rules to prohibit, or require the management and public 
        disclosure of, any conflicts of interest relating 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 client, any 
                affiliate of the client, or any other person for 
                providing proxy advisory services;
                    ``(B) business relationships, ownership interests, 
                or any other financial or personal interests 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;
                    ``(C) the formulation of proxy voting policies;
                    ``(D) the execution, or assistance with the 
                execution, of proxy votes if such votes are based upon 
                recommendations made by the proxy advisory firm in 
                which a person other than the issuer is a proponent; 
                and
                    ``(E) any other potential conflict of interest, as 
                the Commission deems necessary or appropriate in the 
                public interest or for the protection of investors.
            ``(3) Disclosure on factors influencing recommendations.--
        Each registered proxy advisory firm shall annually disclose to 
        the Commission and make publicly available the economic and 
        other factors that a reasonable investor would expect to 
        influence the recommendations of such proxy advisory firm, 
        including the ownership composition of such proxy advisory firm 
        and any meetings with, or feedback received from, outside 
        entities.
    ``(g) Reliability of Proxy Advisory Firm Services.--
            ``(1) In general.--Each registered proxy advisory firm 
        shall--
                    ``(A) have staff and other resources sufficient to 
                produce proxy voting recommendations that are based on 
                accurate and current information and designed for 
                clients that vote shares held on behalf of shareholders 
                to advance the best economic interest of those 
                shareholders;
                    ``(B) implement procedures that permit issuers that 
                are the subject of proxy voting recommendations--
                            ``(i) access in a reasonable time to data 
                        and information used to make recommendations; 
                        and
                            ``(ii) a reasonable opportunity to provide 
                        meaningful comment and corrections to such data 
                        and information, including the opportunity to 
                        present (in person or telephonically) details 
                        to the person responsible for developing such 
                        data and information prior to the publication 
                        of proxy voting recommendations to clients;
                    ``(C) employ an ombudsman to receive complaints 
                about the accuracy of information used in making 
                recommendations from the companies that are the subject 
                of the proxy advisory firm's voting recommendations and 
                seek to resolve those complaints in a timely fashion 
                and prior to the publication of proxy voting 
                recommendations to clients; and
                    ``(D) if the ombudsman is unable to resolve a 
                complaint to a company's satisfaction prior to the 
                publication of proxy voting recommendations to clients, 
                include in the final report of the firm to clients--
                            ``(i) a statement detailing the company's 
                        complaints, if requested in writing by the 
                        company; and
                            ``(ii) a statement explaining why the proxy 
                        voting recommendation is in the best economic 
                        interest of shareholders.
            ``(2) Definitions.--In this subsection:
                    ``(A) Data and information used to make 
                recommendations.--The term `data and information used 
                to make voting recommendations'--
                            ``(i) means the financial, operational, or 
                        descriptive data and information on an issuer 
                        used by proxy advisory firms and any contextual 
                        or substantive analysis impacting the 
                        recommendation; and
                            ``(ii) does not include the entirety of the 
                        proxy advisory firm's final report to its 
                        clients.
                    ``(B) Reasonable time.--The term `reasonable 
                time'--
                            ``(i) means not less than 1 week before the 
                        publication of proxy voting recommendations for 
                        clients; and
                            ``(ii) shall not otherwise interfere with a 
                        proxy advisory firm's ability to provide its 
                        clients with timely access to accurate proxy 
                        voting research, analysis, or recommendations.
    ``(h) Private Right of Action With Respect to Illegal 
Recommendations.--Any proxy advisory firm that endorses a proposal that 
is not supported by the issuer but is approved and subsequently found 
by a court of competent jurisdiction to violate State or Federal law 
shall be liable to the applicable issuer for the costs associated with 
the approval of such proposal, including implementation costs and any 
penalties incurred by the issuer.
    ``(i) Designation of Compliance Officer.--Each registered proxy 
advisory firm shall designate an individual who reports directly to 
senior management as responsible for administering the policies and 
procedures that are required to be established pursuant to subsections 
(f) and (g), and for ensuring compliance with the securities laws and 
the rules and regulations thereunder, including those promulgated by 
the Commission pursuant to this section.
    ``(j) Prohibited Conduct.--
            ``(1) Prohibited acts and practices.--Not later than one 
        year after the date of enactment of this section, 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 abusive, including any act or 
        practice relating to--
                    ``(A) advisory or consulting services (offered 
                directly or indirectly, including through an affiliate) 
                related to corporate governance issues; or
                    ``(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 subscribe to 
                other services or product of the registered proxy 
                advisory firm or any person associated with such 
                organization.
            ``(2) Rule of construction.--Nothing in paragraph (1), or 
        in any rules or regulations adopted 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, except 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).
    ``(k) 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 required 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.
    ``(l) Annual Report.--
            ``(1) In general.--Each registered proxy advisory firm 
        shall, not later than 90 calendar days after the end of each 
        fiscal year, file with the Commission and make publicly 
