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Attorney urges disclosure by proxy advisers, citing lack of written financial analyses by major firms
Summary
A consumer-protection attorney told the subcommittee that two proxy advisers control over 90% of the market and may not perform written financial analyses before making recommendations; H4985 would require disclosure of whether recommendations rely on written financial analysis and make violations an Unfair Trade Practices Act offense.
Matthew DeMay, an attorney with Fusion Law representing Consumers Defense, urged the subcommittee to advance H4985, the Proxy Advisory Transparency Act, saying the bill would require proxy advisers to disclose whether their recommendations are supported by a written financial analysis and make certain nondisclosures violations of South Carolina's Unfair Trade Practices Act.
DeMay told the committee that the Department of Labor historically required fiduciaries to vote proxies based on financial value, which led fiduciaries to rely on proxy advisers for recommendations. He said that market concentration — two advisers (ISS and Glass Lewis) controlling well over 90% of the proxy advisory market — amplifies the importance of the advisers' methods. He also said that, under oath last year, one large adviser admitted it was not doing written financial analyses before issuing recommendations.
H4985 would require proxy advisers to disclose when recommendations against management are not supported by a written financial analysis. If a written financial analysis exists, the bill would require that analysis be made available to companies and clients. DeMay said the measure is a common-sense consumer-protection step to help fiduciaries evaluate whether following an adviser’s recommendation meets their fiduciary duty to maximize investor value.
Committee members asked about the advisers' ownership and whether AI is involved in recommendations. DeMay said both major advisers operate in the U.S. but are foreign-owned entities (examples cited: Canada, Germany) and that it is unclear how AI may be used in recommendation generation; he said greater disclosure would help fiduciaries assess the basis for recommendations.
The committee received testimony and did not take a vote during the testimony-only session.
