,i #aaf? ,,congress #a/ ,session ,h4 ,r4 #eaaf ,,9 ,,! ,,h\se ,,( ,,repres5tatives ,novemb] #ae1 #bjai,mr4 ,/eil 7= himself1 ,mrs4 ,wagn]1 ,mr4 ,riggleman1 & ,mr4 ,b>r7 introduc$ ! foll[+ bill2 :i* 0 ref]r$ to ! ,committee on ,f9ancial ,s]vices ,a ,,bill ,to improve ! quality ( proxy advisory firms = ! protection ( inve/ors & ! ,u4,s4 economy1 & 9 ! public int]e/1 by fo/]+ acc\ntability1 transp>5cy1 responsiv5ess1 & competition 9 ! proxy advisory firm indu/ry4 #a4 ,%ort title ,?is ,act may be cit$ z ! ,corporate ,gov]nance ,re=m & ,transp>5cy ,act ( #bjai4 #b4 ,def9itions 7a7 ,securities ,ex*ange ,act ( #aicd ,section #c7;a7 ( ! ,securities ,ex*ange ,act ( #aicd 7#ae ,u4,s4,c4 #gh;c7a77 is am5d$ by add+ at ! end ! foll[+ new p>agraphs3 7#ha7 ,proxy advisory firm ,! t]m proxy advisory firm means any p]son :o is prim>ily engag$ 9 ! bus9ess ( provid+ proxy vot+ rese>*1 analysis1 rat+s1 or recomm5dations to cli5ts1 :i* conduct con/itutes a solicitation )9 ! mean+ ( section #ad & ! ,commission's rules & regulations !reund]1 except to ! ext5t t ! p]son is exempt$ by su* rules & regulations f requirem5ts o!rwise applicable to p]sons engag$ 9 a solicitation4 7#hb7 ,p]son associat$ ) a proxy advisory firm ,! t]m p]son associat$ ) a proxy advisory firm means any p>tn]1 (fic]1 or director ( a proxy advisory firm 7or any p]son occupy+ a simil> /atus or p]=m+ simil> functions71 any p]son directly or indirectly controll+1 controll$ by1 or "u common control ) a proxy advisory firm1 or any employee ( a proxy advisory firm1 except t p]sons associat$ ) a proxy advisory firm ^: functions are cl]ical or m9i/]ial %all n be includ$ 9 ! mean+ ( su* t]m4 ,! ,commission may by rules & regulations classify1 = purposes or any portion or portions ( ?is ,act1 p]sons1 includ+ employees controll$ by a proxy advisory firm4 4 7b7 ,applicable def9itions ,z us$ 9 ?is ,act-- 7#a7 ! t]m ,commission means ! ,securities & ,ex*ange ,commission2 & 7#b7 ! t]m proxy advisory firm has ! same mean+ z 9 section #c7;a77#ha7 ( ! ,securities ,ex*ange ,act ( #aicd1 z add$ by ?is ,act4 #c4 ,regi/ration ( proxy advisory firms 7a7 ,am5dm5t ,! ,securities ,ex*ange ,act ( #aicd is am5d$ by ins]t+ aft] section #ae;,g ! foll[+ new section3 #ae;,h4 ,regi/ration ( proxy advisory firms 7a7 ,conduct prohibit$ ,x %all be unlawful = a proxy advisory firm to make use ( ! mails or any means or in/rum5tality ( int]/ate comm]ce to provide proxy vot+ rese>*1 analysis1 or recomm5dations to any cli5t1 unless su* proxy advisory firm is regi/]$ "u ?is section4 7b7 ,regi/ration proc$ures 7#a7 ,application = regi/ration 7,a7 ,9 g5]al ,a proxy advisory firm mu/ file ) ! ,commission an application = regi/ration1 9 su* =m z ! ,commission %all require1 by rule or regulation1 & conta9+ ! in=mation describ$ 9 subp>agraph 7,b74 7,b7 ,requir$ in=mation ,an application = regi/ration "u ?is section %all conta9 in=mation reg>d+-- 7i7 a c]tification t ! applicant is able to consi/5tly provide proxy advice bas$ on accurate in=mation2 7ii7 ! proc$ures & me?odologies t ! applicant uses 9 develop+ proxy vot+ recomm5dations1 includ+ :e!r & h[ ! applicant consid]s ! size ( a company :5 mak+ proxy vot+ recomm5dations2 7iii7 ! organizational /ructure ( ! applicant2 7iv7 :e!r or n ! applicant has 9 effect a code ( e?ics1 & if n1 ! reasons !re=2 7v7 any pot5tial or actual conflict ( int]e/ relat+ to ! own]%ip /ructure ( ! applicant or ! provision ( proxy advisory s]vices by ! applicant1 includ+ :e!r ! proxy advisory firm engages 9 s]vices ancill>y to ! provision ( proxy advisory s]vices su* z consult+ s]vices = corporate issu]s1 & if s ! rev5ues d]iv$ !refrom2 7vi7 ! policies & proc$ures 9 place to manage conflicts ( int]e/ "u subsection 7f72 & 7vii7 any o!r in=mation & docum5ts conc]n+ ! applicant & any p]son associat$ ) su* applicant z ! ,commission1 by rule1 may prescribe z necess>y or appropriate 9 ! public int]e/ or = ! protection ( inve/ors4 7#b7 ,review ( application 7,a7 ,initial det]m9ation ,n lat] ?an #ij days aft] ! date on :i* ! application = regi/ration is fil$ ) ! ,commission "u p>agraph 7#a7 7or )9 su* long] p]iod z to :i* ! applicant cons5ts7 ! ,commission %all-- 7i7 by ord]1 grant regi/ration2 or 7ii7 in/itute proce$+s to det]m9e :e!r regi/ration %\ld be d5i$4 7,b7 ,conduct ( proce$+s 7i7 ,cont5t ,proce$+s ref]r$ to 9 subp>agraph 7,a77ii7 %all-- 7,i7 include notice ( ! gr\nds = d5ial "u consid]ation & an opportunity = he>+2 & 7,,ii7 be conclud$ n lat] ?an #abj days aft] ! date on :i* ! application = regi/ration is fil$ ) ! ,commission "u p>agraph 7#a74 7ii7 ,det]m9ation ,at ! conclusion ( su* proce$+s1 ! ,commission1 by ord]1 %all grant or d5y su* application = regi/ration4 7iii7 ,ext5sion au?oriz$ ,! ,commission may ext5d ! "t = conclusion ( su* proce$+s = n long] ?an #ij days1 if x f9ds good cause = su* ext5sion & publi%es its reasons = s f9d+1 or = su* long] p]iod z to :i* ! applicant cons5ts4 7,c7 ,gr\nds = decision ,! ,commission %all grant regi/ration "u ?is subsection-- 7i7 if ! ,commission f9ds t ! requirem5ts ( ?is section are satisfi$2 & 7ii7 unless ! ,commission f9ds 79 :i* case ! ,commission %all d5y su* regi/ration7 t-- 7,i7 ! applicant has fail$ to c]tify to ! ,commission's satisfaction t x is able to consi/5tly provide proxy advice bas$ on accurate in=mation & to mat]ially comply ) ! proc$ures & me?odologies disclos$ "u p>agraph 7#a77;,b7 & ) subsections 7f7 & 7g72 or 7,,ii7 if ! applicant 7 s regi/]$1 its regi/ration w\ld be subject to susp5sion or revocation "u subsection 7e74 7#c7 ,public availability ( in=mation ,subject to section #bd1 ! ,commission %all make ! in=mation & docum5ts submitt$ to ! ,commission by a proxy advisory firm 9 its complet$ application = regi/ration1 or 9 any am5dm5t submitt$ "u p>agraph 7#a7 or 7#b7 ( subsection 7c71 publicly available on ! ,commission's website1 or ?r\gh ano!r comp>able1 readily accessible means4 7c7 ,update ( regi/ration 7#a7 ,update ,ea* regi/]$ proxy advisory firm %all promptly am5d & update its application = regi/ration "u ?is section if any in=mation or docum5t provid$ !re9 becomes mat]ially inaccurate1 except t a regi/]$ proxy advisory firm is n requir$ to am5d ! in=mation requir$ to be fil$ "u subsection 7b77#a77;,b77i7 