[Congressional Record Volume 164, Number 179 (Tuesday, November 13, 2018)]
[Senate]
[Pages S6927-S6928]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. REED (for himself, Mr. Perdue, Ms. Heitkamp, Mr. Tillis, 
        Mr. Jones, and Mr. Kennedy):
  S. 3614. A bill to amend the Investment Advisers Act of 1940 to 
require proxy advisory firms to register as investment advisers under 
that Act, and for other purposes; to the Committee on Banking, Housing, 
and Urban Affairs.
  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

[[Page S6928]]

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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