Proxy advisers face new disclosure rules in North Carolina

North Carolina lawmakers are moving to require proxy advisory services to make certain disclosures, putting a sharper spotlight on the firms that help steer hundreds of thousands of shareholder votes each year. Many investors do not have the time or staff to research every ballot item on their own, so they lean on outside advice when they cast those votes.

The bill’s findings frame that advice as a financial-duty issue, not just a corporate-governance one. The General Assembly says shareholders expect the professionals they hire to act in their financial interest and base recommendations on financial analyses, and it points to institutional investors using proxy advisers to help meet fiduciary obligations under the Employee Retirement Income Security Act, or ERISA, including the management of proxy voting.

Financial duty at the ballot box

The practical argument inside the proposal is that proxy advice can shape what happens at public companies, even though the advice itself is rarely visible to ordinary shareholders. Directors of publicly held companies also have fiduciary duties to their shareholders, and the bill treats those voting recommendations as part of that same duty-driven world.

When analysis turns into advocacy

The measure also singles out recommendations lawmakers say were not presented as financial analysis at all. In the findings, North Carolina points to advice tied to environmental, social and governance, or ESG, diversity, equity and inclusion, or DEI, issues, along with social credit and sustainability scores, including recommendations against company directors and in favor of shareholder proposals, as examples of proxy guidance that should come with clearer disclosure about how it was developed and what it was based on.

Disclosure, not a ban

For investors, fiduciaries and public company directors, the real question is how much daylight should exist around the advice that shapes key shareholder votes. The bill does not ban proxy advice. It would require proxy advisory services to make certain disclosures about it.