By: Hughes  S.B. No. 2337          (In the Senate - Filed March 12, 2025; March 25, 2025, read   first time and referred to Committee on State Affairs; May 5, 2025,   reported adversely, with favorable Committee Substitute by the   following vote:  Yeas 9, Nays 1; May 5, 2025, sent to printer.)Click here to see the committee vote     COMMITTEE SUBSTITUTE FOR S.B. No. 2337 By:  Hughes     A BILL TO BE ENTITLED   AN ACT     relating to the regulation of the provision of proxy advisory   services.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  The legislature finds that:                (1)  when shareholders in this state hire professionals   to provide advice in the exercise of their rights as shareholders,   the shareholders expect that service to be performed in their   financial interest as shareholders, and professionals who are hired   by shareholders to provide that service and who deviate from that   expectation must clearly disclose that fact;                (2)  there is a particular need for disclosures for   proxy voting advice because that advice is often:                      (A)  provided for hundreds or thousands of   shareholder votes each year; and                      (B)  based on lengthy policies that contain   general statements but do not explain whether or how the policy   provisions will maximize returns for investors for any particular   company or shareholder vote;                (3)  proxy advisors:                      (A)  have recommended votes based on   environmental, social, or governance (ESG) investing, diversity,   equity, or inclusion (DEI), and social credit or sustainability   scores; and                      (B)  have not conducted financial analyses before   making the recommendations described by Paragraph (A) of this   subdivision despite having proxy voting policies claiming that the   purpose of the recommendation is maximizing and protecting   shareholder value;                (4)  requiring proxy advisors to provide clear, factual   disclosures when the advisors recommend casting a vote for   nonfinancial reasons or provide conflicting advice to multiple   clients who seek to maximize financial returns is necessary in   order to prevent fraudulent or deceptive acts and practices in this   state; and                (5)  a company that is the subject of a shareholder   proposal may have information regarding whether the proposal is in   the shareholder's financial interests or regarding the costs of the   proposal, and notice would allow the company to provide relevant   information to shareholders that may prevent fraudulent or   deceptive practices associated with proxy advisors making   recommendations for nonfinancial reasons.          SECTION 2.  Title 1, Business Organizations Code, is amended   by adding Chapter 6A to read as follows:   CHAPTER 6A. PROXY ADVISORY SERVICES   SUBCHAPTER A. GENERAL PROVISIONS          Sec. 6A.001.  DEFINITIONS. In this chapter:                (1)  "Company" means a publicly traded, for-profit   corporation, limited liability company, partnership, or other   business entity that is organized or created under the laws of this   state or has its principal place of business in this state.                (2)  "Company proposal" means a proposal made by a   company that is included in the company's proxy statement,   including a proposal regarding director nominations or elections,   executive compensation, corporate transactions and structure,   auditor selection, or similar measures.                (3)  "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.                (4)  "Proxy advisory service" means any of the   following services that are provided in connection with or in   relation to a company:                      (A)  advice or a recommendation on how to vote on a   proxy proposal or company proposal;                      (B)  proxy statement research and analysis   regarding a proxy proposal or company proposal;                      (C)  a rating or research regarding corporate   governance; or                      (D)  development of proxy voting recommendations   or policies, including establishing default recommendations or   policies.                (5)  "Proxy proposal" means a proposal made by a   company's shareholder that is included in the company's proxy   statement, including the nomination of a director.                (6)  "Shareholder" includes a shareholder, unitholder,   limited partner, or other equity owner of a company.   SUBCHAPTER B. DISCLOSURE REQUIREMENTS FOR PROXY ADVISORS          Sec. 6A.101.  