Major investors increasingly rely on the services of external providers to support investment-related decisions. In the world of proxy voting, the two largest advisory services for institutional shareholders control an estimated 97 percent of the market and are able to impact major voting decisions with their recommendations. In recent years, these firms have emerged as quasi-regulators leveraging their influence to require disclosure from public companies without any actual statutory powers, leading to numerous issues:
Proxy advisory firms also offer consulting services to companies and as a result are incentivized to change policies to favor their clients and create a better market for their company-side consulting services.
Consistently updating reporting requirements is lucrative to proxy advisors who can charge increased fees from newly changed ratings criteria, but disproportionately impacts smaller companies with limited reporting resources.
Proxy advisory firms’ reach has been extended by the proliferation of pro-forma “robo-voting” – decreasing companies’ ability to advocate for themselves or respond to an adverse recommendation.
Read ACCF’s report, The Conflicted Role of Proxy Advisors, to learn more.