A Defense of Proxy Advisors

45 Pages Posted: 17 Jun 2014 Last revised: 5 Jun 2015

See all articles by George W. Dent

George W. Dent

Case Western Reserve University School of Law

Date Written: 2014


Proxy advisors have dramatically transformed shareholder voting. Traditionally, even large institutional investors tended to follow the Wall Street Rule — vote with management or sell your stock — because the economics did not justify incurring any expense in deciding how to vote. The emergence of proxy advisors who perform proxy research for a modest fee paid by each of thousands of institutions now enables these investors to vote intelligently. New laws and rules have also expanded the range of matters on which shareholders vote. Because of these developments, business managements can no ignore but must cater to shareholder interests.

However, corporate managers resent being dethroned. They are mounting a campaign to press the SEC to impose new regulations to hobble proxy advisors and, thereby, to neutralize institutional shareholders.

This article reviews the charges leveled against proxy advisors and the new regulations proposed by their critics. It finds the complaints mostly unwarranted. Institutional investors are sophisticated and market forces minimize any problems with proxy advisors. With a few minor exceptions, new regulations are not needed and would be counterproductive.

Keywords: Proxy Voting, Institutional Investors, Wall Street Rule, Proxy Advisors

JEL Classification: K22

Suggested Citation

Dent, George W., A Defense of Proxy Advisors (2014). 2014 Michigan State Law Review 1287, Case Legal Studies Research Paper No. 2014-13, Available at SSRN: https://ssrn.com/abstract=2451240 or http://dx.doi.org/10.2139/ssrn.2451240

George W. Dent (Contact Author)

Case Western Reserve University School of Law ( email )

11075 East Boulevard
Cleveland, OH 44106-7148
United States
216-368-3311 (Phone)
216-368-2086 (Fax)

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