Proxy Advisory Firms and Corporate Shareholder Engagement

We study how Institutional Shareholder Services (ISS) affects firms’ interactions with shareholders. Our analyses exploit a quasi-natural experiment using Say-On-Pay voting outcomes near a threshold that triggers a review of engagement activities by ISS. Firms receiving ISS treatment exhibit a swift and substantive increase in engagement, especially those with weaker ex-ante governance. The elevated engagement persists beyond the period of ISS scrutiny. Treated firms alter elements of compensation that align with shareholder feedback, and enjoy ex-post economic benefits, including higher shareholder returns. Our findings demonstrate a lasting and disciplinary spillover effect of ISS monitoring through enhanced and enduring shareholder communications.

Keywords: Proxy advisors, ISS, shareholder engagement, executive compensation, Say-On-Pay

JEL Classification: D72, D82, G34, G38, M12

Suggested Citation: Suggested Citation

Dey, Aiyesha and Starkweather, Austin and White, Joshua T., Proxy Advisory Firms and Corporate Shareholder Engagement (January 24, 2023). Harvard Business School Accounting & Management Unit Research Paper Series No. 21-137, European Corporate Governance Institute – Finance Working Paper No. 819/2022, Available at SSRN: https://ssrn.com/abstract=3871948 or http://dx.doi.org/10.2139/ssrn.3871948