        available an annual report in such form as the Commission, by 
        rule, may prescribe as necessary or appropriate in the public 
        interest or for the protection of investors.
            ``(2) Contents.--Each annual report required under 
        paragraph (1) shall include, at a minimum, disclosure by the 
        registered proxy advisory firm of the following:
                    ``(A) A list of shareholder proposals the staff of 
                the registered proxy advisory firm reviewed in the 
                prior fiscal year.
                    ``(B) A list of the recommendations made in the 
                prior fiscal year.
                    ``(C) The economic analysis conducted to determine 
                that final recommendations provided in the prior fiscal 
                year (other than recommendations relating to an issuer-
                sponsored proposal or recommendations consistent with 
                that of a board of directors composed of a majority of 
                independent directors) delivered to clients that vote 
                shares held on behalf of shareholders were in the best 
                economic interest of those shareholders.
                    ``(D) The staff who reviewed and made 
                recommendations on such proposals in the prior fiscal 
                year.
                    ``(E) The qualifications of such staff to ensure 
                that each of the recommendations for clients that vote 
                shares held on behalf of shareholders were tied to the 
                best economic interest of those shareholders.
                    ``(F) The recommendations made in the prior fiscal 
                year where the proponent of such recommendation was a 
                client of or received services from the proxy advisory 
                firm.
                    ``(G) A certification by the chief executive 
                officer, chief financial officer, and the primary 
                executive responsible for overseeing the compilation 
                and dissemination of proxy voting advice that the final 
                recommendations (other than recommendations relating to 
                an issuer-sponsored proposal or recommendations 
                consistent with that of a board of directors composed 
                of a majority of independent directors) delivered to 
                clients that vote shares held on behalf of shareholders 
                in the last fiscal year--
                            ``(i) were based on internal controls and 
                        procedures that are designed to ensure accurate 
                        information and that such internal controls and 
                        procedures are effective;
                            ``(ii) do not violate applicable State or 
                        Federal law; and
                            ``(iii) were based on the best economic 
                        interest of those shareholders.
                    ``(H) The economic and other factors that a 
                reasonable investor would expect to influence the 
                recommendations of such proxy advisory firm, including 
                the ownership composition of such proxy advisory firm.
    ``(m) 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 to clients that vote shares held on behalf of 
shareholders and how that methodology ensures that the firm's voting 
recommendations are in the best economic interest of those 
shareholders.
    ``(n) Rules of Construction.--Registration under and compliance 
with this section does not constitute a waiver of, or otherwise 
diminish, any right, privilege, or defense that a registered proxy 
advisory firm may otherwise have under any provision of State or 
Federal law, including any rule, regulation, or order thereunder.
    ``(o) Regulations.--
            ``(1) New provisions.--Such rules and regulations as are 
        required by this section or are otherwise necessary to carry 
        out this section, including the application form required under 
        subsection (a)--
                    ``(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 regulations 
                which affect the operations of proxy advisory firms; 
                and
                    ``(B) amend or revise such rules and regulations in 
                accordance with the purposes of this section, and issue 
                such guidance as the Commission may prescribe as 
                necessary or appropriate in the public interest or for 
                the protection of investors.
    ``(p) Applicability.--This section, other than subsection (n), 
which shall apply on the date of enactment of this section, shall apply 
on the earlier of--
            ``(1) the date on which regulations are issued in final 
        form under subsection (o)(1); or
            ``(2) 270 days after the date of enactment of this section.
    ``(q) Best Economic Interest Defined.--In this section, the term 
`best economic interest' means decisions that seek to maximize 
investment returns over a time horizon consistent with the investment 
objectives and risk management profile of the fund in which the 
shareholders are invested.''.
    (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 ``nationally recognized statistical 
rating organization,''.
    (c) Proxy Advisory Firm Definitions.--Section 3(a) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended--
            (1) by redesignating the second paragraph (80) (relating to 
        funding portal) as paragraph (81); and
            (2) by adding at the end the following:
            ``(82) Proxy advisory firm.--The term `proxy advisory 
        firm'--
                    ``(A) means any person who is primarily engaged in 
                the business of providing proxy voting advice, 
                research, analysis, ratings, or recommendations to 
                clients, which conduct constitutes a solicitation 
                within the meaning of section 14; and
                    ``(B) does not include any person that is exempt 
                under law or regulation from the requirements otherwise 
                applicable to persons engaged in such a solicitation.
            ``(83) Person associated with a proxy advisory firm.--With 
        respect to a proxy advisory firm--
                    ``(A) a person is `associated' with the proxy 
                advisory firm if the person is--
                            ``(i) a partner, officer, or director of 
                        the proxy advisory firm (or any person 
                        occupying a similar status or performing 
                        similar functions);
                            ``(ii) a person directly or indirectly 
                        controlling, controlled by, or under common 
                        control with the proxy advisory firm;
                            ``(iii) an employee of the proxy advisory 
                        firm; or
                            ``(iv) a person the Commission determines 
                        by rule is controlled by the proxy advisory 
                        firm; and
                    ``(B) a person is not `associated' with the proxy 
                advisory firm if the person only performs clerical or 
                ministerial functions with respect to a proxy advisory 
                firm.''.

