HF 2196 (LSB 5225HH (4) 91)

HOUSE FILE 2196

BY  WILLS

A BILL FOR

An Act relating to proxy advisors and proxy advisory services, and including applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  545.1  Definitions.
   As used in this section, unless the context otherwise requires:
   1.  “Company” means a publicly traded, for-profit corporation, limited liability company, partnership, or other business entity that is organized under the laws of this state and that maintains its principal place of business in this state. “Company” includes a foreign entity that has made a company proposal to become a domestic entity by merger, conversion, or other means.
   2.  “Company proposal” means a proposal by a company to the company’s shareholders that is included in the company’s proxy statement and includes but is not limited to a proposal related to director nominations or elections, executive compensation, corporate transactions, corporate structure, auditor selection, or company policy.
   3.  “Default recommendation” means a system, set of rules, principles, or guidelines to assist shareholders with voting decisions on a company proposal or proxy proposal.
   4.  “Financial analysis” means a written document that does all of the following:
   a.  Analyzes the expected short-term and long-term financial benefits and costs to a company of implementing a company proposal or proxy proposal.
   b.  Reaches a conclusion as to what vote or course of action may positively affect shareholder value.
   c.  Explains the methods and processes used to prepare the financial analysis, including the experience and geographic location of the personnel who prepared the analysis.
   5.  “Proxy advisor” means a person who, for compensation, provides a proxy advisory service to shareholders or to other persons with the authority to vote on behalf of shareholders.
   6.  “Proxy advisory service” means any of the following services that are provided by a proxy advisor in connection with, or in relation to, a company, or are provided to any person in the state:
   a.  Advice or recommendations on how to vote on a company proposal or proxy proposal.
   b.  Research and analysis regarding a company proposal or proxy proposal.
   c.  Development of proxy voting recommendations or policies, including but not limited to default recommendations.
   7.  “Proxy proposal” means a proposal made by a shareholder of a company that is included in the company’s proxy statement and includes but is not limited to a proposal related to director nominations or elections, executive compensation, corporate transactions, corporate structure, auditor selection, or company policy.
   8.  “Shareholder” means a shareholder, unitholder, limited partner, or other equity owner of a company.
    Sec. 2.  NEW SECTION.  545.2  Proxy advisor services —— enforcement.
   1.  If a proxy advisor provides a proxy advisory service to a shareholder or other person with authority to vote on behalf of the shareholder, or makes a default recommendation against company management on a company proposal or proxy proposal, and the proxy advisory service or default recommendation is not based on a financial analysis, the proxy advisor shall, concurrently with providing the proxy advisory service or default recommendation, do all of the following:
   a.  Provide a clear disclosure to each shareholder or other person with authority to vote on behalf of a shareholder that does all of the following:
   (1)  Identifies the specific proxy advisory service being provided.
   (2)  Identifies the recommendation or policy at issue.
   (3)  States that the proxy advisory service or default recommendation is not based on a financial analysis.
   b.  Except for a proxy advisory service that provides voting recommendations or policies, or a default recommendation, provide the disclosure under paragraph “a” to the board of directors of each company that is the subject of the proxy advisory service.
   c.  Conspicuously post on the home page of the proxy advisor’s internet site a statement that the proxy advisor’s proxy advisory services include one or more proxy advisory services that involve recommendations or policies against company management on company proposals or proxy proposals that are not based on a financial analysis.
   2.  If a proxy advisor provides a proxy advisory service to a shareholder or other person with authority to vote on behalf of the shareholder, or makes a default recommendation against company management on a company proposal or proxy proposal, and the proxy advisory service or default recommendation is based on a financial analysis, the proxy advisor shall, concurrently with providing the proxy advisory service or default recommendation, do all of the following:
   a.  Provide a clear disclosure to each shareholder or other person with authority to vote on behalf of a shareholder that does all of the following:
   (1)  Identifies the specific proxy advisory service being provided.
   (2)  Identifies the default recommendation at issue.
   (3)  States that the proxy advisory service or default recommendation is based on a financial analysis.
   (4)  States that the financial analysis is available upon request.
   b.  Make the financial analysis available within a reasonable time to any client of the proxy advisory service upon request.
   c.  Provide a copy of the financial analysis to the board of directors of each company that is the subject of the proxy advisory service. This paragraph shall not apply to a proxy advisory service that provides proxy voting recommendations or policies, or a default recommendation.
   3.  A violation of this section is an unlawful practice under section 714.16.
   4.  An action may be brought in district court to enjoin a proxy advisor’s violation of this section. In any proceeding for an injunction, the aggrieved person bringing the action shall provide written notice of the action to the attorney general no later than seven calendar days after the date the action is filed in district court. The attorney general may intervene in any action for injunctive relief under this subsection. The following persons may bring an action under this subsection:
   a.  An individual who received a proxy advisory service provided by a proxy advisor that violated this section.
   b.  A company, or a shareholder of a company, that is the subject of a proxy advisory service provided by a proxy advisor that violated this section. This paragraph shall not apply to a company that is the subject of a proxy advisory service for the development of proxy voting recommendations or policies including establishment of default recommendations.
    Sec. 3.  Section 714.16, subsection 2, Code 2026, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  t.  It is an unlawful practice for a proxy advisor to violate section 545.2.
    Sec. 4.  APPLICABILITY.  This Act applies to a proxy advisory service, or a default recommendation, provided by a proxy advisor on or after July 1, 2026.
EXPLANATION
The inclusion of this explanation does not constitute agreement with
the explanation’s substance by the members of the general assembly.
   This bill relates to proxy advisors and proxy advisory services.
   The bill sets forth the requirements for a proxy advisor (advisor) that provides a proxy advisory service (service) to a shareholder or other person with authority to vote on behalf of a shareholder, or that makes a default recommendation against company management on a company proposal or proxy proposal. “Company proposal”, “default recommendation”, “proxy advisor”, “proxy advisory service”, and “proxy proposal” are defined in the bill.
   If the service or default recommendation is not based on a financial analysis, the advisor shall, concurrently with providing the service or default recommendation: (1) provide a disclosure to each shareholder or person with authority to vote on behalf of a shareholder that meets the requirements of the bill; (2) provide the same disclosure to the board of directors of each company that is the subject of the service, except where the service provides voting recommendations, policies, or default recommendations; and (3) post on the advisor’s internet site a statement that the advisor’s services include one or more services that involve recommendations or policies against company management on company proposals or proxy proposals that are not based on a financial analysis.
   If the service or default recommendation is based on a financial analysis, the advisor shall, concurrently with providing the service: (1) provide a disclosure to each shareholder or person with authority to vote on behalf of a shareholder that meets the requirements of the bill; (2) upon request, make the financial analysis available within a reasonable time to any client of the service; and (3) provide the financial analysis to the board of directors of each company that is the subject of the service, except for services that provide voting recommendations, policies, or default recommendations.
   A violation of the bill is an unlawful practice under Code section 714.16.
   An individual, a company, or a shareholder of a company that received a service provided by an advisor that violated the bill may bring an action in district court to enjoin the advisor’s violation. The party bringing such action shall provide written notice of the action to the attorney general no later than seven calendar days after the date the action is filed, and the attorney general may intervene in any such action for injunctive relief.
   The bill applies to a service or a default recommendation provided by an advisor on or after July 1, 2026.