Shareholders' General Meetings and the Role of Proxy Advisors in France and Japan

Abstract

Shareholders’ voting rights are supposed to be a fundamental asset, giving shareholders a say in the most important corporate decisions. However, institutional investors had seldom used theirs as they are rationally apathetic; it made more sense for them to sell their stocks when a company is under-performing. Facing mandatory-voting regulations, they have outsourced proxy voting to proxy advisors. Those consulting firms provide voting recommendations and technological support to investors to cast their votes. Thus, proxy advisors and their most prominent actor, Institutional Shareholder Services, have gradually increased their clout on the American corporate world. Since 2000 the proxy advisors have developed their activities in Europe and Asia. This paper examines the role that proxy advisors are playing in France and Japan to determine if a similar evolution is taking place in those countries. Proxy advisors have become a convergence force towards the shareholder-model worldwide. Corporations are pressed to adopt the corporate governance principles defended by institutional investors and proxy advisors. The non-complying companies take the risk of facing high contestation at their general meeting. This influence and the lack of oversight have led the French stock market regulator to issue new recommendations while the SEC and the European Commission are also pondering on new regulations. If proxy advisors are so influent, their recommendations need to be impartial and accurate.

Keywords: proxy voting, proxy advisor, ISS, corporations, institutional investors

JEL Classification: K22