2020 Proxy Season Survey

Summary of Study

Bottom line: This annual survey of institutional investors' experiences with their proxy advisors demonstrates widespread support of the SEC's new proxy advisor rule. Yet the survey also found that responsiveness and transparency on behalf of proxy advisory firms continue to decline. Conflict of interest and robovoting also continue to be major concerns.

A well-functioning proxy advisory system helps ensure that votes are always cast in a manner that enhances the long-term performance of public companies. However, the proxy advisory system has operated for years with a number of serious flaws. 

In July 2020, the SEC finalized a rulemaking that will make the proxy advisory industry more transparent and enhance the quality of vote recommendations. The rule establishes a mechanism for public companies to review draft vote recommendations in order to correct any errors or analytical flaws. The rule will also result in more robust disclosures regarding proxy advisory firm conflicts of interest.

These reforms are necessary to stem the drastic decline in public companies that has occurred over the last two decades. Fewer public companies translate to lower economic growth, less job creation, and fewer opportunities for Main Street investors to own the next generation of great American businesses.

In a survey of 182 public companies of all sizes, the following responses regarding proxy advisors were indicated:

  • 81% of the companies reported that they were aware of the SEC rulemaking related to proxy advisory firms.
  • 99% of those companies saying they support the rule.
  • 97% of the companies reported that they would avail themselves of the review-and-comment mechanism included in the SEC rule.
  • 85% said that the SEC's mechanism would not create any unnecessary delays or confusion in the proxy voting process.
  • 85% of the companies surveyed had a proxy advisory firm make a recommendation regarding an issue included in their proxy statement.
  • 75% of the companies carefully monitor proxy advisory firm recommendations for accuracy or reliance on outdated information.
  • 7% of the companies formally requested that proxy advisory firms provide them with a preview of vote recommendations.
  • 44% of the companies responding believe that proxy advisory firms carefully research and consider all relevant aspects of a particular issue on which it provides advice.
  • 24% of the companies pursued opportunities to meet with proxy advisory firms on issues subject to shareholder votes.
  • 69% of companies that asked for a meeting with proxy advisors regarding vote recommendations were denied.
  • 54% of the companies reported that they were approached by a representative of ISS Corporate Solutions during the same year in which they received a negative vote recommendation from ISS, demonstrating a clear conflict of interest.
  • 20%–35% of the shares in many companies are voted automatically with proxy advisory firms once vote recommendations are issued, demonstrating that robovoting is still widespread. 

Read the full study HERE

Feature Charticle

Center for Competitive Markets

Findings:

  • This annual survey of institutional investors' experiences with their proxy advisors demonstrates widespread support of the SEC's new rule on proxy advisors. 
  • The survey also found that responsiveness and transparency on behalf of proxy advisory firms continue to decline. 
  • Conflict of interest and robovoting also continue to be major concerns regarding proxy advisors. 

Read the full study HERE