On June 21, 2025, the Governor of Texas signed Texas Senate Bill 2337 ("S.B. 2337"), Relating to the regulation of the provision of proxy advisory services, into law. S.B. 2337 imposes additional requirements on proxy advisors that provide proxy advisory services with respect to certain proposals made by companies that are organized in Texas, have a principal place of business in Texas or foreign companies that have made a proposal to redomesticate to Texas. S.B. 2337 will be effective September 1, 2025 and applies to proxy advisory services provided on or after the effective date.
S.B. 2337 imposes additional requirements on proxy advisors in two instances. First, additional disclosure and notice requirements are imposed on proxy advisors if their services are not provided "solely in the financial interest of the shareholders." S.B. 2337 gives four factors that would make a service not solely in the financial interest of the shareholders, including if the service takes into account "nonfinancial factors" such as ESG, DEI, social credit or sustainability and similar factors, involves a recommendation inconsistent with management without an economic analysis, is not based solely on financial factors, or advises against a director election without stating it solely considered the financial interest of shareholders. If a service is not provided "solely in the financial interest of the shareholders", proxy advisors must provide:
- To each shareholder receiving the service, (i) a statement that the service is not being provided solely in the financial interest of the company's shareholders because it's wholly or partly based on one or more non-financial factors and (ii) additional explanation, with particularity, of the basis of the proxy advisor's advice and that the advice subordinates the financial interests of the shareholders to other objectives.
- To the company, a copy of the above notice given to shareholders at the same time it is given to shareholders.
- On the proxy advisor's website home or front page, disclosure that the advisor's services include advice and recommendations that are not based solely on the financial interest of shareholders.
Second, if a proxy advisor provides different clients, who have not expressly requested services for a nonfinancial purpose, advice or a recommendation on how to vote that is materially different proxy advisors must provide:
- If applicable, the disclosure requirements outlined above.
- Notice of the conflicting advice or recommendation to each shareholder, the company that is the subject of the proposal and the Texas attorney general.
- Disclosure of which advice or recommendations is provided solely in the financial interest of shareholders and supported by any specific financial analysis relied on by the proxy advisor.
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