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SENATE BILL No. 375
AN A CT concerning consumer protection; relating to investments; enacting the proxy
advisor transparency act; providing legislative findings and definitions; requiring
proxy advisors to make certain disclosures when recommending an action against
company management; authorizing the attorney general to investigate and take
enforcement actions against violators.
Be it enacted by the Legislature of the State of Kansas:
Section 1. The provisions of sections 1 through 6, and
amendments thereto, shall be known and may be cited as the proxy
advisor transparency act.
Sec. 2. The legislature of the state of Kansas finds the following:
(a) When shareholders hire professionals to manage investments,
such shareholders reasonably expect that the service provider will
perform those services in the financial interest of the shareholders, and
that the service provider will make recommendations based on financial
analysis of what actions would enhance investment value;
(b) there is a particular need for disclosures for proxy voting
advice, because such advice is often provided for hundreds or
thousands of shareholder votes each year and, with few investors
having the resources to research every shareholder vote, investors often
use proxy advisors for guidance on how to exercise fiduciary duties;
(c) many companies hire proxy advisors pursuant to the United
States department of labor's long-standing conclusion that, under the
employee retirement income security act, the "fiduciary obligations of
prudence and loyalty to plan participants and beneficiaries require the
responsible fiduciary to vote proxies on issues that may affect the value
of the plan's investment";
(d) directors of publicly held companies owe fiduciary duties to
shareholders and make recommendations in line with such fiduciary
duties;
(e) nevertheless, proxy advisors have recommended votes against
company management, including votes for shareholder proposals
related to environmental, social or governance (ESG) issues, diversity,
equity or inclusion (DEI) issues and social credit and sustainability
scores, but have not disclosed to clients that the recommendations were
made without conducting a financial analysis to determine how these
votes would affect shareholder value;
(f) the chief operating officer of Glass Lewis, a major proxy
advisor, stated under penalty of perjury that Glass Lewis does not
conduct a written financial analysis before recommending votes on
shareholder proposals and that other proxy advisors also do not do so.
Proxy advisors, however, have advertised that the purpose of their
recommendations is maximizing, increasing or protecting shareholder
value;
(g) these facts raise concern that proxy advisors are engaged in
fraudulent or deceptive practices and are not disclosing material
information to their clients, who otherwise would reasonably believe
that they are choosing between recommendations of management and a
proxy advisor that are based on dueling financial analyses;
(h) investors purchasing proxy voting services should be informed
when recommendations against management are or are not being based
on financial analyses that consider the effect on the value of the plan's
investment. Investors also should be able to access such analyses upon
request in order to assess whether the analyses were sufficient to
uphold fiduciary standards;
(i) requiring proxy advisors to provide clear and factual
disclosures under these circumstances helps investors evaluate whether
the proxy advisor's recommendations uphold investors' fiduciary duties
of prudence and loyalty; and
(j) requiring proxy advisors to inform companies of these
SENATE BILL No. 375—page 2
recommendations also promotes disclosures in accordance with
fiduciary duties. An example of which is a company that is the subject
of a shareholder proposal often has additional information regarding
whether a proposal is in the shareholder's financial interests or
regarding the costs of a proposal, and notice of a proxy advisor's
recommendation allows the company to provide additional responsive
information to shareholders seeking to uphold their fiduciary duties.
Sec. 3. As used in this act:
(a) "Act" means the proxy advisor transparency act.
(b) "Affiliated group" means a group of one or more entities in
which a controlling interest is owned by a common owner or owners,
either corporate or noncorporate, or by one or more of the member
entities.
(c) "Charitable organization" means an organization that is exempt
from federal income taxation under section 501(c)(3) of the internal
revenue code of 1986.
(d) "Company" means a publicly traded, for-profit corporation,
limited liability company, partnership or other business entity.
(e) "Company proposal" means any proposal made by a company
to such company's shareholders that is included in the company's proxy
statement, including, but not limited to, director nominations or
elections, or any proposal relating to director nominations or elections,
executive compensation, corporate transactions, corporate structure,
auditor selection or company policy on any subject.
(f) "Default recommendation or policy" means a system, set of
rules, principles or guidelines designed to assist with voting decisions
on any company proposals or proxy proposals.
(g) "Proxy advisor" means a person who, for compensation,
provides a proxy advisory service to shareholders of a company or to
other persons with authority to vote on behalf of the shareholders of a
company.
(h)(1) "Proxy advisory service" means any of the following
services that are provided in connection with or in relation to a
company, or are provided to any person in this state:
(A) Advice or a recommendation on how to vote on a company
proposal or proxy proposal;
(B) proxy statement research and analysis regarding a company
proposal or proxy proposal; or
(C) development of proxy voting recommendations or policies,
including establishing default recommendations or policies.
(2) "Proxy advisory service" does not mean a service that is
provided by a:
(A) Charitable organization if:
(i) Such charitable organization's gross annual revenue from proxy
advisory services is less than $500,000; and
(ii) if applicable, each affiliated group of such charitable
organization has combined gross annual revenue from proxy advisory
services that is less than $500,000; or
(B) bank, savings and loan association or savings bank, or an
affiliate thereof, if such entity derives less than 10% of such entity's
gross annual revenue from proxy advisory services.
(i) "Proxy proposal" means any proposal made by a shareholder of
a company that is included in the company's proxy statement or has
been submitted for inclusion in the company's proxy statement,
including, but not limited to, a proposal relating to any of the subjects
that could be covered by a company proposal.
