Proxy Advisor Influence in a Comparative Light

Abstract

The reform of proxy advisors is on the U.S. regulatory agenda, with debate focusing on the extent of influence that these actors exert over institutional investors and corporate managers. But the debate examines the U.S. position in isolation from other systems. If we broaden our focus, we see that the factors usually cited for proxy advisors’ influence exist similarly in the United Kingdom but that proxy advisors there exert significantly weaker influence than they do in the United States. Why this difference when we would expect a similar role for proxy advisors in both systems based on the presence of the usual explanatory factors? This article examines this question, identifying other explanations — the role of institutional investor trade groups, the level of agreement on governance best practices, the strength of shareholder rights, and the role of the State — to help explain proxy advisors’ greater influence in the United States. The article then explores the implications of this analysis for proxy advisor reform in the United States.

Keywords: Proxy advisory firms, institutional investors, proxy voting, comparative analysis, shareholder activism, corporate governance, shareholder rights, ISS, Glass Lewis, United Kingdom

JEL Classification: G23, G34, G38, K22