US legislators held a hearing recently (17th May) which considered possible bills which they believe would improve US financial transparency, regulation and capital market formation, including a proposal "To improve the quality of proxy advisory firms for the protection of investors and the U.S. economy, and in the public interest, by fostering accountability, transparency, responsiveness, and competition in the proxy advisory firm industry." The proposed bill asserts that proxy firms need greater oversight and the Securities and Exchange Commission should have the statutory authority to oversee the proxy advisory firm industry.

The hearing was held by the House of Representatives' Financial Services  committee's sub-committee on Capital Markets and Government Sponsored Enterprises. The sponsor of the new bill was Sean Duffy (Republican, Wisconsin). Among the concerns he raised about proxy firms at the hearing was the lack of competitiveness in the market which is dominated in the US by two players, that they did not have sufficient staff numbers to provide accurate information but also that these firm had an undue influence on investors.

There was some support for the criticisms Duffy made of proxy firms within the expert panel including from Thomas Quaadman, senior vice president at the Center for Capital Markets Competitiveness at the U.S. Chamber of Commerce. The Chamber of Commerce is a long standing opponent of corporate governance developments in general and proxy advisors specifically.  However, Professor Jennifer Professor of Law at the Vermont Law School suggested that enacting new legislation in this area would create a regulatory burden that would increase further the barriers to entry to this field and not enhance competitiveness.

Asset managers and owners were not represented at the hearing, nor were proxy advisors. US public sector pension fund, the  Florida State Board of Administration (SBA) submitted written evidence to the hearing opposing the new proposed bill. The SBA has an in-house corporate governance team and its own proxy voting guidelines as well as using the services of proxy firms. The SBA said it made "voting decisions independently and in what it considers to be the best interests of the beneficiaries of the funds it manages."

The SBA said, "The Proxy Advisory Firm Reform Act appears to be unnecessary and counter-productive. There is insufficient empirical evidence to suggest that institutional investors are abdicating and outsourcing their voting responsibilities. We believe that proxy advisory firms play a useful role for institutional investors and that the bill proposes new requirements without sufficient understanding of how proxy voting works in practice today and without analysis of costs and benefits."

The members of the House of Representatives sub-committee now have time to submit further questions in writing to their expert witnesses before a further session is held to consider if the bills discussed will be taken beyond the committee to the floor of the House.