(j) "Shareholder" means a shareholder, unitholder, limited partner
or other equity owner of a company.
(k) "Written financial analysis" means a written document that:
SENATE BILL No. 375—page 3
(1) Analyzes the expected short-term and long-term financial
benefits and costs to the company regarding the implementation of a
company proposal or proxy 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.
Sec. 4. (a) If a proxy advisor makes a recommendation against
company management on a company proposal or proxy proposal, or
makes a default recommendation or policy involving votes against
company management on company proposals or proxy proposals, and
such proxy advisor does not make such recommendation based on a
written financial analysis, such proxy advisor shall:
(1) Concurrently with providing the proxy advisory service,
include a clear and conspicuous disclosure to each shareholder, or
entity or other person acting on behalf of a shareholder, receiving the
proxy advisory service that:
(A) Identifies the service being provided;
(B) identifies the recommendation or policy at issue; and
(C) states that the proxy advisor has made the recommendation or
policy without basing such recommendation on a written financial
analysis regarding the impact of such recommended action on company
investors that:
(i) Analyzes the expected short-term and long-term financial
benefits and costs to the company regarding the implementation of the
company proposal or proxy proposal;
(ii) concludes what vote or course of action is most likely to
positively affect shareholder value; and
(iii) explains the methods and processes used to prepare the
analysis, including the experience and geographic location of the
personnel who formed the recommendation;
(2) provide, concurrently with providing a proxy advisory service
under section 3(h)(1)(A) or (1)(B) , and amendments thereto, the
disclosure under subsection (a)(1) to the board of directors of each
company that is the subject of the proxy advisory service; and
(3) while any proxy advisory services are being provided, publicly
and conspicuously disclose on the home or front page of the proxy
advisor's website a statement that the proxy advisor's proxy advisory
services include one or more services that include recommendations or
policies against company management on company proposals or proxy
proposals that are not made based on a written financial analysis
regarding the impact of such recommended action on company
investors that:
(A) Analyzes the expected short-term and long-term financial
benefits and costs to the company regarding the implementation of the
company proposal or proxy proposal;
(B) concludes what vote or course of action is most likely to
positively affect shareholder value; and
(C) explains the methods and processes used to prepare the
analysis, including the experience and geographic location of the
personnel who formed the recommendation.
(b) If a proxy advisor makes a recommendation against company
management on a company proposal or proxy proposal, or makes a
default recommendation or policy involving votes against company
management on company proposals or proxy proposals, and such proxy
advisor makes such recommendation based on a written financial
analysis, such proxy advisor shall:
(1) Concurrently with providing the proxy advisory service,
SENATE BILL No. 375—page 4
include a clear and conspicuous disclosure to each shareholder, or
entity or other person acting on behalf of a shareholder, receiving the
proxy advisory service that:
(A) Identifies the proxy advisory service being provided;
(B) identifies the recommendation or policy at issue;
(C) states that the proxy advisor has made the recommendation or
policy based on a written financial analysis that:
(i) Analyzes the expected short-term and long-term financial
benefits and costs to the company regarding the implementation of the
company proposal or proxy proposal;
(ii) concludes what vote or course of action is most likely to
positively affect shareholder value; and
(iii) explains the methods and processes used to prepare the
analysis, including the experience and geographic location of the
personnel who formed the recommendation; and
(D) states that the analysis is available upon request;
(2) make such analysis available within a reasonable time to any
client of the proxy advisory service upon request; and
(3) provide, concurrently with providing a proxy advisory service
under section 3 (h)(1)(A) or (1)(B), and amendments thereto, a copy of
such analysis to the board of directors of each company that is the
subject of the service.
Sec. 5. (a)(1) A violation of this act is a deceptive and
unconscionable act or practice under the Kansas consumer protection
act and shall be subject to any and all of the enforcement provisions of
the Kansas consumer protection act except as provided in paragraph
(2). The attorney general may exercise all investigative powers under
the Kansas consumer protection act if the attorney general has reason to
believe that a violation has occurred, is occurring or is about to occur.
(2) Notwithstanding any provision of the Kansas consumer
protection act to the contrary, only the attorney general or the attorney
general's designee may bring a civil action alleging a violation of the
Kansas consumer protection act pursuant to this section. This section
shall not be construed as creating or allowing a private right of action
under K.S.A. 50-634, and amendments thereto.
(b) For the purposes of the remedies and penalties provided by the
Kansas consumer protection act:
(1) The person committing the conduct prohibited by this act shall
be deemed the supplier, and the person who is the victim of such
conduct shall be deemed the consumer; and
(2) proof of a consumer transaction shall not be required.
Sec. 6. The provisions of this act are severable. If any portion of
the act is declared unconstitutional or invalid, or the application of any
portion of the act to any person or circumstance is held unconstitutional
or invalid, the invalidity shall not affect other portions of the act that
can be given effect without the invalid portion or application, and the
applicability of such other portions of the act to any person or
circumstance shall remain valid and enforceable.
SENATE BILL No. 375—page 5
Sec. 7. This act shall take effect and be in force from and after its
publication in the statute book.
I hereby certify that the above BILL originated in the
SENATE, and passed that body
__________________________
SENATE concurred in
HOUSE amendments _______________________
_________________________
President of the Senate.
_________________________
Secretary of the Senate.
Passed the HOUSE
as amended _________________________
_________________________
Speaker of the House.
_________________________
Chief Clerk of the House.
APPROVED _____________________________
_________________________
Governor.