Texas Passes Landmark Law Regulating Proxy Advisors: What Companies Need to Know

On June 20, 2025, Gov. Greg Abbott (R-TX) signed SB 2337, a new law that significantly alters the landscape for proxy advisory firms (e.g., Glass Lewis and Institutional Shareholder Service (ISS)) providing services to shareholders of Texas companies. SB 2337 marks a major state-level involvement into how proxy recommendations are developed, disclosed and delivered, particularly when they concern nonfinancial considerations such as sustainability matters, environmental, social and governance (ESG) topics and diversity, equity and inclusion (DEI) issues. The law takes effect on September 1, 2025, and is part of a broader legislative effort by the state to make Texas an attractive jurisdiction for corporate entities. SB 2337 is relevant to companies that are organized in, headquartered in or considering redomiciling to Texas.

What the Law Requires

Enacted with the stated purpose of preventing fraud and deceit in connection with the delivery of proxy advisory services, SB 2337 requires proxy advisors to provide additional disclosure regarding the factors influencing their “proxy advisory services,”^[i] especially when those factors extend beyond traditional financial or pecuniary analyses. Two provisions from the new law are noteworthy:

• Disclosure of Nonfinancial Influences: If a firm’s proxy advisory service (i) is based, in whole or in part, on nonfinancial factors, including “a commitment, initiative, policy, target or subjective or value-based standard” based on, among other criteria, ESG or DEI considerations; (ii) involves a voting recommendation with respect to a shareholder proposal that is inconsistent with the voting recommendation of a board of directors (or board committee comprised of a majority of independent directors), and does not include a written economic analysis^[ii] of the impact of such proposal on shareholders; (iii) is not based solely on financial factors and subordinates the financial interests of shareholders to other objectives; or (iv) recommends voting against a company-backed nominee without affirmatively stating that the recommendation is based solely upon the financial interests of shareholders, then the proxy advisory firm must:
  • Conspicuously disclose to each shareholder that its recommendation is based, in whole or in part, on nonfinancial factors.
  • Conspicuously disclose to each shareholder with “particularity” the basis for the proxy advisor’s advice, including that it subordinates the financial interests of shareholders to other nonfinancial objectives.
  • Immediately provide the affected company with a copy of the required disclosures described above.
  • “Publicly and conspicuously” disclose on the proxy advisor’s website that its advisory services include recommendations based on nonfinancial factors.
• Treatment of Conflicting Recommendations: If a proxy advisor makes recommendations that are “materially different” (e.g., recommending one or more clients vote for a proposal or nominee while simultaneously recommending that one or more clients vote against a proposal or nominee, or recommending that one or more clients vote for or against a proposal in opposition to the recommendation of the company’s management), then the proxy advisory firm must:
  • Comply with the nonfinancial disclosure obligations outlined above.
  • Provide notice (in writing or by electronic means) to each of (i) the Texas Attorney General, (ii) each shareholder (including any entity or person acting on behalf of the shareholder) receiving the recommendation or advice, and (iii) the company that is the subject of the recommendation or advice.
  • Disclose which recommendation or advice is provided solely in the financial interest of shareholders and supported by any “specific financial analysis” performed or relied on by the proxy advisory firm to justify its recommendation or advice.

Both provisions are enforceable under Texas’s Deceptive Trade Practices Act, providing “affected parties” (i.e., recipients of the services, the company subject of the services or relevant shareholders) with a private right of action for injunctive or declaratory relief against a proxy advisor. Plaintiffs seeking redress under SB 2337 must also notify the Texas Attorney General of any actions initiated under the statute within seven days thereof, whereupon the Attorney General may intervene in the proceedings.

Why This Matters for Companies

SB 2337 is the first state-level law of its kind and signals an evolving interest in regulating how proxy advice is formulated and disclosed. While the immediate compliance burden will clearly fall on proxy advisory firms like ISS and Glass Lewis, the practical implications for companies, particularly those located in or considering moving to Texas, are real and immediate. For public companies, the law is likely to result in more formal notifications from proxy advisors whenever nonfinancial factors (e.g., ESG or DEI issues) are cited in support of voting recommendations. In some cases, proxy advisors may temper or reframe their analysis to avoid triggering disclosure obligations, especially if they cannot demonstrate that advice or a recommendation was developed relying exclusively on financial or pecuniary considerations. Relatedly, for private equity-backed portfolio companies considering an initial public offering (IPO) or redomiciling in Texas, SB 2337 introduces a new compliance variable. Proxy advisors may be more cautious in issuing advice or recommendations unless they can articulate a solid financial basis for doing so. In turn, this may influence how governance, sustainability and executive compensation strategies are evaluated during public company readiness assessments.

Preparing for the 2026 Proxy Season

As noted, SB 2337 goes into effect in September; however, its full impact will be felt during the 2026 proxy season. As usual, there are steps companies with a nexus to Texas can be considering now as they begin preparing for next year’s proxy season. These include:

• Engaging proactively with proxy advisors to understand how their recommendation models are being adjusted to comply with the new law.
• Reviewing past annual meeting materials to identify nonfinancial themes (e.g., ESG or DEI goals or initiatives) that may trigger heightened scrutiny or concern on the part of proxy advisory firms.
• Coordinating with external and internal legal advisors, investor relations teams and relevant third parties to monitor whether your company receives a notice under SB 2337 and establish protocols for appropriate escalation upon receipt thereof.
• Educating boards of directors and relevant board committees, particularly nominating/governance and compensation committee members on what the law requires and what to expect during the 2026 proxy season.

Looking Ahead

Glass Lewis and ISS have both sued the Texas Attorney General to bar enforcement of SB 2337, arguing the law violates the First Amendment. Nevertheless, Texas is unlikely to be the last state to consider enacting legislation similar to SB 2337. Legislators in other states including Florida and Oklahoma have introduced similar bills, and more may follow in 2026. Likewise, members of Congress have introduced legislation that would, among other things, require proxy advisory firms to register with the U.S. Securities and Exchange Commission (SEC), as well as satisfy various disclosure and other compliance requirements. It will become increasingly important for companies to consider how these legislative initiatives, which may now differ from state to state, may affect engagement with proxy advisory firms and stakeholders alike.

Our experienced team of Akin lawyers will be monitoring these developments closely.

^[i] For these purposes, a “proxy advisory service” means any of the following services that are provided in connection with or in relation to a company: (a) advice or a recommendation on how to vote on a proxy proposal or company proposal; (b) proxy statement research and analysis regarding a proxy proposal or company proposal; (c) a rating or research regarding corporate governance; or (d) development of proxy voting recommendations or policies, including establishing default recommendations or policies.

^[ii] For these purposes, a written economic analysis must include (a) the short-term and long-term economic benefits and costs of implementing any shareholder-sponsored proposal, as written; (b) an analysis of whether the proposal is consistent with the investment objectives and policies of the client; (c) the projected quantifiable impact of the proposal, if adopted, on the investment returns of the client; and (d) an explanation of the methods and processes used to prepare the economic analysis.