The Proxy Advisory Industry: Influencing and Being Influenced

57 Pages Posted: 2 Jun 2020 Last revised: 23 May 2022

See all articles by Chong Shu

Chong Shu

University of Utah - David Eccles School of Business

Date Written: May 20, 2022

Abstract

Using two innovative methods to infer each mutual fund’s proxy advisor from previously unnoticed features of its SEC filings, this paper establishes several novel facts about the proxy advisory industry. This industry, although still a duopoly controlled by ISS and Glass Lewis, has become less concentrated over the last decade. Negative recommendations from either ISS or Glass Lewis are followed by reductions in its customers’ votes by over 20 percent. The two proxy advisors sell not only proxy advice but also voting platform services; the use of a proxy advisor’s voting system can further sway investors’ votes in addition to proxy advice, raising the concern about investors’ automatic vote execution practice. Specifically, over 40 percent of the small funds that use ISS’s voting platform blindly follow its advice. Finally, proxy advisors adjust their recommendations to align with investors’ votes, and such alignment results from both information acquisition and preference catering.

Keywords: Proxy Advisor, Corporate Voting, Robo Voting, Shareholder Rights

JEL Classification: G23, G34, G38, G40

Suggested Citation

Shu, Chong, The Proxy Advisory Industry: Influencing and Being Influenced (May 20, 2022). USC Marshall School of Business Research Paper, Available at SSRN: https://ssrn.com/abstract=3614314 or http://dx.doi.org/10.2139/ssrn.3614314

Chong Shu (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

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