News Summary
A recent court ruling in Texas has introduced a significant legal challenge for proxy advisory firms with the implementation of Senate Bill 2337. This bill mandates these firms to disclose potential influences of non-financial interests on their recommendations. The ruling affects major players like Institutional Shareholder Services Inc. and Glass Lewis & Co., which argue the law is unconstitutional. Meanwhile, proponents believe it enhances transparency. As the situation unfolds, the implications for businesses and shareholders in Texas could reshape the proxy advisory landscape.
AUSTIN, Texas – A federal judge has temporarily blocked the enforcement of Texas Senate Bill 2337 (SB 2337), halting new disclosure requirements for proxy advisory firms. On August 29, 2025, Judge Albright of the U.S. District Court for the Western District of Texas granted preliminary injunctions in two lawsuits against the bill, brought forth by Institutional Shareholder Services Inc. and Glass, Lewis & Co., LLC. The injunction prevents Texas Attorney General Ken Paxton from enforcing SB 2337 against these two firms while legal proceedings continue, with a trial scheduled for February 2, 2026.
The implications of this ruling are significant, as Institutional Shareholder Services and Glass Lewis dominate the proxy advisory market, accounting for approximately 97% of its share. Therefore, the ruling effectively diminishes the law’s enforceability against other proxy advisory firms in the near term. SB 2337 was set to take effect on September 1, 2025, and imposes stringent public disclosure obligations on proxy advisory firms when their recommendations may be influenced by non-financial interests, such as environmental, social, and governance (ESG) factors.
Under SB 2337, proxy advisory services are required to disclose that their recommendations might not align solely with the financial interests of shareholders if other factors are considered. Any violation of this law is classified as a deceptive trade practice under Texas law, which permits affected parties—including shareholders and the Texas attorney general—to pursue legal recourse against the offending firms.
In their legal challenge, ISS and Glass Lewis argue that SB 2337 is unconstitutional because it compels speech and is vague regarding fundamental definitions like “non-financial factors.” ISS claims that the law is preempted by the Investment Advisers Act of 1940, while Glass Lewis asserts preemption under the Employee Retirement Income Security Act of 1974. The Texas Stock Exchange and the Texas Association of Business have intervened as defendants, claiming a vested interest in enforcing the law and addressing concerns about potentially misleading proxy advice.
The issue of transparency in the proxy advisory industry has drawn mixed reactions, with the Alliance for Corporate Excellence filing amicus briefs in support of SB 2337. They argue that the law promotes necessary transparency in the industry. Conversely, critics assert that SB 2337 may interfere with the recommendations provided by proxy advisors, which could hinder shareholder engagement and diminish voting transparency.
During the court hearing, Judge Albright expressed skepticism regarding the law’s purpose and enforcement, noting potential harm and a likelihood of success on the merits for ISS and Glass Lewis. The judge’s concerns contributed to the issuance of the injunctions that currently prevent enforcement against these firms.
If SB 2337 were to be enforced, proxy advisory firms would have to disclose any conflicts of interest within 24 hours and ensure transparency regarding their voting recommendations, particularly when these are influenced by factors beyond financial considerations. This would further heighten the tension between state regulations governing proxy advisory practices and existing federal laws that oversee financial advising.
The Texas attorney general retains the option to appeal the injunctions to the Fifth Circuit for an emergency stay while the litigation continues. The forthcoming trial will examine the legality and ramifications of SB 2337, which has already stirred significant debate regarding proxy advisory practices and shareholder rights in the state.
In conclusion, the blocking of SB 2337 reflects the ongoing tension between state legislative intentions to regulate proxy advisory services and the established federal statutes that govern financial advice. As the legal process unfolds, the outcome will likely have lasting implications for the future of proxy advisory firms operating in Texas and beyond.
Deeper Dive: News & Info About This Topic
- Vinson & Elkins: New Law Requires Proxy Advisors to Show Their Cards
- Foley: Protecting Texas Companies under Senate Bill 2337
- ESG Dive: ISS and Glass Lewis Sue Texas AG over Anti-ESG Law
- Bloomberg Law: Texas ESG Investment Disclosure Law Blocked
- Texas Border Business: Defending Texas Law on Proxy Advisor Accountability
- Wikipedia: Proxy Advisory Firm
- Google Search: SB 2337 Texas
- Google Scholar: Texas Proxy Advisors Law
- Encyclopedia Britannica: Proxy Advisor
- Google News: Texas Proxy Advisors
Author: STAFF HERE COLLEGE WRITER
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