    TITLE VII--LIABILITY FOR CERTAIN FAILURES TO DISCLOSE MATERIAL 
            INFORMATION OR MAKING OF MATERIAL MISSTATEMENTS

SECTION 701. LIABILITY FOR CERTAIN FAILURES TO DISCLOSE MATERIAL 
              INFORMATION OR MAKING OF MATERIAL MISSTATEMENTS.

    Section 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78n) 
is amended by adding at the end the following:
    ``(l) False or Misleading Statements.--For purposes of section 18, 
the failure to disclose material information (such as a proxy voting 
advice business's methodology, sources of information, or conflicts of 
interest) or the making of a material misstatement regarding proxy 
voting advice that makes a recommendation to a security holder as to 
the security holder's vote, consent, or authorization on a specific 
matter for which security holder approval is solicited, and that is 
furnished by a person that markets the person's expertise as a provider 
of such proxy voting advice separately from other forms of investment 
advice, and sells such proxy voting advice for a fee, shall be 
considered to be false or misleading with respect to a material 
fact.''.

TITLE VIII--DUTIES OF INVESTMENT ADVISORS, ASSET MANAGERS, AND PENSION 
                                 FUNDS

SEC. 801. DUTIES OF INVESTMENT ADVISORS, ASSET MANAGERS, AND PENSION 
              FUNDS.

