Are Proxy Advisors Really A Problem?
The role and influence of proxy advisory firms is under a microscope as the Securities and Exchange Commission prepares to examine the proxy process next month, with numerous voices from academia and business highlighting the failings of proxy advisory firms. New research underscores these concerns, demonstrating how advisors’ reports are often factually or analytically flawed and provide limited time for companies to respond to errors – leaving thousands of votes to be influenced by inaccurate recommendations.
These failings are magnified by the fact that many votes are also cast through a concerning practice known as ‘robo-voting’, where investors automatically follow proxy advisors’ recommendations, without conducting their due diligence. Commissioned by the American Council for Capital Formation, the new paper, ‘Are Proxy Advisers Really a Problem?’ explores the ramifications of this trend and raises questions over whether asset managers are meeting their fiduciary responsibility to shareholders.
Led by Squire Patton Boggs, four major U.S. law firms collaborated on a survey of 100 companies’ experiences in the 2016 and 2017 proxy seasons, in order to quantify corporate concerns around the proxy process. Significantly, the survey found that robo-voting is real, with respondents reporting that almost 20% of votes are cast within three days of an adverse recommendation, suggesting that many asset managers automatically follow proxy advisory firms.
The report also includes an assessment of supplemental proxy filings, an issuer’s main recourse to a faulty recommendation. Based on a review of filings from 94 different companies from 2016 through September 30, 2018, the paper identifies 139 significant problems, including 49 that were classified as ‘serious disputes.’ The research notes that these issues likely represent only a limited sample of the total number of objections, since companies typically have a brief window to respond.
Read the ACCF commissioned report report, Are Proxy Advisors Really A Problem, to learn more.