,i #aafth ,,congress #ast ,session ,h4 ,r4 #eaaf ,,in ,,the ,,house ,,of ,,representatives ,november #ae1 #bjai,mr4 ,steil 7for himself1 ,mrs4 ,wagner1 ,mr4 ,riggleman1 and ,mr4 ,barr7 introduced the following bill2 which was referred to the ,committee on ,financial ,services ,a ,,bill ,to improve the quality of proxy advisory firms for the protection of investors and the ,u4,s4 economy1 and in the public interest1 by fostering accountability1 transparency1 responsiveness1 and competition in the proxy advisory firm industry4 #a4 ,short title ,this ,act may be cited as the ,corporate ,governance ,reform and ,transparency ,act of #bjai4 #b4 ,definitions 7a7 ,securities ,exchange ,act of #aicd ,section #c7;a7 of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #gh;c7a77 is amended by adding at the end the following new paragraphs3 7#ha7 ,proxy advisory firm ,the term proxy advisory firm means any person who is primarily engaged in the business of providing proxy voting research1 analysis1 ratings1 or recommendations to clients1 which conduct constitutes a solicitation within the meaning of section #ad and the ,commission's rules and regulations thereunder1 except to the extent that the person is exempted by such rules and regulations from requirements otherwise applicable to persons engaged in a solicitation4 7#hb7 ,person associated with a proxy advisory firm ,the term person associated with a proxy advisory firm means any partner1 officer1 or director of a proxy advisory firm 7or any person occupying a similar status or performing similar functions71 any person directly or indirectly controlling1 controlled by1 or under common control with a proxy advisory firm1 or any employee of a proxy advisory firm1 except that persons associated with a proxy advisory firm whose functions are clerical or ministerial shall not be included in the meaning of such term4 ,the ,commission may by rules and regulations classify1 for purposes or any portion or portions of this ,act1 persons1 including employees controlled by a proxy advisory firm4 4 7b7 ,applicable definitions ,as used in this ,act-- 7#a7 the term ,commission means the ,securities and ,exchange ,commission2 and 7#b7 the term proxy advisory firm has the same meaning as in section #c7;a77#ha7 of the ,securities ,exchange ,act of #aicd1 as added by this ,act4 #c4 ,registration of proxy advisory firms 7a7 ,amendment ,the ,securities ,exchange ,act of #aicd is amended by inserting after section #ae;,g the following new section3 #ae;,h4 ,registration of proxy advisory firms 7a7 ,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 research1 analysis1 or recommendations to any client1 unless such proxy advisory firm is registered under this section4 7b7 ,registration procedures 7#a7 ,application for registration 7,a7 ,in general ,a proxy advisory firm must file with the ,commission an application for registration1 in such form as the ,commission shall require1 by rule or regulation1 and containing the information described in subparagraph 7,b74 7,b7 ,required information ,an application for registration under this section shall contain information regarding-- 7i7 a certification that the applicant is able to consistently provide proxy advice based on accurate information2 7ii7 the procedures and methodologies that the applicant uses in developing proxy voting recommendations1 including whether and how the applicant considers the size of a company when making proxy voting recommendations2 7iii7 the organizational structure of the applicant2 7iv7 whether or not the applicant has in effect a code of ethics1 and if not1 the reasons therefor2 7v7 any potential or actual conflict of interest relating to the ownership structure of the applicant or the provision of proxy advisory services by the applicant1 including whether the proxy advisory firm engages in services ancillary to the provision of proxy advisory services such as consulting services for corporate issuers1 and if so the revenues derived therefrom2 7vi7 the policies and procedures in place to manage conflicts of interest under subsection 7f72 and 7vii7 any other information and documents concerning the applicant and any person associated with such applicant as the ,commission1 by rule1 may prescribe as necessary or appropriate in the public interest or for the protection of investors4 7#b7 ,review of application 7,a7 ,initial determination ,not later than #ij days after the date on which the application for registration is filed with the ,commission under paragraph 7#a7 7or within such longer period as to which the applicant consents7 the ,commission shall-- 7i7 by order1 grant registration2 or 7ii7 institute proceedings to determine whether registration should be denied4 7,b7 ,conduct of proceedings 7i7 ,content ,proceedings referred to in subparagraph 7,a77ii7 shall-- 7,i7 include notice of the grounds for denial under consideration and an opportunity for hearing2 and 7,,ii7 be concluded not later than #abj days after the date on which the application for registration is filed with the ,commission under paragraph 7#a74 7ii7 ,determination ,at the conclusion of such proceedings1 the ,commission1 by order1 shall grant or deny such application for registration4 7iii7 ,extension authorized ,the ,commission may extend the time for conclusion of such proceedings for not longer than #ij days1 if it finds good cause for such extension and publishes its reasons for so finding1 or for such longer period as to which the applicant consents4 7,c7 ,grounds for decision ,the ,commission shall grant registration under this subsection-- 7i7 if the ,commission finds that the requirements of this section are satisfied2 and 7ii7 unless the ,commission finds 7in which case the ,commission shall deny such registration7 that-- 7,i7 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 7#a77;,b7 and with subsections 7f7 and 7g72 or 7,,ii7 if the applicant were so registered1 its registration would be subject to suspension or revocation under subsection 7e74 7#c7 ,public availability of information ,subject to section #bd1 the ,commission shall make the information and documents submitted to the ,commission by a proxy advisory firm in its completed application for registration1 or in any amendment submitted under paragraph 7#a7 or 7#b7 of subsection 7c71 publicly available on the ,commission's website1 or through another comparable1 readily accessible means4 7c7 ,update of registration 7#a7 ,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 inaccurate1 except that a registered proxy advisory firm is not required to amend the information required to be filed under subsection 7b77#a77;,b77i7 by filing information under this paragraph1 but shall amend such information in the annual submission of the organization under paragraph 7#b7 of this subsection4 7#b7 ,certification ,not later than #ij calendar days after the end of each calendar year1 each registered proxy advisory firm shall file with the ,commission an amendment to its registration1 in such form as the ,commission1 by rule1 may prescribe as necessary or appropriate in the public interest or for the protection of investors-- 7,a7 certifying that the information and documents in the application for registration of such registered proxy advisory firm continue to be accurate in all material respects2 and 7,b7 listing any material change that occurred to such information or documents during the previous calendar year4 7d7 ,censure1 denial1 or suspension of registration2 notice and hearing ,the ,commission1 by order1 shall censure1 place limitations on the activities1 functions1 or operations of1 suspend for a period not exceeding #ab months1 or revoke the registration of any registered proxy advisory firm if the ,commission finds1 on the record after notice and opportunity for hearing1 that such censure1 placing of limitations1 suspension1 or revocation is necessary for the protection of investors and in the public interest and that such registered proxy advisory firm1 or any person associated with such an organization1 whether prior to or subsequent to becoming so associated-- 7#a7 has committed or omitted any act1 or is subject to an order or finding1 enumerated in subparagraph 7,a71 7,d71 7,e71 7,h71 or 7,g7 of section #ae7;b77#d71 has been convicted of any offense specified in section #ae7;b77#d77;,b71 or is enjoined from any action1 conduct1 or practice specified in subparagraph 7,c7 of section #ae7;b77#d71 during the #aj-year period preceding the date of commencement of the proceedings under this subsection1 or at any time thereafter2 7#b7 has been convicted during the #aj-year period preceding the date on which an application for registration is filed with the ,commission under this section1 or at any time thereafter1 of-- 7,a7 any crime that is punishable by imprisonment for #a or more years1 and that is not described in section #ae7;b77#d77;,b72 or 7,b7 a substantially equivalent crime by a foreign court of competent jurisdiction2 7#c7 is subject to any order of the ,commission barring or suspending the right of the person to be associated with a registered proxy advisory firm2 7#d7 fails to furnish the certifications required under subsections 7b77#b77;,c77ii77,i7 and 7c77#b72 7#e7 has engaged in one or more prohibited acts enumerated in paragraph 7#a72 or 7#f7 fails to maintain adequate financial and managerial resources to consistently offer advisory services with integrity1 including by failing to comply with subsection 7f7 or 7g74 7e7 ,termination of registration 7#a7 ,voluntary withdrawal ,a registered proxy advisory firm may1 upon such terms and conditions as the ,commission may establish as necessary in the public interest or for the protection of investors1 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 #c7;a77#ha7 of the ,securities ,exchange ,act of #aicd1 withdraw from registration by filing a written notice of withdrawal to the ,commission4 7#b7 ,commission authority ,in addition to any other authority of the ,commission under this title1 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 firm1 the ,commission1 by order1 shall cancel the registration under this section of such registered