Legal challenge to Texas proxy law by ISS, Glass Lewis met with resistance from Dechert LLP

ISS and Glass, Lewis recently filed complaints challenging Senate Bill 2337 in the District Court for the Western District of Texas. The law, signed by Texas Governor Greg Abbott, will take effect on September 1, 2025, and is titled “An Act relating to the regulation of the provision of proxy advisory services.” It mandates specific disclosure requirements for proxy advisors who include non-financial factors like sustainability, social, or governance issues in their proxy voting recommendations or advisory services.

In their complaints, Glass, Lewis, and ISS argue that the law violates their constitutional rights and is subject to preemption. Glass, Lewis claims that the law forces them to promote the government’s viewpoint over their own, stating that they must tell clients that their services are not solely provided in the financial interest of shareholders and visibly display this disclaimer on their website. ISS criticizes the law for imposing burdensome requirements on proxy advisors that go against Texas’s favored investment objectives, with harsh penalties for non-compliance.

Both Glass, Lewis and ISS contend that the law engages in content-based and viewpoint discrimination and compels specific speech. They argue that the law is also unconstitutionally vague and subject to federal preemption. Glass, Lewis points out that it hampers interstate commerce by demanding out-of-state proxy advisors to provide detailed disclosures to out-of-state shareholders about companies that may not even be from Texas, violating the Dormant Commerce Clause. ISS adds that the law unjustly disrupts their contractual relationships with clients without a legitimate basis, breaching the Contracts Clause.

In requesting declaratory and injunctive relief, Glass, Lewis and ISS are seeking to overturn the law and prevent its implementation. They are actively challenging its constitutionality and argue that it infringes upon their rights to free speech, freedom from discrimination, and contractual freedom. The cases brought by Glass, Lewis and ISS against Senate Bill 2337 highlight the legal battles between regulatory bodies and businesses in upholding constitutional rights, ensuring fair commercial practices, and protecting freedom of expression in the proxy advisory services industry. Both entities are standing up against what they perceive as governmental overreach and unjust restrictions on their operations.