…we’ll be asking about the role of proxy advisory firms in corporate voting. Given the influence that these firms’ recommendations have on corporate voting outcomes, we’ll probe the need for rules to ensure that advisory firms are basing their research and recommendations on accurate and reliable information. And, that they are providing adequate disclosure of any conflicts of interest they may have in providing voting recommendations.
Mary Schapiro, Chair, Securities and Exchange Commission (SEC), Nov. 2009
Abstract
The current proxy voting system in the United States has become the subject of considerable controversy. Because institutional investment managers have the authority to vote their clients’ proxies, they have a fiduciary obligation to those clients. Frequently, in an attempt to fulfill that obligation, these institutional investors employ proxy advisory services to manage the thousands of votes they must cast. However, many proxy advisory services have conflicts of interest that inhibit their utility to those seeking to discharge their fiduciary duties. In this article, we describe the current proxy advisory network as an example of how current notions of conflicts of interest fall short when explaining the behavior of an interconnected set of market players whose remit is to act in the best interests of their investors. We discuss what participants in this system should do to bring transparency and accuracy to the proxy advice industry.
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Notes
The term “institutional investor” refers to both the institution that owns the securities and an asset manager delegated the authority to vote proxies on behalf of the investors.
According to the SEC, many corporate directors were elected under a plurality standard, which required only that a candidate receive more votes than other candidates, but not a majority of the votes. Some companies have moved to a majority-vote standard in recent years.
This language was changed from its 2007 web posting stating the following: “except in the rare circumstance that a money manager is a public company or a division of a public company.” See Rose 2007. Also see http://www.glasslewis.com/company/disclosure.php.
The authors would like to thank an anonymous reviewer for pointing this role out to us.
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Clark, C.E., Van Buren, H.J. Compound Conflicts of Interest in the US Proxy System. J Bus Ethics 116, 355–371 (2013). https://doi.org/10.1007/s10551-012-1460-x
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DOI: https://doi.org/10.1007/s10551-012-1460-x