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Sen. Matt Nunn introduces bill to limit proxy-adviser influence on pension voting, requires economic analysis
Summary
Senator Matt Nunn and witnesses described Senate Bill 183, which would amend KRS to define proxy advisers and require economic analysis when proxy advisers recommend votes contrary to a company’s board; sponsors cited market concentration among ISS and Glass Lewis and referenced a 2023 House memorandum on ESG proposals.
Senator Matt Nunn introduced Senate Bill 183 to the Pension Oversight Board, saying the measure would amend several sections of Kentucky Revised Statutes to define "shareholder‑sponsored proposal" and "economic analysis," and to require proxy advisers voting on behalf of a retirement system to act solely in the interest of the system's members and beneficiaries.
"It defines a shareholder sponsored proposal and an economic analysis, and it establishes that when a shareholder sponsor proposal is presented for a vote by a company shareholders, a proxy adviser voting on behalf of the retirement system must act solely in the interest of retirement system's members and beneficiaries," Nunn told the committee.
Nunn and witness Chris Nolan of the American Property Casualty Insurance Association argued the bill targets proxy‑adviser firms — not investment managers — and would tighten oversight of recommendations by firms such as Institutional Shareholder Services (ISS) and Glass Lewis. Nunn told the committee the two largest proxy‑adviser firms "command 97% of the market," language he used to explain the concentration of influence over shareholder votes.
Committee members asked for clarifications about how a proxy adviser differs from other financial advisers; Chris Nolan said the intent of the draft amendment was to "differentiate between proxy advisor firms... and investment managers or investment advisors that are under higher standards in scrutiny under SEC and their laws." Nolan and Nunn said the bill would add a committee amendment to narrowly define proxy advisers and avoid capturing investment managers who already face fiduciary standards.
Nunn cited a June 23, 2023 memorandum from the U.S. House Committee on Financial Services that, he said, found ESG shareholder proposals accounted for 61% of all proposals in 2022 and that some research shows a correlation between increased activism and lower stock returns. He characterized the bill as a refinement of a 2023 Kentucky law that already addressed fiduciary voting obligations; SB 183 would add a requirement that when a proxy adviser recommends voting against a publicly traded company’s board, the adviser produce the economic analysis supporting that recommendation.
Representative Tipton and other members framed the issue using fiduciary language: they said public pension funds must prioritize returns for beneficiaries. Committee members asked whether the bill would prohibit pension systems from investing in companies for which ESG factors predict higher returns; Nunn and Nolan said the bill would not prevent such investments so long as they meet fiduciary standards.
No committee vote on SB 183 was recorded at the meeting. Sponsors said they are working on a committee substitute to narrow the definition of proxy adviser and said they would provide additional material to the committee, including the Q&A material already in meeting packets.
The discussion did not produce a formal vote or an immediate amendment on the floor; committee members indicated they may follow up with written questions and additional staff briefings.
