Mr. Speaker, I rise today in support of H.R. 4015. I thank Chairman Duffy for his leadership on this bipartisan piece of legislation, which will improve our country's shareholder proxy system. Since the early 2000s, we have seen market…
Mr. Speaker, I rise today in support of H.R. 4015. I thank Chairman Duffy for his leadership on this bipartisan piece of legislation, which will improve our country's shareholder proxy system.
Since the early 2000s, we have seen market share and the shareholder proxy system consolidate, essentially, into a duopoly, as two firms control 97 percent of the market, so, under the current system, potential conflicts of interest abound.
For example, proxy advisory firms that provide voting recommendations to advisers often provide consulting services to those same public companies. So wouldn't it make sense that they at least notify their shareholders of this potential conflict of interest?
Well, right now, while the SEC has offered guidance on this problem, the proxy firm wouldn't be required to do so. We need to get this bill on the books just to address this problem.
This bill is also timely because we have seen proxy firms align themselves with political causes, unions, and interest groups that do not always represent their shareholders' best interests. Shareholders oftentimes aren't even aware of these conflicts. Again, reform is needed.
So it should go without saying, Mr. Speaker, that the two problems outlined above pose problems for the shareholder and for the average investor. We cannot continue to allow the security laws and processes to be wrapped in a service of political agenda.
Mr. Speaker, we have dealt with this issue in the Financial Services Committee on a number of fronts with regard to disclosure of information that is being weaponized against public companies, from mining to conflict minerals. It is time to deal with the proxy issue today.
The number of public companies has fallen in recent years. It was never easy to be public, to be subject to the financial markets and the pressures that come from being accountable to your shareholders. This issue, the proxy issue, is part of a larger tapestry of challenges that public companies face. They are increasingly choosing not to play the game. They are getting capital from dark pools; they are getting capital from hedge funds; and they are just staying private. That puts investment opportunities in the hands of the 1 percent, and that leaves retail investors out in the cold.
Mr. Speaker, my constituents and North Carolina shareholders are from the part-time trader to the full-time trader. They deserve better than this. Luckily, this body can do something to address these problems, and that is where Chairman Duffy's bipartisanship legislation comes into play. His bill will bring about much-needed accountability, competition, and, most importantly, transparency in the proxy advisory firm industry.
This bill also protects clients and their financial future from being influenced by activists and outside interest groups. His legislation accomplishes this by mandating that proxy advisory firms register with the SEC, disclose potential conflicts of interest to the shareholders, and make their methods for coming up with proxy recommendations available to the public.
Two proxy advisory firms should not have this much control of the marketplace and the power to disproportionately affect fundamental corporate transactions. This bill is a win for the consumer, a win for the free market, and should be a bipartisan priority for this body.
A number of outside commentators have been clear that the proxy industry has gained a worrisome degree of authority over companies. In fact, Columbia Law Professor Jeffrey Gordon said that the burden of annual voting would lead investors, particularly institutional investors, to farm out evaluation of most pay plans to a handful of proxy advisory firms who, themselves, will seek to economize on those very proxy review costs. There are a host of others who are saying these same things about the way things are today in proxy voting.
Ultimately, the shareholder is the one who suffers. We should put a stop to it.
Mr. Speaker, once again, I want to thank Chairman Duffy for leading the fight on this issue, and I urge adoption of his legislation.