    Section 13(f) of the Securities Exchange Act of 1934 (15 U.S.C. 
78m(f)) is amended by adding at the end the following:
            ``(7) Disclosures by institutional investment managers in 
        connection with proxy advisory firms.--
                    ``(A) In general.--Every institutional investment 
                manager which uses the mails, or any means or 
                instrumentality of interstate commerce in the course of 
                its business as an institutional investment manager, 
                which engages a proxy advisory firm, and which 
                exercises voting power with respect to accounts holding 
                equity securities of a class described in subsection 
                (d)(1) or otherwise becomes or is deemed to become a 
                beneficial owner of any security of a class described 
                in subsection (d)(1) upon the purchase or sale of a 
                security-based swap that the Commission may define by 
                rule, shall file an annual report with the Commission 
                containing--
                            ``(i) an explanation of how the 
                        institutional investment manager voted with 
                        respect to each shareholder proposal;
                            ``(ii) the percentage of votes cast on 
                        shareholder proposals that were consistent with 
                        proxy advisory firm recommendations, for each 
                        proxy advisory firm retained by the 
                        institutional investment manager;
                            ``(iii) an explanation of--
                                    ``(I) how the institutional 
                                investment manager took into 
                                consideration proxy advisory firm 
                                recommendations in making voting 
                                decisions, including the degree to 
                                which the institutional investment 
                                manager used those recommendations in 
                                making voting decisions;
                                    ``(II) how often the institutional 
                                investment manager voted consistent 
                                with a recommendation made by a proxy 
                                advisory firm, expressed as a 
                                percentage;
                                    ``(III) how such votes are 
                                reconciled with the fiduciary duty of 
                                the institutional investment manager to 
                                vote in the best economic interests of 
                                shareholders;
                                    ``(IV) how frequently votes were 
                                changed when an error occurred or due 
                                to new information from issuers; and
                                    ``(V) the degree to which 
                                investment professionals of the 
                                institutional investment manager were 
                                involved in proxy voting decisions; and
                            ``(iv) a certification that the voting 
                        decisions of the institutional investment 
                        manager were based solely on the best economic 
                        interest of the shareholders on behalf of whom 
                        the institutional investment manager holds 
                        shares.
                    ``(B) Requirements for larger institutional 
                investment managers.--Every institutional investment 
                manager described in subparagraph (A) that has assets 
                under management with an aggregate fair market value on 
                the last trading day in any of the preceding twelve 
                months of at least $100,000,000,000 shall--
                            ``(i) in any materials provided to 
                        customers and related to customers voting their 
                        shares, clarify that shareholders are not 
                        required to vote on every proposal;
                            ``(ii) with respect to each shareholder 
                        proposal for which the institutional investment 
                        manager votes (other than votes consistent with 
                        the recommendation of a board of directors 
                        composed of a majority of independent 
                        directors) perform an economic analysis before 
                        making such vote, to determine that the vote is 
                        in the best economic interest of the 
                        shareholders on behalf of whom the 
                        institutional investment manager holds shares; 
                        and
                            ``(iii) include each economic analysis 
                        required under clause (ii) in the annual report 
                        required under subparagraph (A).
                    ``(C) Best economic interest defined.--In this 
                paragraph, the term `best economic interest' means 
                decisions that seek to maximize investment returns over 
                a time horizon consistent with the investment 
                objectives and risk management profile of the fund in 
                which shareholders are invested.''.

                TITLE IX--PROTECTING AMERICANS' SAVINGS

SEC. 901. REQUIREMENTS RELATED TO PROXY VOTING.

    Section 14 of the Securities Exchange Act of 1934 (15 U.S.C. 78n), 
as amended by section 701, is further amended by adding at the end the 
following:
    ``(m) Prohibition on Robovoting.--
            ``(1) In general.--The Commission shall issue final rules 
        prohibiting the use of robovoting with respect to votes related 
        to proxy or consent solicitation materials.
            ``(2) Robovoting defined.--In this subsection, the term 
        `robovoting' means the practice of automatically voting in a 
        manner consistent with the recommendations of a proxy advisory 
        firm or pre-populating votes on a proxy advisory firm's 
        electronic voting platform with the proxy advisory firm's 
        recommendations, in either case, without independent review and 
        analysis.
    ``(n) Prohibition on Outsourcing Voting Decisions by Institutional 
Investors.--With respect to votes related to proxy or consent 
solicitation materials, an institutional investor may not outsource 
voting decisions to any person other than an investment adviser or a 
broker or dealer that is registered with the Commission and has a 
fiduciary or best interest duty to the institutional investor.
    ``(o) No Requirement to Vote.--No person may be required to cast 
votes related to proxy or consent solicitation materials.
    ``(p) Proxy Advisory Firm Calculation of Votes.--With respect to 
votes related to proxy or consent solicitation materials with respect 
to an issuer, a proxy advisor firm shall calculate the vote result 
consistent with the law of the State in which the issuer is 
incorporated.''.

