Texas Proxy Adviser Law Demands Disclosure and Protects Investors

When proxy advisers shape the exercise of voting power over trillions of dollars in assets, shouldn’t investors and fiduciaries know the analytical framework truly driving those recommendations? Texas Senate Bill 2337, now codified as Chapter 6A of the Texas Business Organizations Code, answers yes—not by silencing proxy advisers, but by requiring transparency in a system that has long operated in the shadows.

Critics of SB 2337 have argued that the statute is unconstitutional because it regulates speech, but that framework is incomplete. Texas’ law is a disclosure-based investor protection measure.

SB 2337 requires that proxy advisers—who issue recommendations to asset managers and other third-party fiduciaries managing other people’s money—must disclose when a recommendation they deliver isn’t based solely on shareholders’ financial interests and explain what other factors were considered.

The statute doesn’t dictate what proxy advisers should recommend or what views they may hold. It serves to ensure that asset managers who rely on proxy advisers can trust that voting recommendations are made to benefit shareholders, not to wade into policy debates.

SB 2337 recognizes that proxy voting isn’t a debate club; it’s the exercise of fiduciary power. By converting policy frameworks into automated recommendations, proxy advisers often supply the default settings through which fiduciary judgment is often exercised.

But as the Securities and Exchange Commission’s Brian Daly, director of the Division of Investment Management, has recognized, proxy voting is itself a fiduciary function. Daly warned that treating proxy-adviser recommendations as such a “default setting” is no substitute for independent judgment. Each proxy season, institutional investors vote on thousands of ballot items under severe time pressure.

Under the Employee Retirement Income Security Act and longstanding trust law principles, fiduciaries may not subordinate beneficiaries’ financial interests to other objectives, and they can’t discharge that duty by pointing to an external recommendation as cover. Investment advisers remain legally responsible for proxy voting outcomes even when they rely on third parties.

When an asset manager or other institutional investor receives a voting recommendation, they should know whether it is driven by the financial analysis required by the investor’s duties. Without transparency, fiduciaries can’t assess whether reliance on proxy advice is consistent with their duties of prudence and loyalty.

The clearest evidence that SB 2337 addresses a disclosure problem—not a speech problem—comes from Institutional Shareholder Services Inc. The market’s most influential proxy adviser openly operates under multiple analytical frameworks that can yield materially different recommendations, yet those distinctions are largely invisible to the investors and fiduciaries who rely on them. Under its US Benchmark Guidelines, ISS evaluates environmental and social shareholder proposals on a case-by-case basis, examining whether implementation is likely to “enhance or protect shareholder value.”

But within the same document, ISS applies a different lens when assessing board accountability for climate risk: whether companies are mitigating risks not only “to the company” but also “to the larger economy.” This language marks an explicit shift from firm-level financial analysis to systemic judgment. ISS’ Climate Specialty Policy removes any remaining ambiguity.

That policy recommends against director votes at companies deemed insufficiently aligned with a “Net Zero by 2050 trajectory,” a benchmark derived from international climate policy rather than issuer-by-issuer valuation. Even more revealing, ISS defines which companies are subject to this regime by reference to the Climate Action 100+ focus group list, an external advocacy coalition’s target list.

This distinction isn’t confined to policy documents; it appears in real proxy filings. In Chevron Corp.’s 2021 proxy materials, proponents of a Scope 3 emissions proposal framed support as part of a fiduciary duty to protect “all assets in the global economy.” That isn’t a claim about Chevron’s standalone cash flows; it is a portfolio-level rationale. ISS recommended votes in favor of Chevron shareholder proposals addressing emissions from customer use of products and reporting on net-zero ambitions.

The ExxonMobil–Engine No. 1 proxy contest showed exactly what’s at stake. ISS recommended shareholders vote for three dissident nominees, arguing they would strengthen the board’s ability to assess the “energy transition.” Subsequent congressional oversight materials cast the campaign as coordinated climate activism—underscoring how proxy advice can function as a transmission mechanism for broader agendas.

This pattern of substituting policy preferences for financial analysis doesn’t just establish misconduct by proxy advisers. It reveals something far more consequential: Materially different analytical postures are deliberately embedded, commercially monetized, and deployed at scale, even as the market treats “ISS recommends” as a single, undifferentiated command.

SB 2337 doesn’t ask ISS to abandon any framework. It asks for transparency about which one is being used—so fiduciaries and beneficiaries can understand whose judgment they are following, and on what basis.

SB 2337 strips opacity from a market function that has acquired extraordinary power. The statute doesn’t dictate what proxy advisers must recommend or what views they may hold. It requires disclosure when advice isn’t provided solely in shareholders’ financial interests, when recommendations against management are unsupported by economic analysis, and when materially different recommendations are delivered to different clients.

That design serves both market integrity and investor protection. For the first time, proxy advisers are required to be transparent when their advice isn’t made solely in shareholders’ financial interests. Regulations with such a design have long been seen as consistent with free speech.

Texas isn’t silencing proxy advisers. It is asking them to turn on the lights—for fiduciaries, for beneficiaries, and for a market that has operated for too long with a multitrillion-dollar blind spot.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Shane Goodwin is a professor of practice at the SMU Cox School of Business and adjunct professor of law at the SMU Dedman School of Law.

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