Relating to the regulation of the provision of proxy advisory services.

89(R) SB 2337 - Enrolled version - Bill Text

S.B. No. 2337

AN ACT

relating to the regulation of the provision of proxy advisory

services.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. The legislature finds that:

(1) when shareholders in this state hire professionals

to provide advice in the exercise of their rights as shareholders,

the shareholders expect that service to be performed in their

financial interest as shareholders, and professionals who are hired

by shareholders to provide that service and who deviate from that

expectation must clearly disclose that fact;

(2) there is a particular need for disclosures for

proxy voting advice because that advice is often:

(A) provided for hundreds or thousands of

shareholder votes each year; and

(B) based on lengthy policies that contain

general statements but do not explain whether or how the policy

provisions will maximize returns for investors for any particular

company or shareholder vote;

(3) proxy advisors:

(A) have recommended votes based on

environmental, social, or governance (ESG) investing, diversity,

equity, or inclusion (DEI), and social credit or sustainability

scores; and

(B) have not conducted financial analyses before

making the recommendations described by Paragraph (A) of this

subdivision despite having proxy voting policies claiming that the

purpose of the recommendation is maximizing and protecting

shareholder value;

(4) requiring proxy advisors to provide clear, factual

disclosures when the advisors recommend casting a vote for

nonfinancial reasons or provide conflicting advice to multiple

clients who seek to maximize financial returns is necessary in

order to prevent fraudulent or deceptive acts and practices in this

state; and

(5) a company that is the subject of a shareholder

proposal may have information regarding whether the proposal is in

the shareholder's financial interests or regarding the costs of the

proposal, and notice would allow the company to provide relevant

information to shareholders that may prevent fraudulent or

deceptive practices associated with proxy advisors making

recommendations for nonfinancial reasons.

SECTION 2. Title 1, Business Organizations Code, is amended

by adding Chapter 6A to read as follows:

CHAPTER 6A.

PROXY ADVISORY SERVICES

SUBCHAPTER A.

GENERAL PROVISIONS

Sec. 6A.001. DEFINITIONS. In this chapter:

(1)

"Company" means a publicly traded, for-profit

corporation, limited liability company, partnership, or other

business entity that is organized or created under the laws of this

state, has its principal place of business in this state, or is a

foreign entity that has made a company proposal to become a domestic

entity, whether by merger, conversion, or otherwise.

(2)

"Company proposal" means a proposal made by a

company that is included in the company's proxy statement,

including a proposal regarding director nominations or elections,

executive compensation, corporate transactions and structure,

auditor selection, or similar measures.

(3)

"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

shareholders of a company.

(4)

"Proxy advisory service" means any of the

following services that are provided in connection with or in

relation to a company:

(A)

advice or a recommendation on how to vote on a

proxy proposal or company proposal;

(B)

proxy statement research and analysis

regarding a proxy proposal or company proposal;

(C)

a

rating or research regarding corporate

governance; or

(D)

development of proxy voting recommendations

or policies, including establishing default recommendations or

policies.

(5)

"Proxy proposal" means a proposal made by a

company's shareholder that is included in the company's proxy

statement, including the nomination of a director.

(6)

"Shareholder" includes a shareholder, unitholder,

limited partner, or other equity owner of a company.

SUBCHAPTER B.

DISCLOSURE REQUIREMENTS FOR PROXY ADVISORS

Sec.

6A.101.

DISCLOSURE OF NONFINANCIAL PROXY VOTING

SERVICES TO PREVENT FRAUD OR DECEIT.

(a)

For purposes of this

section, a proxy advisory service is not provided solely in the

financial interest of the shareholders of a company if the service:

(1)

is wholly or partly based on, or otherwise takes

into account, one or more nonfinancial factors, including a

commitment, initiative, policy, target, or subjective or

value-based standard based on:

(A)

an environmental, social, or governance

(ESG) goal, factor, or investment principle;

(B)

diversity, equity, or inclusion (DEI),

including any attempt to provide preferential treatment based on

characteristics protected under Section 21.051, Labor Code;

(C)

a social credit or sustainability factor or

score; or

(D)

membership in or commitment to an

organization or group that wholly or partly bases its evaluation or

assessment of a company's value over any period on nonfinancial

factors;

(2)

involves providing a voting recommendation with

respect to a shareholder-sponsored proposal that:

(A)

is inconsistent with the voting

recommendation of the board of directors or a board committee

composed of a majority of independent directors; and

(B)

subject to Subsection (c), does not include a

written economic analysis of the financial impact on shareholders

of the proposal;

(3)

is not based solely on financial factors and

subordinates the financial interests of shareholders to other

objectives, including sacrificing investment returns or

undertaking additional investment risk to promote nonfinancial

factors; or

(4)

advises against a company proposal to elect a

governing person unless the proxy advisor affirmatively states that

the proxy advisory service solely considered the financial interest

of the shareholders in making such advice.