                    TITLE X--EMPOWERING SHAREHOLDERS

SEC. 1001. PROXY VOTING OF PASSIVELY MANAGED FUNDS.

    (a) In General.--The Investment Advisers Act of 1940 (15 U.S.C. 
80b-1 et seq.) is amended by inserting after section 208 (15 U.S.C. 
80b-8) the following:

``SEC. 208A. PROXY VOTING OF PASSIVELY MANAGED FUNDS.

    ``(a) Investment Adviser Proxy Voting.--
            ``(1) In general.--An investment adviser that holds 
        authority to vote a proxy solicited by an issuer pursuant to 
        section 14 of the Securities Exchange Act of 1934 (15 U.S.C. 
        78n) in connection with any vote of covered securities held by 
        a passively managed fund shall--
                    ``(A) vote in accordance with the instructions of 
                the beneficial owner of a voting security of the 
                passively managed fund;
                    ``(B) vote in accordance with the voting 
                recommendations of such issuer; or
                    ``(C) abstain from voting but make reasonable 
                efforts to be considered present for purposes of 
                establishing a quorum.
            ``(2) Exception.--Paragraph (1) shall not apply with 
        respect to a vote on a routine matter.
    ``(b) Safe Harbor.--With respect to a matter that is not a routine 
matter, in the case of a vote described in subsection (a)(1), an 
investment adviser shall not be liable to any person under any law or 
regulation of the United States, any constitution, law, or regulation 
of any State or political subdivision thereof, or under any contract or 
other legally enforceable agreement (including any arbitration 
agreement), for any of the following:
            ``(1) Voting in accordance with the instructions of the 
        beneficial owner of a voting security of the passively managed 
        fund.
            ``(2) Not soliciting voting instructing from any person 
        under subsection (a)(1) with respect to such vote.
            ``(3) Voting in accordance with the voting recommendations 
        of an issuer pursuant to subparagraph (B) of such subsection.
            ``(4) Abstaining from voting in accordance with 
        subparagraph (C) of such subsection.
    ``(c) Foreign Private Issuers Exemption.--Subsection (a) shall not 
apply with respect to a foreign private issuer if the voting policy of 
the investment advisor with respect to such foreign private issuers is 
fully and fairly disclosed to beneficial owners, including the extent 
to which such policy differs from the voting policy for non-exempt 
issuers.
    ``(d) Definitions.--In this section:
            ``(1) Covered security.--The term `covered security'--
                    ``(A) means a voting security, as that term is 
                defined in section 2(a) of the Investment Company Act 
                of 1940 (15 U.S.C. 80a-2(a)), in which a qualified fund 
                is invested; and
                    ``(B) does not include any voting security (as 
                defined in subparagraph (A)) of an issuer registered 
                with the Commission as an investment company under 
                section 8 of the Investment Company Act of 1940 (15 
                U.S.C. 80a-8).
            ``(2) Passively managed fund.--The term `passively managed 
        fund' means a qualified fund that--
                    ``(A) is designed to track, or is derived from, an 
                index of securities or a portion of such an index;
                    ``(B) discloses that the qualified fund is a 
                passive index fund; or
                    ``(C) allocates not less than 60 percent of the 
                total assets of the qualified fund to an investment 
                strategy that is designed to track, or is derived from, 
                an index of securities or a portion of such an index 
                fund.
            ``(3) Qualified fund.--The term `qualified fund' means--
                    ``(A) an investment company, as that term is 
                defined in section 3 of the Investment Company Act of 
                1940 (15 U.S.C. 80a-3);
                    ``(B) a private fund;
                    ``(C) an eligible deferred compensation plan, as 
                that term is defined in section 457(b) of the Internal 
                Revenue Code of 1986;
                    ``(D) a trust, plan, account, or other entity 
                described in section 3(c)(11) of the Investment Company 
                Act of 1940 (15 U.S.C. 80a-3(c)(11));
                    ``(E) a plan maintained by an employer described in 
                clause (i), (ii), or (iii) of section 403(b)(1)(A) of 
                the Internal Revenue Code of 1986 to provide annuity 
                contracts described in section 403(b) of such Code;
                    ``(F) a common trust fund, or similar fund, 
                maintained by a bank;
                    ``(G) any fund established under section 8438(b)(1) 
                of title 5, United States Code; or
                    ``(H) any separate managed account of a client of 
                an investment adviser.
            ``(4) Registrant.--The term `registrant' means an issuer of 
        covered securities.
            ``(5) Routine matter.--The term `routine matter'--
                    ``(A) includes a proposal that relates to--
                            ``(i) an election with respect to the board 
                        of directors of the registrant;
                            ``(ii) the compensation of management or 
                        the board of directors of the registrant;
                            ``(iii) the selection of auditors;
                            ``(iv) a matter where there is a material 
                        conflict of interest between or among the 
                        issuer, members of management, members of the 
                        board of directors, or an affiliate of the 
                        issuer;
                            ``(v) declassification; or
                            ``(vi) transactions that would transform 
                        the structure of the registrant, including--
                                    ``(I) a merger or consolidation; 
                                and
                                    ``(II) the sale, lease, or exchange 
                                of all, or substantially all, of the 
                                property and assets of a registrant; 
                                and
                    ``(B) does not include--
                            ``(i) a proposal that is not submitted to a 
                        holder of covered securities by means of a 
                        proxy statement comparable to that described in 
                        section 240.14a-101 of title 17, Code of 
                        Federal Regulations, or any successor 
                        regulation; or
                            ``(ii) a proposal that is--
                                    ``(I) the subject of a counter-
                                solicitation; or
                                    ``(II) part of a proposal made by a 
                                person other than the applicable 
                                registrant.''.
    (b) Effective Date.--The amendment made by this section shall take 
effect on the first August 1 that occurs after the date that is 2 years 
after the date of enactment of this Act.