DISCLOSURE OF NONFINANCIAL PROXY VOTING   SERVICES TO PREVENT FRAUD OR DECEIT. (a)  For purposes of this   section, a proxy advisory service is not provided solely in the   financial interest of the shareholders of a company if the service   is wholly or partly based on one or more nonfinancial factors,   including a commitment, initiative, policy, target, or subjective   or value-based standard based on:                (1)  an environmental, social, or governance (ESG)   goal, factor, or investment principle;                (2)  diversity, equity, or inclusion (DEI), including   any attempt to provide preferential treatment based on   characteristics protected under Section 21.051, Labor Code;                (3)  a social credit or sustainability factor or score;   or                (4)  membership in or commitment to an organization or   group that wholly or partly bases its evaluation or assessment of a   company's value over any period on nonfinancial factors.          (b)  If a proxy advisor provides a proxy advisory service   that is not provided solely in the financial interest of the   shareholders of a company, the advisor shall:                (1)  include a conspicuous disclosure to each   shareholder or entity or other person acting on behalf of a   shareholder receiving the service that:                      (A)  states that the service is not being provided   solely in the financial interest of the company's shareholders   because it is based wholly or partly on one or more nonfinancial   factors; and                      (B)  briefly explains the basis of the proxy   advisor's advice and recommendation;                (2)  immediately provide a copy of the notice under   Subdivision (1) to the company that is the subject of the service;   and                (3)  publicly and conspicuously disclose on the home or   front page of the proxy advisor's publicly accessible Internet   website that the advisor's proxy advisory services include advice   and recommendations that are not based solely on the financial   interest of shareholders.          Sec. 6A.102.  DISCLOSURES IF PROVIDING CONFLICTING VOTER   ADVICE OR RECOMMENDATIONS. (a) For purposes of this section,   "materially different," with respect to advice or a recommendation   on how to vote on a company proposal or proxy proposal, means   simultaneously advising or recommending that:                (1)  one or more clients vote for the proposal and one   or more clients vote against the proposal; or                (2)  one or more clients vote for a nominee for a   company's governing authority and one or more clients vote against   or abstain from voting for the same nominee.          (b)  If a proxy advisor provides to different clients who   have not expressly requested services for a nonfinancial purpose   either advice or a recommendation on how to vote on a proxy or   company proposal that is materially different, the advisor shall:                (1)  if applicable, comply with disclosure   requirements for nonfinancial proxy advisory services under   Section 6A.101(b);                (2)  notify the following persons, in writing or by   electronic means, of the conflicting advice or recommendation:                      (A)  each shareholder receiving the advice or   recommendation;                      (B)  each entity or other person receiving the   advice or recommendation on behalf of a shareholder;                      (C)  the company that is the subject of the   company or proxy proposal; and                      (D)  the attorney general; and                (3)  disclose which of the conflicting advice or   recommendations is:                      (A)  provided solely in the financial interest of   the shareholders; and                      (B)  supported by any specific financial analysis   performed or relied on by the advisor.   SUBCHAPTER C.  ENFORCEMENT          Sec. 6A.201.  DECEPTIVE TRADE PRACTICE. A violation of this   chapter is a deceptive trade practice under Subchapter E, Chapter   17, Business & Commerce Code, and is actionable under Section 17.47   of that code.          Sec. 6A.202.  DECLARATORY JUDGMENT OR INJUNCTIVE RELIEF.   (a) In this section, "affected party" includes:                (1)  the recipient of proxy advisory services provided   by the proxy advisor;                (2)  the company that is the subject of the proxy   advisory services; or                (3)  any shareholder of the company described by   Subdivision (2).          (b)  An affected party may bring an action seeking a   declaratory judgment or injunctive relief under Chapter 37, Civil   Practice and Remedies Code, against a proxy advisor who violates   this chapter.  Not later than the seventh day after the date on   which an action is brought under this subsection, the plaintiff   shall provide notice to the attorney general, who may intervene in   the action.          SECTION 3.  The changes in law made by this Act apply only to   a proxy advisory service provided on or after the effective date of   this Act.          SECTION 4.  This Act takes effect July 1, 2025, if it   receives a vote of two-thirds of all the members elected to each   house, as provided by Section 39, Article III, Texas Constitution.   If this Act does not receive the vote necessary for effect on that   date, this Act takes effect September 1, 2025.     * * * * *