by fil+ in=mation "u ?is p>agraph1 b %all am5d su* in=mation 9 ! annual submission ( ! organization "u p>agraph 7#b7 ( ?is subsection4 7#b7 ,c]tification ,n lat] ?an #ij cal5d> days aft] ! end ( ea* cal5d> ye>1 ea* regi/]$ proxy advisory firm %all file ) ! ,commission an am5dm5t to its regi/ration1 9 su* =m z ! ,commission1 by rule1 may prescribe z necess>y or appropriate 9 ! public int]e/ or = ! protection ( inve/ors-- 7,a7 c]tify+ t ! in=mation & docum5ts 9 ! application = regi/ration ( su* regi/]$ proxy advisory firm cont9ue to be accurate 9 all mat]ial respects2 & 7,b7 li/+ any mat]ial *ange t occurr$ to su* in=mation or docum5ts dur+ ! previ\s cal5d> ye>4 7d7 ,c5sure1 d5ial1 or susp5sion ( regi/ration2 notice & he>+ ,! ,commission1 by ord]1 %all c5sure1 place limitations on ! activities1 functions1 or op]ations (1 susp5d = a p]iod n exce$+ #ab mon?s1 or revoke ! regi/ration ( any regi/]$ proxy advisory firm if ! ,commission f9ds1 on ! record aft] notice & opportunity = he>+1 t su* c5sure1 plac+ ( limitations1 susp5sion1 or revocation is necess>y = ! protection ( inve/ors & 9 ! public int]e/ & t su* regi/]$ proxy advisory firm1 or any p]son associat$ ) su* an organization1 :e!r prior to or subsequ5t to becom+ s associat$-- 7#a7 has committ$ or omitt$ any act1 or is subject to an ord] or f9d+1 enum]at$ 9 subp>agraph 7,a71 7,d71 7,e71 7,h71 or 7,g7 ( section #ae7;b77#d71 has be5 convict$ ( any (f5se specifi$ 9 section #ae7;b77#d77;,b71 or is enjo9$ f any action1 conduct1 or practice specifi$ 9 subp>agraph 7,c7 ( section #ae7;b77#d71 dur+ ! #aj-ye> p]iod prec$+ ! date ( comm5cem5t ( ! proce$+s "u ?is subsection1 or at any "t !reaft]2 7#b7 has be5 convict$ dur+ ! #aj-ye> p]iod prec$+ ! date on :i* an application = regi/ration is fil$ ) ! ,commission "u ?is section1 or at any "t !reaft]1 (-- 7,a7 any crime t is puni%able by imprisonm5t = #a or m ye>s1 & t is n describ$ 9 section #ae7;b77#d77;,b72 or 7,b7 a sub/antially equival5t crime by a =eign c\rt ( compet5t jurisdiction2 7#c7 is subject to any ord] ( ! ,commission b>r+ or susp5d+ ! "r ( ! p]son to be associat$ ) a regi/]$ proxy advisory firm2 7#d7 fails to furni% ! c]tifications requir$ "u subsections 7b77#b77;,c77ii77,i7 & 7c77#b72 7#e7 has engag$ 9 "o or m prohibit$ acts enum]at$ 9 p>agraph 7#a72 or 7#f7 fails to ma9ta9 adequate f9ancial & manag]ial res\rces to consi/5tly (f] advisory s]vices ) integrity1 includ+ by fail+ to comply ) subsection 7f7 or 7g74 7e7 ,t]m9ation ( regi/ration 7#a7 ,volunt>y )drawal ,a regi/]$ proxy advisory firm may1 ^u su* t]ms & conditions z ! ,commission may e/abli% z necess>y 9 ! public int]e/ or = ! protection ( inve/ors1 :i* t]ms & conditions %all include at a m9imum t ! regi/]$ proxy advisory firm w no long] conduct su* activities z to br+ x )9 ! def9ition ( proxy advisory firm 9 section #c7;a77#ha7 ( ! ,securities ,ex*ange ,act ( #aicd1 )draw f regi/ration by fil+ a writt5 notice ( )drawal to ! ,commission4 7#b7 ,commission au?ority ,9 addition to any o!r au?ority ( ! ,commission "u ?is title1 if ! ,commission f9ds t a regi/]$ proxy advisory firm is no long] 9 