             TITLE XI--PROTECTING RETAIL INVESTORS' SAVINGS

SEC. 1101. BEST INTEREST BASED ON PECUNIARY FACTORS.

    (a) In General.--Section 211(g) of the Investment Advisers Act of 
1940 (15 U.S.C. 80b-11(g)) is amended by adding at the end the 
following:
            ``(3) Best interest based on pecuniary factors.--
                    ``(A) In general.--For purposes of paragraph (1), 
                the best interest of a customer shall be determined 
                using pecuniary factors, which may not be subordinated 
                to or limited by non-pecuniary factors, unless the 
                customer provides informed consent, in writing, that 
                such non-pecuniary factors be considered.
                    ``(B) Disclosure of pecuniary factors.--If a 
                customer provides a broker, dealer, or investment 
                adviser with the informed consent to consider non-
                pecuniary factors described under subparagraph (A), the 
                broker, dealer, or investment adviser shall--
                            ``(i) disclose the expected pecuniary 
                        effects to the customer over a time period 
                        selected by the customer and not to exceed 
                        three years; and
                            ``(ii) at the end of the time period 
                        described in clause (i), disclose, by 
                        comparison to a reasonably comparable index or 
                        basket of securities selected by the customer, 
                        the actual pecuniary effects of that time 
                        period, including all fees, costs, and other 
                        expenses incurred to consider non-pecuniary 
                        factors.
                    ``(C) Pecuniary factor defined.--In this paragraph, 
                the term `pecuniary factor' means a factor that a 
                fiduciary prudently determines is expected to have a 
                material effect on the risk or return of an investment 
                based on appropriate investment horizons.''.
    (b) Rulemaking.--Not later than the end of the 12-month period 
beginning on the date of enactment of this Act, the Securities and 
Exchange Commission shall revise or issue such rules as may be 
necessary to implement the amendment made by subsection (a).
    (c) Applicability.--The amendment made by subsection (a) shall 
apply to actions taken by a broker, dealer, or investment adviser 
beginning on the date that is 12 months after the date of enactment of 
this Act.

SEC. 1102. STUDY ON CLIMATE CHANGE AND OTHER ENVIRONMENTAL DISCLOSURES 
              IN MUNICIPAL BOND MARKET.

