Reclaiming Main Street: SEC Hears Retail Investors’ Cries for Proxy Advisory Oversight

Summary of Study

Bottom Line: In this survey of retail investors, respondents are increasingly concerned about the role that proxy advisors have in influencing the shareholder voting process. Respondents overwhelmingly support recently proposed SEC regulations on proxy advisors. This survey should be viewed as a call to action by the retail investor community.

According to this survey, American retail investors support greater proxy advisor disclosure, view proxy advisors’ social and political focus as inconsistent with their priority of maximizing returns, want greater transparency in how and why proxy advisors make their recommendations, and demand disclosure over whether their advice is influenced by clients.

Respondents also had concerns about robo-voting and wanted to see the SEC take steps to ensure company responses to proxy advisor recommendations—especially those tainted by errors of analysis—were being properly considered by investment advisors, and not ignored by automatic voting procedures.

Respondents showed an increase in familiarity with the following five problems associated with the proxy advisor industry:

1. Conflicts of Interest
2. Robo-Voting
3. Inadequate Transparency
4. Errors in Proxy Advisory Reports
5. Refusal to Engage with Issuers

Retail investors said they would welcome SEC attention to rules that have entrenched the firms, especially as proxy advisors have wielded the influence of—and recommended the actions put forth by—clients pushing a more “socially responsible” agenda in shareholder proposals. Those worries are rooted in investors’ core focus on returns, which this survey confirms. When given a choice between maximizing returns or pursuing social and political goals, 91% of investors prefer maximizing returns.

Each of the SEC's proposed reforms generates widespread retail investor support:

  • 79% of retail investors support the SEC’s new proposed rule requiring proxy advisory firms to give companies an opportunity to review and provide feedback on advice before it is issued.
  • 78% of retail investors support the proposed rule to require proxy advisors to disclose conflicts of interest, and 75% support the proposed hyperlink rule.
  • 77% of retail investors support the proposed rule requiring shareholder-proponents to provide their identify, role and interest when submitting proposals,
  • 73% support requiring shareholder-proponents to meet with companies to discuss proposals.
  • 71% of retail investors support the SEC’s proposal to limit proposals to one per shareholder, and 68% favor increased thresholds for resubmission of previously failed proposals.
  • 72% of retail investors support modernizing criteria requiring shareholders to own higher amounts of shares for longer to be eligible to submit proposals

Read the full study here

Feature Charticle

Investment Preference: Pursue Political/Social vs. Maximizing Returns

Spectrem

Findings:

  • In this survey of retail investors, respondents are increasingly concerned about the role that proxy advisors have in influencing the shareholder voting process. 
  • When given a choice between maximizing returns or pursuing social and political goals, 91% of investors prefer maximizing returns.
  • Respondents overwhelmingly support recently proposed SEC regulations on proxy advisors. This survey should be viewed as a call to action by the retail investor community.

Read the full study here