exi/5ce or has ceas$ to d bus9ess z a proxy advisory firm1 ! ,commission1 by ord]1 %all cancel ! regi/ration "u ?is section ( su* regi/]$ proxy advisory firm4 7f7 ,managem5t ( conflicts ( int]e/ 7#a7 ,organization policies & proc$ures ,ea* regi/]$ proxy advisory firm %all e/abli%1 ma9ta91 & en=ce writt5 policies & proc$ures reasonably design$1 tak+ into consid]ation ! nature ( ! bus9ess ( su* regi/]$ proxy advisory firm & associat$ p]sons1 to address & manage any conflicts ( int]e/ t c arise f su* bus9ess4 7#b7 ,commission au?ority ,! ,commission %all issue f9al rules to prohibit1 or require ! managem5t & disclosure (1 any conflicts ( int]e/ relat+ to ! (f]+ ( proxy advisory s]vices by a regi/]$ proxy advisory firm1 includ+1 )\t limitation1 conflicts ( int]e/ relat+ to-- 7,a7 ! mann] 9 :i* a regi/]$ proxy advisory firm is comp5sat$ by ! cli5t1 or any affiliate ( ! cli5t1 = provid+ proxy advisory s]vices2 7,b7 ! provision ( consult+1 advisory1 or o!r s]vices by a regi/]$ proxy advisory firm1 or any p]son associat$ ) su* regi/]$ proxy advisory firm1 to ! cli5t2 7,c7 bus9ess relation%ips1 own]%ip int]e/s1 or any o!r f9ancial or p]sonal int]e/s betwe5 a regi/]$ proxy advisory firm1 or any p]son associat$ ) su* regi/]$ proxy advisory firm1 & any cli5t1 or any affiliate ( su* cli5t2 7,d7 transp>5cy ar\nd ! =mulation ( proxy vot+ policies2 7,e7 ! execution ( proxy votes if su* votes are bas$ ^u recomm5dations made by ! proxy advisory firm 9 :i* someone o!r ?an ! issu] is a propon5t2 7,f7 issu+ recomm5dations :]e proxy advisory firms provide advisory s]vices to a company2 & 7,g7 any o!r pot5tial conflict ( int]e/1 z ! ,commission deems necess>y or appropriate 9 ! public int]e/ or = ! protection ( inve/ors4 7g7 ,reliability ( proxy advisory firm s]vices 7#a7 ,9 g5]al ,ea* regi/]$ proxy advisory firm %all h /aff suffici5t to produce proxy vot+ recomm5dations t are bas$ on accurate & curr5t in=mation4 ,ea* regi/]$ proxy advisory firm %all detail proc$ures suffici5t to p]mit companies receiv+ proxy advisory firm recomm5dations access 9 a reasonable "t to ! draft recomm5dations1 ) an opportunity to provide mean+ful comm5t !reon1 includ+ ! opportunity to pres5t details to ! p]son responsible = develop+ ! recomm5dation 9 p]son or telephonically4 ,ea* regi/]$ proxy advisory firm %all employ an ombudsman to receive compla9ts ab\t ! accuracy ( vot+ in=mation us$ 9 mak+ recomm5dations f ! subjects ( ! proxy advisory firm's vot+ recomm5dations1 & %all seek to resolve ^? compla9ts 9 a timely fa%ion & 9 any ev5t prior to vot+ on ! matt] to :i* ! recomm5dation relates4 ,if ! ombudsman is unable to resolve su* compla9ts prior to vot+ on ! matt]1 ! proxy advisory firm %all include 9 its f9al report to its cli5ts a /atem5t f ! company detail+ its compla9ts1 if reque/$ 9 writ+ by ! company4 7#b7 ,reasonable "t def9$ ,= purposes ( ?is subsection1 ! t]m reasonable "t-- 7,a7 means n less ?an #c bus9ess days unless o!rwise def9$ ?r\gh a f9al rule issu$ by ! ,commission2 & 7,b7 %all n o!rwise int]f]e ) a proxy advisory firm's ability to provide its cli5ts ) timely access to accurate proxy