A bill

 

TO AMEND THE SOUTH CAROLINA CODE OF LAWS BY ENACTING THE "PROXY ADVISOR TRANSPARENCY ACT" BY ADDING ARTICLE 9 TO CHAPTER 5, TITLE 39 SO AS TO REQUIRE PROXY ADVISORS TO ISSUE SPECIFIED DISCLOSURES WHEN MAKING CERTAIN RECOMMENDATIONS WITHOUT RELYING ON A WRITTEN FINANCIAL ANALYSIS; AND TO PROVIDE THAT A VIOLATION OF THIS ARTICLE IS A DECEPTIVE TRADE PRACTICE SUBJECT TO THE INVESTIGATORY AND ENFORCEMENT POWERS OF THE ATTORNEY GENERAL, AS WELL AS A PRIVATE RIGHT OF ACTION BY ANY AGGRIEVED PERSON.

 

Be it enacted by the General Assembly of the State of South Carolina:

 

SECTION 1.  Chapter 5, Title 39 of the S.C. Code is amended by adding:

 

Article 9

 

Proxy Advisor Transparency Act

 

    Section 39-5-900.  As used in this article:

    (A) "Company" means a publicly traded, for-profit corporation, limited liability company, partnership, or other business entity.

    (B) "Company proposal" means any proposal made by a company to its shareholders that is included in the company's proxy statement including, but not limited to, director nominations or elections, or any proposal relating to director nominations or elections, executive compensation, corporate transactions, corporate structure, auditor selection, or company policy on any subject.

    (C) "Default recommendation or policy" means a system, set of rules, principles, or guidelines designed to assist with voting decisions on any company proposals or proxy proposals.

    (D) "Proxy advisor" means a person who, for compensation, provides a proxy advisory service to shareholders of a company or to other persons with authority to vote on behalf of shareholders of a company.

    (E) "Proxy advisory service" means any of the following services that are provided with or in relation to a company, or are provided to any person in this State:

       (1) advice or a recommendation on how to vote on a company proposal or proxy proposal;

       (2) proxy statement research and analysis regarding a company proposal or proxy proposal; or

       (3) development of proxy voting recommendations or policies, including establishing default recommendations or policies.

    (F) "Proxy proposal" means any proposal made by a shareholder of a company that is included in the company's proxy statement including, but not limited to, a proposal relating to any of the subjects that could be covered by a company proposal.

    (G) "Shareholder" includes a shareholder, unitholder, limited partner, or other equity owner of a company.

    (H) "Written financial analysis" means a written document that:

       (1) analyzes the expected short-term and long-term financial benefits and costs to the company of implementing a company proposal or proxy proposal;

       (2) concludes what vote or course of action is most likely to positively affect shareholder value; and

       (3) explains the methods and processes used to prepare the analysis, including the experience and geographic location of the personnel who formed the recommendation.

 

    Section 39-5-910.  (A) If a proxy advisor makes a recommendation against company management on a company proposal or proxy proposal, or makes a default recommendation or policy involving votes against company management on company proposals or proxy proposals, and the proxy advisor does not do so based on a written financial analysis, the proxy advisor shall:

       (1) concurrently with providing the proxy advisory service, include a clear and conspicuous disclosure to each shareholder, or entity, or other person acting on behalf of a shareholder, receiving the proxy advisory service that:

           (a) identifies the service being provided;

           (b) identifies the recommendation or policy at issue; and

           (c) states that the proxy advisor has made the recommendation or policy without doing so based on a written financial analysis regarding the impact of that recommended action on company investors that:

               (i) analyzes the expected short-term and long-term financial benefits and costs to the company of implementing the company proposal or proxy proposal;

               (ii) concludes what vote or course of action is most likely to positively affect shareholder value; and

               (iii) explains the methods and processes used to prepare the analysis, including the experience and geographic location of the personnel who formed the recommendation.

       (2) for a proxy advisory service covered by Section 39-5-900(E)(1) or (2), concurrently with providing the proxy advisory service, provide the disclosure under subsection (A)(1) to the board of directors of each company that is the subject of the service; and

       (3) while any proxy advisory services described by subsection (A) are being provided, publicly and conspicuously disclose on the home or front page of the proxy advisor's website a statement that the advisor's proxy advisory services include one or more services that include recommendations or policies against company management on company proposals or proxy proposals that are not made based on a written financial analysis regarding the impact of that recommended action on company investors that:

           (a) analyzes the expected short-term and long-term financial benefits and costs to the company of implementing the company proposal or proxy proposal;

           (b) concludes what vote or course of action is most likely to positively affect shareholder value; and

           (c) explains the methods and processes used to prepare the analysis, including the experience and geographic location of the personnel who formed the recommendation.

    (B) If a proxy advisor makes a recommendation against company management on a company proposal or proxy proposal, or makes a default recommendation or policy involving votes against company management on company proposals or proxy proposals, and the proxy advisor does so based on a written financial analysis, the proxy advisor shall:

       (1) concurrently with providing the proxy advisory service, include a clear and conspicuous disclosure to each shareholder, or entity or other person acting on behalf of a shareholder, receiving the proxy advisory service that:

           (a) identifies the service being provided;

           (b) identifies the recommendation or policy at issue;

           (c) states that the proxy advisor has made the recommendation or policy based on a written financial analysis that:

               (i) analyzes the expected short-term and long-term financial benefits and costs to the company of implementing the company proposal or proxy proposal;

               (ii) concludes what vote or course of action is most likely to positively affect shareholder value; and

               (iii) explains the methods and processes used to prepare the analysis, including the experience and geographic location of the personnel who formed the recommendation; and

           (d) states that the analysis is available upon request;

       (2) make such analysis available within a reasonable time to any recipent of the proxy advisory service upon request;

       (3) for a proxy advisory service covered by Section 39-5-900(E)(1) or (2), concurrently with providing the proxy advisory service, provide a copy of such analysis to the board of directors of each company that is the subject of the service.

 

    Section 39-5-920.  (A) A violation of this chapter is a deceptive act or practice under Article 1 of this chapter, and is actionable under the enforcement provisions of that article. The Attorney General may exercise all investigative powers under that article if the Attorney General has reason to believe a violation has occurred, is occurring, or is about to occur.

    (B) In addition to enforcement under subsection (A), any person aggrieved by a violation of this article may bring an action seeking a declaratory judgment or injunctive relief against a proxy advisor who violates this chapter. No later than the seventh day after the date on which an action is brought under this subsection, the plaintiff shall provide written notice to the Attorney General, who has a right to intervene in the action. For purposes of this subsection, an aggrieved person includes:

       (1) a recipient of proxy advisory services provided by the proxy advisor;

       (2) a company that is the subject of proxy advisory services covered by Section 39-5-900(E)(1) or (2) provided by the proxy advisor; and

       (3) any shareholder, unitholder, limited partner, or other equity owner of a company covered by subsection (B)(2).

 

SECTION 2.  This act takes effect upon approval by the Governor.

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