Proxy Advisors

Summary:

Proxy Advisor firm recommendations are important tools for institutional investors, particularly passive investors with hundreds or thousands of proxy shareholder votes to submit annually and an increasing pressure to reduce fees for clients. Despite having little regulatory authority, they have succeeded in gaining an outsized role in our corporate governance system, with huge influence over the future of America’s public companies and their shareholders. Despite this influence, proxy firms have been criticized on a number of other issues, including: 

Conflicts of interest that can impact the objectivity of voting recommendations made to institutional investors. 

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Essential Reading

  • U.S. Chamber of Commerce Center for Capital Markets Competitiveness
    Bottom Line: In this annual survey of public companies' experience with proxy advisory firms, respondents said it was difficult to engage constructively with proxy advisory firms, th...
  • David Larcker, Brian Tayan, Rock Center for Corporate Governance
    Bottom Line: The debate on corporate governance today suffers from "loosey-goosey" terminology, preventing a clear understanding of what makes a governance system effective. Critics ...
  • Bernard Sharfman
    Bottom Line: Recent SEC guidance identifies a “principles-based fiduciary duty” that requires investment advisers with delegated voting authority to closely monitor the voting recomm...
  • The Vanguard Group
    Bottom Line: The proxy process could be improved by addressing the distinction between objecting and non-objecting owners, simplifying shareholder record maintenance, balancing the n...
  • Bernard Sharfman
    Bottom Line: It's time to designate proxy advisors as investment advice fiduciaries not only due to longstanding conflict of interest concerns, but also to overcome their increased e...
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