proxy advisory firm4 7f7 ,management of conflicts of interest 7#a7 ,organization policies and procedures ,each registered proxy advisory firm shall establish1 maintain1 and enforce written policies and procedures reasonably designed1 taking into consideration the nature of the business of such registered proxy advisory firm and associated persons1 to address and manage any conflicts of interest that can arise from such business4 7#b7 ,commission authority ,the ,commission shall issue final rules to prohibit1 or require the management and disclosure of1 any conflicts of interest relating to the offering of proxy advisory services by a registered proxy advisory firm1 including1 without limitation1 conflicts of interest relating to-- 7,a7 the manner in which a registered proxy advisory firm is compensated by the client1 or any affiliate of the client1 for providing proxy advisory services2 7,b7 the provision of consulting1 advisory1 or other services by a registered proxy advisory firm1 or any person associated with such registered proxy advisory firm1 to the client2 7,c7 business relationships1 ownership interests1 or any other financial or personal interests between a registered proxy advisory firm1 or any person associated with such registered proxy advisory firm1 and any client1 or any affiliate of such client2 7,d7 transparency around the formulation of proxy voting policies2 7,e7 the execution of proxy votes if such votes are based upon recommendations made by the proxy advisory firm in which someone other than the issuer is a proponent2 7,f7 issuing recommendations where proxy advisory firms provide advisory services to a company2 and 7,g7 any other potential conflict of interest1 as the ,commission deems necessary or appropriate in the public interest or for the protection of investors4 7g7 ,reliability of proxy advisory firm services 7#a7 ,in general ,each registered proxy advisory firm shall have staff sufficient to produce proxy voting recommendations that are based on accurate and current information4 ,each registered proxy advisory firm shall detail procedures sufficient to permit companies receiving proxy advisory firm recommendations access in a reasonable time to the draft recommendations1 with an opportunity to provide meaningful comment thereon1 including the opportunity to present details to the person responsible for developing the recommendation in person or telephonically4 ,each registered proxy advisory firm shall employ an ombudsman to receive complaints about the accuracy of voting information used in making recommendations from the subjects of the proxy advisory firm's voting recommendations1 and shall seek to resolve those complaints in a timely fashion and in any event prior to voting on the matter to which the recommendation relates4 ,if the ombudsman is unable to resolve such complaints prior to voting on the matter1 the proxy advisory firm shall include in its final report to its clients a statement from the company detailing its complaints1 if requested in writing by the company4 7#b7 ,reasonable time defined ,for purposes of this subsection1 the term reasonable time-- 7,a7 means not less than #c business days unless otherwise defined through a final rule issued by the ,commission2 and 7,b7 shall not otherwise interfere with a proxy advisory firm's ability to provide its clients with timely access to accurate proxy voting research1 analysis1 or recommendations4 7#c7 ,draft recommendations defined ,for purposes of this subsection1 the term draft recommendations-- 7,a7 means the overall conclusions of proxy voting recommendations prepared for the clients of a proxy advisory firm1 including any public data cited therein1 any company information or substantive analysis impacting the recommendation1 and the specific voting recommendations on individual proxy ballot issues2 and 7,b7 does not include the entirety of the proxy advisory firm's final report to its clients4 7h7 ,designation of compliance officer ,each registered proxy advisory firm shall designate an individual responsible for administering the policies and procedures that are required to be established pursuant to subsections 7f7 and 7g71 and for ensuring compliance with the securities laws and the rules and regulations thereunder1 including those promulgated by the ,commission pursuant to this section4 7i7 ,prohibited conduct 7#a7 ,prohibited acts and practices ,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 unfair1 coercive1 or abusive1 including any act or practice relating to-- 7,a7 conditioning a voting recommendation or other proxy advisory firm recommendation on the purchase by an issuer or an affiliate thereof of other services or products1 of the registered proxy advisory firm or any person associated with such registered proxy advisory firm2 and 7,b7 modifying a voting recommendation or otherwise departing from its adopted systematic procedures and methodologies in the provision of proxy advisory services1 based on whether an issuer1 or affiliate thereof1 subscribes or will subscribe to other services or product of the registered