The Proxy War against Proxy Advisors

Abstract

The thesis of this paper is that the criticisms and calls for regulation of the proxy advisory industry are not really directed at the proxy advisors themselves, but at their clients, the holders of public company stock. Many corporate executives, directors and their representatives want to make it more difficult for shareholders to vote against management recommendations. The assumption underlying this view — sometimes stated, sometimes not — is that executives and directors know what’s best for their companies and, in many instances, shareholders do not. Almost by definition, this means that recommendations that don’t agree with management are viewed as inaccurate, uninformed, and value destroying. Rather than allow shareholders to support non-value maximizing shareholder proposals and say-on-pay recommendations unfettered, corporate interests have sought to make it more difficult for institutional investors to vote proxies independently of management by urging measures that would hamstring their proxy service providers. Before endorsing regulatory intervention, it’s worth first asking if there are other potential market solutions to address the existing deficiencies. If uninformed shareholder voting is the problem, then both corporate managers and the SEC should be open to alternative solutions that would address the tension between the sometimes competing interests of shareholders making informed voting decisions and controlling the costs of procuring and managing the information necessary to make those decisions.

Keywords: proxy advisors, proxy adviser regulation

JEL Classification: K22