Texas Attorney General Ken Paxton is defending a state law requiring proxy advisors to disclose when political rather than financial considerations drive their recommendations.
The legislation, set to take effect September 1, faces legal challenges from two major proxy advisory firms. The law represents Texas’ latest effort to combat what state officials view as ideological influence in corporate governance. Critics argue that such measures could limit shareholder advocacy on environmental and social issues.
S.B. 2337, passed by the Texas Legislature, mandates that proxy advisors must make recommendations based solely on financial factors. When advisors consider other factors, they must provide detailed explanations.
The law applies to recommendations regarding Texas-based companies. It specifically targets advice influenced by diversity, equity, and inclusion (DEI) or environmental, social, and governance (ESG) considerations.
“The role of a proxy advisor is to provide sound guidance based on financial considerations, not use their position to promote woke, left-wing ideology,” said Paxton. “S.B. 2337 stops liberal activists posing as proxy advisors from giving guidance based on their ideological goals without making that clear to their clients.”
Paxton added, “The new law is critical for promoting transparency in corporate America, and I will continue to defend it aggressively in the courts.”
Glass Lewis and Institutional Shareholder Services (ISS) have filed lawsuits to block the law’s implementation. Both firms seek preliminary injunctions against the measure.
In a statement on its website, Glass Lewis claims that the bill is “wholly unworkable, conflicts with federal securities laws, and would serve no useful purpose, while creating unnecessary costs for proxy advisors and investors.”
Paxton has urged the court to dismiss Glass Lewis’s lawsuit and fought against the company’s injunction request. He’s pursuing similar actions against ISS’s legal challenge.
Proxy advisors provide voting recommendations to institutional investors and shareholders. Their guidance influences trillions of dollars in investment decisions annually.
