Texas Legislators Take Action Against Proxy Advisory Firms: Dell Shareholders Approve Move to Texas
Texas legislators are taking action against proxy advisory firms that oppose companies relocating to Texas, as Dell shareholders approved the move from Delaware to Texas. Proxy advisers provide recommendations to institutional investors based on shareholder votes. The Texas Senate Committee on State Affairs, chaired by Sen. Bryan Hughes, highlighted the need for a hearing to address concerns about proxy advisers' recommendations being influenced by factors other than financial returns.
Dell Technologies announced its decision to move its legal headquarters from Delaware to Texas, with shareholders voting in favor of the redomestication. This move, known as DEXIT, signifies a trend of companies relocating to Texas. ExxonMobil also announced its redomiciling to Texas, despite proxy advisers urging shareholders to vote against it. Attorney General Ken Paxton filed a lawsuit against ISS for allegedly obstructing ExxonMobil's reincorporation.
Legislators at the federal level have also taken notice of the influence of proxy advisers, with concerns raised about their control over shareholder vote outcomes. U.S. Rep. Ann Wagner and U.S. Rep. Bryan Steil introduced a bill to impose new rules on proxy advisers to enhance transparency and prevent conflicts of interest. The bill aims to address issues such as robo-voting and consulting services provided by proxy firms.
The Texas Legislature passed Senate Bill 2337, signed into law by Gov. Greg Abbott, to ensure that proxy advisers base their recommendations on financial considerations and disclose any conflicts of interest. ISS and Glass Lewis sued to block the law's enforcement, arguing that it infringes on their ability to provide recommendations. The legislation aims to protect shareholders and ensure that proxy advisers prioritize financial interests in their recommendations.
During a Senate hearing, concerns were raised about ISS's recommendations against state pension plans investing in oil and gas development, which conflicts with Texas law. Testimonies from legal experts highlighted the lack of transparency and conflicts of interest in the practices of proxy advisers. ISS and Glass Lewis were invited to provide testimony but ISS declined, and Glass Lewis did not respond.
State lawmakers are now exploring options to expand state regulation to increase transparency measures for proxy advisory firms. The ongoing debate underscores the importance of ensuring that proxy advisers prioritize financial considerations in their recommendations to protect the interests of shareholders and investors.