Bill Overview
Title: Proxy Advice Disclosure Act
Description: This bill requires a proxy voting advice business to disclose material information involved in providing proxy voting advice to a security holder, including the methodology used, sources of information, and conflicts of interest of the business. A proxy voting advice business provides, for a fee, recommendations to security holders on specific matters for which an issuer of securities has requested security holder approval or consent. In addition, a proxy voting advice business must make this advice available to the issuer. Also, the security holder must be made aware of any written statement made by the issuer in response to this advice before the relevant meeting or vote.
Sponsors: Rep. Donalds, Byron [R-FL-19]
Target Audience
Population: shareholders who rely on proxy voting advice for investment decisions
Estimated Size: 125000000
- Proxy voting advice businesses have influence over shareholders' decisions through their recommendations.
- These businesses play a pivotal role in guiding corporate governance decisions through their proxy voting advice.
- Transparency in proxy advice could impact corporate decision-making processes affecting shareholders worldwide.
- Investors and shareholders depend on proxy advice to make informed decisions about voting on matters such as board elections, executive compensation, and mergers.
- Any increased transparency and disclosure obligations could potentially affect the way proxy advice is used by investors globally.
- Corporations whose governance might be changed as a result of altered proxy advice strategies will be impacted.
Reasoning
- The target population mainly consists of shareholders who rely on proxy voting advice. These include individual investors, institutional investors like mutual funds, and pension funds.
- Not all shareholders will be impacted equally. Larger investors or those who engage more frequently in proxy voting and rely heavily on proxy advice might see a higher impact.
- There are shareholders who may not rely on proxy voting advice businesses and hence may not perceive any substantial change in their decision-making processes. They would serve as a baseline in understanding the policy's impact.
- The policy aims at transparency, likely providing more confidence to investors about the legitimacy and reliability of advice received, which could improve their sense of control over investments.
- Scenarios leading to improved corporate governance and decision-making through transparent proxy advice contribute to higher self-reported wellbeing over time.
- Given the budget limitations, immediate widespread implementation isn't plausible, suggesting a gradual rollout focusing primarily on the most engaged investors.
Simulated Interviews
institutional investor for a mutual fund (New York, NY)
Age: 45 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 7/20
Statement of Opinion:
- Increased transparency is beneficial but it depends on how efficiently the disclosures are managed.
- I appreciate knowing the basis of recommendations, as it builds trust.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 8 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 9 | 6 |
| Year 10 | 9 | 6 |
| Year 20 | 8 | 5 |
retired teacher and individual investor (Chicago, IL)
Age: 60 | Gender: male
Wellbeing Before Policy: 5
Duration of Impact: 20.0 years
Commonness: 14/20
Statement of Opinion:
- I don't quite understand how proxy voting works, so clearer information could help me make better decisions.
- I might be more engaged in my investments if I had more clarity on these decisions.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 6 | 5 |
| Year 5 | 6 | 5 |
| Year 10 | 7 | 5 |
| Year 20 | 6 | 5 |
corporate governance analyst (San Francisco, CA)
Age: 35 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 5.0 years
Commonness: 5/20
Statement of Opinion:
- This policy makes my job easier by standardizing the information landscape.
- Greater transparency in proxy advice means better recommendations to our clients.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 6 |
| Year 5 | 9 | 6 |
| Year 10 | 7 | 5 |
| Year 20 | 6 | 5 |
small business owner (Dallas, TX)
Age: 50 | Gender: male
Wellbeing Before Policy: 5
Duration of Impact: 5.0 years
Commonness: 9/20
Statement of Opinion:
- Don't usually follow proxy recommendations, but it might be interesting to learn more.
- Curious to see if transparency increases accountability.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 5 | 5 |
| Year 3 | 5 | 5 |
| Year 5 | 5 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 5 | 5 |
financial advisor (Los Angeles, CA)
Age: 40 | Gender: other
Wellbeing Before Policy: 8
Duration of Impact: 10.0 years
Commonness: 6/20
Statement of Opinion:
- Could streamline advice delivery, enhancing investor trust.
- Potential for better corporate governance practices advertently benefiting clients.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 9 | 8 |
| Year 5 | 9 | 7 |
| Year 10 | 8 | 7 |
| Year 20 | 7 | 6 |
retired lawyer (Miami, FL)
Age: 70 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 5.0 years
Commonness: 8/20
Statement of Opinion:
- Policy's transparency may bring more efficiency to the clubs' decision-making processes.
- Older investors might gain more assurance from clear, conflict-free advice.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 6 | 5 |
| Year 20 | 5 | 5 |
software engineer (Boston, MA)
Age: 28 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 3.0 years
Commonness: 15/20
Statement of Opinion:
- Unlikely to notice the changes directly as my involvement is limited.
- It's reassuring that more transparency is a priority for financial advisors.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 6 | 7 |
| Year 10 | 6 | 7 |
| Year 20 | 6 | 7 |
policy analyst in financial regulation (Washington, D.C.)
Age: 55 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 4/20
Statement of Opinion:
- Policy aligns with goals for increased market transparency and accountability.
- Might spur other regulatory improvements.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 9 | 7 |
| Year 10 | 8 | 6 |
| Year 20 | 7 | 6 |
owner of a small tech startup (Seattle, WA)
Age: 37 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 3.0 years
Commonness: 12/20
Statement of Opinion:
- As a small investor, I seldom engage in direct proxy voting.
- I rely on fund managers for such insights, yet clarity can improve decision-making security.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 6 | 6 |
| Year 10 | 6 | 6 |
| Year 20 | 6 | 5 |
accountant for a non-profit organization (Atlanta, GA)
Age: 32 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 10/20
Statement of Opinion:
- I like clearer proxy disclosures considering my focus on ESG factors.
- Potential for improved advice aligned with my ethical preferences.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 7 | 5 |
Cost Estimates
Year 1: $25000000 (Low: $15000000, High: $35000000)
Year 2: $22000000 (Low: $13000000, High: $32000000)
Year 3: $20000000 (Low: $12000000, High: $30000000)
Year 5: $18000000 (Low: $10000000, High: $28000000)
Year 10: $15000000 (Low: $8000000, High: $25000000)
Year 100: $10000000 (Low: $5000000, High: $20000000)
Key Considerations
- The bill mandates substantial operational changes for compliance for proxy advice businesses.
- Disclosure requirements could improve governance and investor relations but may pose initial financial and administrative burdens on proxy firms.
- Potential externalities on corporate governance quality and market confidence are notable, with benefits inherently difficult to quantify.