vot+ rese>*1 analysis1 or recomm5dations4 7#c7 ,draft recomm5dations def9$ ,= purposes ( ?is subsection1 ! t]m draft recomm5dations-- 7,a7 means ! ov]all conclusions ( proxy vot+ recomm5dations prep>$ = ! cli5ts ( a proxy advisory firm1 includ+ any public data cit$ !re91 any company in=mation or sub/antive analysis impact+ ! recomm5dation1 & ! specific vot+ recomm5dations on individual proxy ballot issues2 & 7,b7 does n include ! entirety ( ! proxy advisory firm's f9al report to its cli5ts4 7h7 ,designation ( compliance (fic] ,ea* regi/]$ proxy advisory firm %all designate an individual responsible = adm9i/]+ ! policies & proc$ures t are requir$ to be e/abli%$ pursuant to subsections 7f7 & 7g71 & = ensur+ compliance ) ! securities laws & ! rules & regulations !reund]1 includ+ ^? promulgat$ by ! ,commission pursuant to ?is section4 7i7 ,prohibit$ conduct 7#a7 ,prohibit$ acts & practices ,! ,commission %all issue f9al rules to prohibit any act or practice relat+ to ! (f]+ ( proxy advisory s]vices by a regi/]$ proxy advisory firm t ! ,commission det]m9es to be unfair1 co]cive1 or abusive1 includ+ any act or practice relat+ to-- 7,a7 condition+ a vot+ recomm5dation or o!r proxy advisory firm recomm5dation on ! pur*ase by an issu] or an affiliate !re( ( o!r s]vices or products1 ( ! regi/]$ proxy advisory firm or any p]son associat$ ) su* regi/]$ proxy advisory firm2 & 7,b7 modify+ a vot+ recomm5dation or o!rwise dep>t+ f its adopt$ sy/ematic proc$ures & me?odologies 9 ! provision ( proxy advisory s]vices1 bas$ on :e!r an issu]1 or affiliate !re(1 subscribes or w subscribe to o!r s]vices or product ( ! regi/]$ proxy advisory firm or any p]son associat$ ) su* organization4 7#b7 ,rule ( con/ruction ,no?+ 9 p>agraph 7#a71 or 9 any rules or regulations adopt$ !reund]1 may be con/ru$ to modify1 impair1 or sup]s$e ! op]ation ( any ( ! antitru/ laws 7z def9$ 9 ! fir/ section ( ! ,clayton ,act1 except t su* t]m includes section #e ( ! ,f$]al ,trade ,commission ,act1 to ! ext5t t su* section #e applies to unfair me?ods ( competition74 7j7 ,/atem5ts ( f9ancial condition ,ea* regi/]$ proxy advisory firm %all1 on a confid5tial basis1 file ) ! ,commission1 at int]vals det]m9$ by ! ,commission1 su* f9ancial /atem5ts1 c]tifi$ 7if requir$ by ! rules or regulations ( ! ,commission7 by an indep5d5t public auditor1 & in=mation conc]n+ its f9ancial condition1 z ! ,commission1 by rule1 may prescribe z necess>y or appropriate 9 ! public int]e/ or = ! protection ( inve/ors4 7k7 ,annual report ,ea* regi/]$ proxy advisory firm %all1 at ! beg9n+ ( ea* fiscal ye> ( su* firm1 report to ! ,commission on ! numb] ( %>ehold] proposals its /aff review$ 9 ! prior fiscal ye>1 ! numb] ( recomm5dations made 9 ! prior fiscal ye>1 ! numb] ( /aff :o review$ & made recomm5dations on su* proposals 9 ! prior fiscal ye>1 & ! numb] ( recomm5dations made 9 ! prior fiscal ye> :]e ! propon5t ( su* recomm5dation 0 a cli5t ( or receiv$ s]vices f ! proxy advisory firm4 7l7 ,transp>5t policies ,ea* regi/]$ proxy advisory firm %all file ) ! ,commission & make publicly available its me?odology = ! =mulation ( proxy vot+ policies & vot+ recomm5dations4 7m7 ,rules ( con/ruction 7#a7 ,no waiv] ( rights1 privileges1 or def5ses ,regi/ration "u & compliance ) ?is section does n con/itute a waiv] (1 or o!rwise dim9i%1 any "r1 privilege1 or def5se t a regi/]$ proxy advisory firm may o!rwise h "u any provision ( ,/ate or ,f$]al law1 includ+ any rule1 regulation1 or ord] !reund]4 7#b7 ,no private "r ( action ,no?