SB 879

This bill imposes certain requirements on proxy advisors with respect to the advisory services they provide to shareholders of publicly traded companies.

Federal law generally requires companies whose stock is publicly traded to provide to shareholders and file with the U.S. Securities and Exchange Commission, prior to a shareholder meeting, a “proxy statement” summarizing proposals to be voted on by shareholders at the meeting, such as proposals relating to the election of directors, executive compensation, or approval of certain corporate transactions. A shareholder vote “by proxy” means either that the shareholder’s vote is made by mail or electronically or by means other than the shareholder’s presence at the shareholder meeting or that the shareholder delegated authorization to another to vote on the shareholder’s behalf.

The bill defines a “proxy advisor” as a person who, for compensation, provides shareholders and others with certain advisory services, such as advice or a recommendation on how to vote on a proposal included in a company’s proxy statement, research and analysis regarding such a proposal, or the development of proxy voting recommendations or policies (together, “proxy advisory services”). The provisions of the bill depend on whether a proxy advisor, in making a recommendation against, or in providing a system, rules, principles, or guidelines to assist with voting decisions involving votes against, company management on a proposal included in a company’s proxy statement acted based on a written financial analysis that 1) analyzes the expected short-term and long-term financial benefits and costs to a company of implementing the proposal; 2) concludes what vote or course of action is most likely to positively affect shareholder value; and 3) explains the methods and processes used to prepare the analysis, including the experience and geographic location of the personnel who formed the recommendation.

Under the bill, if the proxy advisor did not act based on such a written financial analysis, the proxy advisor must do all of the following:

1. Include along with its proxy advisory services a disclosure to each shareholder or shareholder’s representative receiving the proxy advisory services that identifies the proxy advisory service being provided and the recommendation or policy at issue and that states that the proxy advisor has made the recommendation or policy without doing so based on a written financial analysis regarding the effect on company investors.

2. Provide the disclosure under item 1 to the board of directors of the company that is the subject of proxy advisory services involving advice or a recommendation on how to vote on a company’s proxy statement proposal or research and analysis regarding such a proposal.

3. Disclose on the home page of its website that its proxy advisory services include recommendations or policies against company management that are not based on a written financial analysis regarding the effect on company investors.

Under the bill, if the proxy advisor acts based on a written financial analysis, the proxy advisor must do all of the following:

1. Include along with its proxy advisory services a disclosure to each shareholder or shareholder’s representative receiving the proxy advisory services that identifies the proxy advisory service being provided and the recommendation or policy at issue and that states that the proxy advisor has made the recommendation or policy based on a written financial analysis that is available upon request.

2. Make the written financial analysis available, upon request, within a reasonable time to any client of the proxy advisor.

3. Provide a copy of the written financial analysis to the board of directors of the company that is the subject of proxy advisory services involving advice or a recommendation on how to vote on a company’s proxy statement proposal or research and analysis regarding such a proposal.

A proxy advisor’s violation of the bill’s provisions is a violation of the state’s unfair and deceptive practices laws. The bill provides investigative and enforcement authority to the Department of Justice and district attorneys. The bill also allows a person aggrieved by a proxy advisor’s violation to bring an action for a declaratory judgment or injunctive relief, but the plaintiff must give notice of the action to the attorney general.