    (a) In General.--The Securities and Exchange Commission shall--
            (1) conduct a study to determine the extent to which 
        issuers of municipal securities (as such term is defined in 
        section 3(a)(29) of the Securities Exchange Act of 1934 (15 
        U.S.C. 78c(a)(29)) make disclosures to investors regarding 
        climate change and other environmental matters; and
            (2) solicit public comment with respect to such study.
    (b) Contents.--The study required under subsection (a) shall 
consider and analyze--
            (1) the frequency with which disclosures described in 
        subsection (a)(1) are made;
            (2) whether such disclosures made by issuers of municipal 
        securities in connection with offerings of securities align 
        with such disclosures made by issuers of municipal securities 
        in other contexts or to audiences other than investors;
            (3) any voluntary or mandatory disclosure standards 
        observed by issuers of municipal securities in the course of 
        making such disclosures;
            (4) the degree to which investors consider such disclosures 
        in connection with making an investment decision; and
            (5) such other information as the Securities and Exchange 
        Commission determines appropriate.
    (c) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Securities and Exchange Commission shall submit to the 
Committee on Banking, Housing, and Urban Affairs of the Senate and the 
Committee on Financial Services of the House of Representatives a 
report that includes--
            (1) the results of the study required under this section;
            (2) a detailed discussion of the financial risks to 
        investors from investments in municipal securities;
            (3) whether such risks are adequately disclosed to 
        investors; and
            (4) recommended regulatory or legislative steps to address 
        any concerns identified in the study.

SEC. 1103. STUDY ON SOLICITATION OF MUNICIPAL SECURITIES BUSINESS.

    (a) In General.--The Securities and Exchange Commission shall--
            (1) conduct a study on the effectiveness of each covered 
        rule in preventing the payment of funds to elected officials or 
        candidates for elected office in exchange for the receipt of 
        government business in connection with the offer or sale of 
        municipal securities; and
            (2) solicit public comment with respect to such study.
    (b) Contents.--The study required under subsection (a) shall 
consider and analyze--
            (1) the effectiveness of each covered rule, including 
        whether each covered rule accomplishes the intended effect of 
        such covered rule and has any unintended adverse effects;
            (2) the frequency and scope of enforcement actions 
        undertaken pursuant to each covered rule;
            (3) the degree to which--
                    (A) persons subject to each covered rule--
                            (i) have in effect policies and procedures 
                        intended to ensure compliance with each such 
                        covered rule; and
                            (ii) are disadvantaged from participating 
                        in the political process generally and in 
                        relation to persons who solicit or receive 
                        government business or government licenses, 
                        permits, and approvals other than in connection 
                        with the offer or sale of municipal securities; 
                        and
                    (B) other State and Federal laws and regulations 
                impact the solicitation of municipal securities 
                business; and
            (4) such other information as the Securities and Exchange 
        Commission determines appropriate.
    (c) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Securities and Exchange Commission shall submit to the 
Committee on Banking, Housing, and Urban Affairs of the Senate and the 
Committee on Financial Services of the House of Representatives a 
report that includes--
            (1) the results of the study required under this section;
            (2) an analysis of the extent to which persons affiliated 
        with small businesses, as well as persons affiliated with 
        minority and women opened businesses, have been affected by the 
        covered rules; and
            (3) recommended regulatory or legislative steps to address 
        any concerns identified in the study.
    (d) Definitions.--In this section:
            (1) Covered rule.--The term ``covered rule'' means--
                    (A) Rule G-38 of the Municipal Securities 
                Rulemaking Board; and
                    (B) Rule 206(4)-5 (17 CFR 275.206(4)-5).
            (2) Municipal securities.--The term ``municipal 
        securities'' has the meaning given the term in section 3(a)(29) 
        of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(29)).
                                                 Union Calendar No. 263

118th CONGRESS

  1st Session

                               H. R. 4767

                          [Report No. 118-324]

_______________________________________________________________________

                                 A BILL

   To make revisions to the Federal securities laws with respect to 
  shareholder proposals, proxy voting, and the registration of proxy 
                advisory firms, and for other purposes.

_______________________________________________________________________

                           December 19, 2023

  Reported with an amendment, committed to the Committee of the Whole 
       House on the State of the Union, and ordered to be printed