proxy advisory firm or any person associated with such organization4 7#b7 ,rule of construction ,nothing in paragraph 7#a71 or in any rules or regulations adopted thereunder1 may be construed to modify1 impair1 or supersede the operation of any of the antitrust laws 7as defined in the first section of the ,clayton ,act1 except that such term includes section #e of the ,federal ,trade ,commission ,act1 to the extent that such section #e applies to unfair methods of competition74 7j7 ,statements of financial condition ,each registered proxy advisory firm shall1 on a confidential basis1 file with the ,commission1 at intervals determined by the ,commission1 such financial statements1 certified 7if required by the rules or regulations of the ,commission7 by an independent public auditor1 and information concerning its financial condition1 as the ,commission1 by rule1 may prescribe as necessary or appropriate in the public interest or for the protection of investors4 7k7 ,annual report ,each registered proxy advisory firm shall1 at the beginning of each fiscal year of such firm1 report to the ,commission on the number of shareholder proposals its staff reviewed in the prior fiscal year1 the number of recommendations made in the prior fiscal year1 the number of staff who reviewed and made recommendations on such proposals in the prior fiscal year1 and the number of recommendations made in the prior fiscal year where the proponent of such recommendation was a client of or received services from the proxy advisory firm4 7l7 ,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 recommendations4 7m7 ,rules of construction 7#a7 ,no waiver of rights1 privileges1 or defenses ,registration under and compliance with this section does not constitute a waiver of1 or otherwise diminish1 any right1 privilege1 or defense that a registered proxy advisory firm may otherwise have under any provision of ,state or ,federal law1 including any rule1 regulation1 or order thereunder4 7#b7 ,no private right of action ,nothing in this section may be construed as creating any private right of action1 and no report filed by a registered proxy advisory firm in accordance with this section or section #ag shall create a private right of action under section #ah or any other provision of law4 7n7 ,regulations 7#a7 ,new provisions ,such rules and regulations as are required by this section or are otherwise necessary to carry out this section1 including the application form required under subsection 7a7-- 7,a7 shall be issued by the ,commission1 not later than #ahj days after the date of enactment of this section2 and 7,b7 shall become effective not later than #a year after the date of enactment of this section4 7#b7 ,review of existing regulations ,not later than #bgj days after the date of enactment of this section1 the ,commission shall-- 7,a7 review its existing rules and regulations which affect the operations of proxy advisory firms2 and 7,b7 amend or revise such rules and regulations in accordance with the purposes of this section1 and issue such guidance1 as the ,commission may prescribe as necessary or appropriate in the public interest or for the protection of investors4 7o7 ,applicability ,this section1 other than subsection 7n71 which shall apply on the date of enactment of this section1 shall apply on the earlier of-- 7#a7 the date on which regulations are issued in final form under subsection 7n77#a72 or 7#b7 #bgj days after the date of enactment of this section4 4 7b7 ,conforming amendment ,section #ag7;a77#a7 of the ,securities ,exchange ,act of #aicd 7#ae ,u4,s4,c4 #ghq7a77#a77 is amended by inserting proxy advisory firm1 after nationally recognized statistical rating organization14 #d4 ,commission annual report ,the ,commission shall make an annual report publicly available on the ,commission's internet website4 ,such report shall1 with respect to the year to which the report relates-- 7#a7 identify applicants for registration under section #ae;,h of the ,securities ,exchange ,act of #aicd1 as added by this ,act2 7#b7 specify the number of and actions taken on such applications2 7#c7 specify the views of the ,commission on the state of competition1 transparency1 policies and methodologies1 and conflicts of interest among proxy advisory firms2 7#d7 include the determination of the ,commission with regards to-- 7,a7 the quality of proxy advisory services issued by proxy advisory firms2 7,b7 the financial markets2 7,c7 competition among proxy advisory firms2 7,d7 the incidence of undisclosed conflicts of interest by proxy advisory firms2 7,e7 the process for registering as a proxy advisory firm2 and 7,f7 such other matters relevant to the implementation of this ,act and the amendments made by this ,act1 as the ,commission determines necessary to bring to the attention of the ,congress2 7#e7 identify problems1 if any1 that have resulted from the implementation of this ,act and the amendments made by this ,act2 and 7#f7 recommend solutions1 including any legislative or regulatory solutions1 to any problems identified under paragraphs 7#d7 and 7#e74