Are Proxy Advisors Still a Problem?

Summary of Study

Bottom line: A new analysis of companies’ supplemental filings to their proxy materials with the U.S. Securities and Exchange Commission (SEC) during the majority of the 2020 proxy season shows more than 40 instances where proxy advisors have formulated recommendations based on errors or analysis disputed by the companies themselves. These findings demonstrate that disputes between companies and proxy firms have continued despite significant scrutiny from Congress and the SEC, suggesting further intervention is needed to ensure that investors have as accurate information as possible before voting their securities.

Over the last decade, the practices of proxy advisory firms have come under increased scrutiny because of the quality of vote recommendations, a concern that proxy firms may issue “one size fits all” vote recommendations, and apparent conflicts of interest within the industry. These problems have led policymakers to propose reforms that would increase transparency and ensure proxy advisors provide high-quality voting advice that promotes the long-term best interests of investors.

The supplemental filings submitted by companies thus far in the 2020 proxy season shows the continuation of widespread proxy firm errors. This analysis reveals at least 42 instances where proxy advisors have formulated recommendations based on errors or analysis disputed by the companies themselves.

Examples of errors include: 

  • In one supplemental filing, a proxy advisor generated a recommendation using a disputed figure for a company’s net income, a basic but critical number. 
  • Another highlighted how a proxy advisor based its recommendation on a peer group that did not include the company’s actual competitors.
  • Other filings showed instances where proxy advisors issued recommendations that appear to be contradictory with their stated policies.

These errors cut across virtually every sector of our economy and most are small or mid-cap entities that do not have the significant legal and compliance resources of their larger counterparts. They may only represent the "tip of the iceberg" of proxy errors.

The factual disputes identified in this report are consistent with previous years’ findings and demonstrate that recent efforts, including the SEC’s August guidance, are not enough to stop the proxy advisor problem.

The SEC’s proposed rule to regulate proxy advisors will address this critical issue by enhancing the information available to institutional investors without compromising the independence of proxy advisors. Once finalized, the rule will improve the workings of corporate governance by facilitating greater transparency and accountability amongst public companies and their investors.

Read the full study HERE

Feature Charticle

Company Supplemental Filings Per Year Analyzed

ACCF

Findings:

  • This analysis reveals at least 42 instances where proxy advisors have formulated recommendations based on errors or analysis disputed by the companies themselves.
  • These findings demonstrate that disputes between companies and proxy firms have continued despite significant scrutiny from Congress and the SEC, suggesting further intervention is needed to ensure that investors have as accurate information as possible before voting their securities.
  • The SEC’s proposed rule to regulate proxy advisors will address this critical issue by enhancing the information available to institutional investors without compromising the independence of proxy advisors.

Read the full study HERE