AUSTIN, Texas — A recent ruling has temporarily halted the enforcement of a Texas law that introduced new regulations for proxy advisors, specifically those recommending votes based on non-financial factors. This law, known as Senate Bill 2337, is designed to bring more transparency to proxy advisory firms’ recommendations.
Last week, U.S. District Judge Alan Albright granted a preliminary injunction stopping the Texas Attorney General from enforcing the law against two major proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis. The ruling allows the case to progress to trial, which is scheduled for February 2, 2024.
The injunction specifically protects ISS and Glass Lewis, preventing immediate enforcement actions under the new law. However, it does not provide similar protections for other proxy advisory companies, nor does it prevent private individuals from pursuing their own actions under the statute.
Judge Albright’s decision came after hearing arguments that ISS and Glass Lewis demonstrated a strong likelihood of success in challenging the law and potential harm if it were enforced. A formal written order is expected to be issued shortly, detailing the judge’s findings.
Following the ruling, the Texas Attorney General has the option to appeal to the Fifth Circuit in a bid for an emergency stay. If the appeal is successful, enforcement of SB 2337 could be reinstated before the upcoming trial date.
The implications of this ruling could extend to the 2026 proxy season. If Senate Bill 2337 is ultimately upheld, proxy advisors would need to comply with new requirements regarding disclosures and procedures. Should the law be overturned, the existing federal regulations governing proxy advisory services would remain in effect.
This legal battle highlights the ongoing tensions between state regulations and federal guidelines in the rapidly evolving landscape of corporate governance. Stakeholders are closely monitoring the developments as they will significantly influence how proxy advisors operate in the near future.
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