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Oct 18, 2018

ISS and CII lobby against proxy adviser bill

Critics of HR 4015 say it would undermine independence of proxy advisers

The Council of Institutional Investors (CII) and ISS have stepped up their lobbying efforts against proxy adviser reforms with the US mid-term elections looming next month.

The groups have launched a website that opposes federal legislation HR 4015 and encourages voters to urge their senators not to vote for the measure, which has already passed the House of Representatives.

The bill would require proxy advisory firms to register with the SEC. Registered firms would have to, among other things, employ an ombudsman, designate a compliance officer and file certain documents with the SEC. The legislation would also prohibit ‘unfair, coercive or abusive practices.’

Proponents of the bill suggest the proxy advisory business lacks transparency, is prone to inaccuracies in its reports and could be susceptible to conflicts of interest. Investors hire proxy advisers to review a company’s proxy materials, assess them based on the investor’s voting guidelines and recommend whether the investor should vote for or against shareholder proposals.

Critics of HR 4015 such as ISS and CII say it would undermine the independence and business of proxy advisers by giving companies the right to review proxy advisers’ research reports before they go to investor clients. This, ISS and CII argue, would give investors less time to review reports and potentially skew the reports in favor of management.

‘While proponents of HR 4015 have created the illusion of problems in proxy advising that need fixing by Congress, what they really seek to do is minimize the voice of shareholders and investors on matters like CEO pay,’ says CII executive director Ken Bertsch in a statement about the new website,

‘By giving issuers a right to review proxy recommendations before they are published to clients, the legislation inappropriately and unnecessarily interferes with institutional investors’ voting processes, compromising their contractual right to an independent, unfiltered product,’ KT Rabin, CEO of Glass Lewis, told Corporate Secretary earlier this year.

CII said in a letter to the House Committee on Financial Services last November that the legislation is ‘based on several false premises, including the erroneous conclusion that proxy advisory firms dictate proxy voting results.’ The letter was co-signed by 45 investors and investor groups, including CalPERS, CalSTRS and the New York City Comptroller.

In 2017, ISS recommended investors vote against issuers’ say-on-pay proposals at 11.92 percent of the Russell 3000, but only 1.28 percent of those proposals received less than majority support from shareholders, according to CII’s letter.

Writing on in July this year, ISS president and CEO Gary Retelny stated: ‘If this bill becomes law, it will break the long-standing fiduciary bond between proxy advisers, which are hired to provide independent research and analysis of public companies, and their institutional investor clients, which invest in companies on behalf of millions of Americans saving their hard-earned money through 401(k)s, pensions, college savings and other plans. This disingenuous legislation will create new, unnecessary and cumbersome regulations to the detriment of shareholders.’

Ben Maiden

Ben Maiden is the editor-at-large of Corporate Secretary , an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter , covering regulatory and compliance...
Editor-at-large, Corporate Secretary