+ 9 ?is section may be con/ru$ z creat+ any private "r ( action1 & no report fil$ by a regi/]$ proxy advisory firm 9 accordance ) ?is section or section #ag %all create a private "r ( action "u section #ah or any o!r provision ( law4 7n7 ,regulations 7#a7 ,new provisions ,su* rules & regulations z are requir$ by ?is section or are o!rwise necess>y to c>ry out ?is section1 includ+ ! application =m requir$ "u subsection 7a7-- 7,a7 %all be issu$ by ! ,commission1 n lat] ?an #ahj days aft] ! date ( enactm5t ( ?is section2 & 7,b7 %all become effective n lat] ?an #a ye> aft] ! date ( enactm5t ( ?is section4 7#b7 ,review ( exi/+ regulations ,n lat] ?an #bgj days aft] ! date ( enactm5t ( ?is section1 ! ,commission %all-- 7,a7 review its exi/+ rules & regulations :i* affect ! op]ations ( proxy advisory firms2 & 7,b7 am5d or revise su* rules & regulations 9 accordance ) ! purposes ( ?is section1 & issue su* guidance1 z ! ,commission may prescribe z necess>y or appropriate 9 ! public int]e/ or = ! protection ( inve/ors4 7o7 ,applicability ,?is section1 o!r ?an subsection 7n71 :i* %all apply on ! date ( enactm5t ( ?is section1 %all apply on ! e>li] (-- 7#a7 ! date on :i* regulations are issu$ 9 f9al =m "u subsection 7n77#a72 or 7#b7 #bgj days aft] ! date ( enactm5t ( ?is section4 4 7b7 ,con=m+ am5dm5t ,section #ag7;a77#a7 ( ! ,securities ,ex*ange ,act ( #aicd 7#ae ,u4,s4,c4 #ghq7a77#a77 is am5d$ by ins]t+ proxy advisory firm1 aft] nationally recogniz$ /ati/ical rat+ organization14 #d4 ,commission annual report ,! ,commission %all make an annual report publicly available on ! ,commission's int]net website4 ,su* report %all1 ) respect to ! ye> to :i* ! report relates-- 7#a7 id5tify applicants = regi/ration "u section #ae;,h ( ! ,securities ,ex*ange ,act ( #aicd1 z add$ by ?is ,act2 7#b7 specify ! numb] ( & actions tak5 on su* applications2 7#c7 specify ! views ( ! ,commission on ! /ate ( competition1 transp>5cy1 policies & me?odologies1 & conflicts ( int]e/ among proxy advisory firms2 7#d7 include ! det]m9ation ( ! ,commission ) reg>ds to-- 7,a7 ! quality ( proxy advisory s]vices issu$ by proxy advisory firms2 7,b7 ! f9ancial m>kets2 7,c7 competition among proxy advisory firms2 7,d7 ! incid5ce ( undisclos$ conflicts ( int]e/ by proxy advisory firms2 7,e7 ! process = regi/]+ z a proxy advisory firm2 & 7,f7 su* o!r matt]s relevant to ! implem5tation ( ?is ,act & ! am5dm5ts made by ?is ,act1 z ! ,commission det]m9es necess>y to br+ to ! att5tion ( ! ,congress2 7#e7 id5tify problems1 if any1 t h result$ f ! implem5tation ( ?is ,act & ! am5dm5ts made by ?is ,act2 & 7#f7 recomm5d solutions1 includ+ any legislative or regulatory solutions1 to any problems id5tifi$ "u p>agraphs 7#d7 & 7#e74