(b)

If a proxy advisor provides a proxy advisory service

that is not provided solely in the financial interest of the

shareholders of a company, the advisor shall:

(1)

include a disclosure to each shareholder or entity

or other person acting on behalf of a shareholder receiving the

service that:

(A)

conspicuously states that the service is not

being provided solely in the financial interest of the company's

shareholders because it is based wholly or partly on one or more

nonfinancial factors; and

(B)

explains, with particularity, the basis of

the proxy advisor's advice concerning each recommendation and that

the advice subordinates the financial interests of shareholders to

other objectives, including sacrificing investment returns or

undertaking additional investment risk to promote one or more

nonfinancial factors;

(2)

immediately provide a copy of the notice under

Subdivision (1) to the company that is the subject of the service;

and

(3)

publicly and conspicuously disclose on the home or

front page of the proxy advisor's publicly accessible Internet

website that the advisor's proxy advisory services include advice

and recommendations that are not based solely on the financial

interest of shareholders.

(c)

A written economic analysis provided under Subsection

(a)(2)(B) must include:

(1)

the short-term and long-term economic benefits and

costs of implementing any shareholder-sponsored proposal, as

written;

(2)

an analysis of whether the proposal is consistent

with the investment objectives and policies of the client;

(3)

the projected quantifiable impact of the proposal,

if adopted, on the investment returns of the client; and

(4)

an explanation of the methods and processes used

to prepare the economic analysis.

Sec.

6A.102.

DISCLOSURES IF PROVIDING CONFLICTING VOTER

ADVICE OR RECOMMENDATIONS. (a) For purposes of this section,

"materially different," with respect to advice or a recommendation

on how to vote on a company proposal or proxy proposal, means

simultaneously advising or recommending that:

(1)

one or more clients vote for the proposal and one

or more clients vote against the proposal;

(2)

one or more clients vote for a nominee for a

company's governing authority and one or more clients vote against

or abstain from voting for the same nominee; or

(3)

one or more clients vote for or against the

proposal in opposition to the recommendation of the company's

management.

(b)

If a proxy advisor provides to different clients who

have not expressly requested services for a nonfinancial purpose

either advice or a recommendation on how to vote on a proxy or

company proposal that is materially different, the advisor shall:

(1)

if applicable, comply with disclosure

requirements for nonfinancial proxy advisory services under

Section 6A.101(b);

(2)

notify the following persons, in writing or by

electronic means, of the conflicting advice or recommendation:

(A)

each shareholder receiving the advice or

recommendation;

(B)

each entity or other person receiving the

advice or recommendation on behalf of a shareholder;

(C)

the company that is the subject of the

company or proxy proposal; and

(D) the attorney general; and

(3)

disclose which of the conflicting advice or

recommendations is:

(A)

provided solely in the financial interest of

the shareholders; and

(B)

supported by any specific financial analysis

performed or relied on by the advisor.

SUBCHAPTER C.

ENFORCEMENT

Sec.

6A.201.

DECEPTIVE TRADE PRACTICE. A violation of this

chapter is a deceptive trade practice under Subchapter E, Chapter

17, Business & Commerce Code, and is actionable under Section 17.47

of that code.

Sec.

6A.202.

DECLARATORY JUDGMENT OR INJUNCTIVE RELIEF.

(a) In this section, "affected party" includes:

(1)

the recipient of proxy advisory services provided

by the proxy advisor;

(2)

the company that is the subject of the proxy

advisory services; or

(3)

any shareholder of the company described by

Subdivision (2).

(b)

An affected party may bring an action seeking a

declaratory judgment or injunctive relief under Chapter 37, Civil

Practice and Remedies Code, against a proxy advisor who violates

this chapter.

Not later than the seventh day after the date on

which an action is brought under this subsection, the plaintiff

shall provide notice to the attorney general, who may intervene in

the action.

SECTION 3. The changes in law made by this Act apply only to

a proxy advisory service provided on or after the effective date of

this Act.

SECTION 4. This Act takes effect July 1, 2025, if it

receives a vote of two-thirds of all the members elected to each

house, as provided by Section 39, Article III, Texas Constitution.

If this Act does not receive the vote necessary for effect on that

date, this Act takes effect September 1, 2025.

______________________________

______________________________

President of the Senate

Speaker of the House

I hereby certify that S.B. No. 2337 passed the Senate on

May 8, 2025, by the following vote: Yeas 20, Nays 11;

May 25, 2025, Senate refused to concur in House amendments and

requested appointment of Conference Committee; May 30, 2025, House

granted request of the Senate; May 31, 2025, Senate adopted

Conference Committee Report by the following vote: Yeas 21,

Nays 10.

______________________________

Secretary of the Senate

I hereby certify that S.B. No. 2337 passed the House, with

amendments, on May 28, 2025, by the following vote: Yeas 92,

Nays 50, two present not voting; May 30, 2025, House granted

request of the Senate for appointment of Conference Committee;

May 31, 2025, House adopted Conference Committee Report by the

following vote: Yeas 82, Nays 41, three present not voting.

______________________________

Chief Clerk of the House

Approved:

______________________________

Date

______________________________

Governor