As part of a campaign to attract companies to relocate to, incorporate in, and list on a new Texas-based exchange, the Texas legislature is rushing through a number of corporate governance measures. A bill set to become law would permit Texas-based and listed public companies to amend their governing documents to impose much greater ownership thresholds on shareholders seeking to submit proposals. Other bills, including one already signed into law, would insulate Texas companies and their boards from private litigation.
Among these is a new measure that purports to regulate proxy advisors, but that could have far-reaching implications for our institutional investor clients, as well as other parts of the stewardship eco-system. Glass Lewis is concerned that this bill is being rushed through the legislative process with no consultation with proxy advisors or their clients. It is wholly unworkable, conflicts with federal securities laws, and would serve no useful purpose, while creating unnecessary costs for proxy advisors and investors.
Below is the text of a letter Glass Lewis sent to Members of the Texas House Committee currently considering the bill.
May 15, 2025
By Email to:
Rep. Todd Hunter (Chair): todd.hunter@house.texas.gov
Rep. Toni Rose (Vice Chair): toni.rose@house.texas.gov
Rep. Terry Canales: terry.canales@house.texas.gov
Rep. Stan Gerdes: stan.gerdes@house.texas.gov
Rep. Cody Harris: cody.harris@house.texas.gov
Rep. Ana Hernandez: ana.hernandez@house.texas.gov
Rep. Ann Johnson: ann.johnson@house.texas.gov
Rep. Jeff Leach: jeff.leach@house.texas.gov
Rep. Janie Lopez: janie.lopez@house.texas.gov
Rep. Ramon Romero, Jr.: ramon.romero@house.texas.gov
Rep. Carl Tepper: carl.tepper@house.texas.gov
Members of the Committee on Calendars
Texas House of Representatives
Austin, TX 78768
Re: Senate Bill No. 2337
Dear Chairman Hunter, Vice Chair Rose, and Members of the Committee –
On behalf of Glass Lewis, a leading proxy advisor, I write to express our significant concern with Senate Bill No. 2337, which I understand is now before the Committee on Calendars. This bill is apparently being rushed through the legislative process without consultation with proxy advisors or the institutional investors they serve. It conflicts with federal law and would serve no useful purpose, while creating unnecessary costs and other possible unintended consequences for all stakeholders in the proxy process. We urge you to not schedule this bill for floor consideration.
Nonetheless, SB 2337 would mandate that any such routine advice be accompanied by a “warning” notice to our clients – who are sophisticated institutional investors who have asked for that advice – with the often counterfactual statement that the advice we are providing them is not "solely in the financial interest of the shareholders of the company." This would be pointless, misleading and costly. Why would an asset manager that is voting solely for the financial benefit of its client, but who disagrees with SB 2337’s extreme position that no environmental, social or governance factor can ever be material, be forced to receive a stream of notices falsely suggesting it is not acting in shareholders’ financial interest? Likewise, if a religious institution or its asset manager engages us to provide them recommendations under our Catholic Policy, what possible interest would be served by requiring us to warn them each time we make a recommendation to them under the policy they’ve chosen to adhere to their religious beliefs? Worse yet, the bill would also require proxy advisors to provide “immediate” notices to Texas companies when they advise their clients based on these common considerations, a measure that would be costly, disruptive, and could breach a proxy advisor’s duty of confidentiality to its client.
Section 102 is even more problematic. It requires a similar warning notice to our clients, companies, and the Texas Attorney General whenever we provide different advice to different clients that have not "expressly requested services for a nonfinancial purpose." It also mandates that proxy advisors decide and disclose which of the differing recommendations was in the financial interest of shareholders.
A significant majority of Glass Lewis’s 1300+ clients have their own custom voting policy, meaning they have chosen to receive recommendations based on a policy other than our benchmark policy. This is widely considered a best practice. It ensures that our clients - who have different investment strategies and time horizons, as well as their own views on proxy voting issues - are receiving recommendations based on their own unique needs and views on corporate governance issues.
Finally, we note that the bill, in its current form, has significant technical flaws that could cause unintended consequences. In particular, SB 2337 defines “proxy advisor” and “proxy advisory service” so broadly as to capture a number of players in the proxy voting ecosystem – not just Glass Lewis and its competitors – that we assume Texas has no intention of covering. A deliberative, considered legislative process would allow these flaws to be fixed.
We urge you to decline to schedule the bill for placement on the House calendar and to return the bill to the Trade, Workforce & Economic Development Committee for further consideration. We would be pleased to meet with you to further discuss this bill at any time. Thank you.
Sincerely,
Nichol Garzon
Chief Legal Officer, SVP, Corporate Development
