H.R.3402 - To amend the Securities Exchange Act of 1934 to require certain disclosures by institutional investment managers in connection with proxy advisory firms, and for other purposes. (119th Congress)
Summary
H.R.3402 aims to amend the Securities Exchange Act of 1934, mandating institutional investment managers to disclose information regarding their engagement with proxy advisory firms. This includes how they voted on shareholder proposals, the consistency of their votes with proxy advisory firm recommendations, and the extent to which they relied on these recommendations. The bill also requires larger institutional investment managers (with assets under management of at least $100 billion) to perform economic analyses before voting on certain shareholder proposals and to clarify to customers that they are not required to vote on every proposal.
Expected Effects
The bill seeks to increase transparency and accountability in the proxy voting process, particularly concerning the influence of proxy advisory firms. It could lead to more informed voting decisions by institutional investment managers and greater scrutiny of their reliance on proxy advisory firms. The required economic analyses for larger managers may also lead to more rigorous evaluation of shareholder proposals.
Potential Benefits
- Increased transparency in proxy voting by institutional investment managers.
- Greater accountability for investment managers' reliance on proxy advisory firms.
- Potentially more informed voting decisions based on economic analysis.
- Clarification for shareholders that they are not obligated to vote on every proposal.
- May lead to a more thorough evaluation of shareholder proposals.
Potential Disadvantages
- Increased compliance costs for institutional investment managers due to new disclosure requirements.
- Potential for reduced efficiency in the voting process due to required economic analyses.
- Possible overemphasis on short-term economic interests at the expense of other considerations.
- Risk of creating a chilling effect on the use of proxy advisory firms, even when beneficial.
- The definition of 'best economic interest' may be too narrow, neglecting long-term value creation.
Constitutional Alignment
The bill primarily concerns economic regulation under the Commerce Clause (Article I, Section 8, Clause 3) as it regulates activities that affect interstate commerce. The disclosure requirements do not appear to infringe upon any specific constitutional rights, such as freedom of speech or due process. The bill aims to ensure that investment managers act in the best economic interest of shareholders, which aligns with the general welfare objectives outlined in the Preamble of the Constitution.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).