Shareholder voting firms fight Congress over attempt to limit their power

A piece of legislation is pitting companies against investors — and the investors have begun fighting back in earnest.

Congress is looking to rein in the influence of so-called proxy advisory firms, which prepare research reports that help inform investors on how to vote in shareholder matters.

On Tuesday, Institutional Shareholder Services (ISS) and the Council of Institutional Investors (CII) are starting a website to urge American voters not to support this legislation, known as The Corporate Governance Reform and Transparency Act of 2017 (H.R. 4015).

“H.R. 4015 would harm workers and retirement savers across the country who entrust institutional investors with making informed investment decisions with their hard-earned money,” said Gary Retelny, ISS’ president and chief executive, in a statement.

The bill would require proxy advisory firms to register with the SEC and allow companies to fact-check their research before it’s distributed to investors.

That’s one of the biggest sticking points for the investor camp. CII, a non-profit association for fund managers, says that giving companies the right to review research would slow down the process. That would give investors who are the proxy advisory firms’ paying customers, less time to do their own analysis, CII said in a joint statement with ISS.

CII is also concerned that giving companies the right to review research might give them a reason to slant the reports more in favor of the companies in contested situations.

The new website (www.ProtectShareholders.org) “corrects the inaccurate rhetoric” and “shines light on the powerful special interests pushing the legislation.”

The bill passed the House of Representatives in December (238-182). The most recent action was a hearing held by the Senate Banking Committee in June.

The U.S. Chamber of Commerce and the Business Roundtable — representing Corporate America — have sent letters of support recommending the bill. Rep. Sean Duffy, the Wisconsin Republican who introduced the bill, told CNBC in June that the additional oversight is necessary to prevent abuse of power by proxy-advisory firms and monitor potential conflicts-of-interest.

But investor community is fighting back. In August, it enlisted a polling company called Morning Consult to survey 1,975 registered voters. The ISS and CII sponsored poll found that a majority — 61 percent — opposed their senators backing this legislation.