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Jun 10, 2019

Proxy advisers fight back over criticism of their work

New web page and campaign aim to dispel myths about proxy advisory firms

Proxy advisers are fighting back against what they see as a tirade of misinformation about their work by putting the record straight with the launch of a new web page.

Proxy advisers have come under attack from think tanks, the SEC – with the threat of greater regulation – and NIRI for, among other things, their influence on the behavior of issuers and investors.

But pushing back, Steven Friedman, ISS general counsel, explains to IR Magazine the rationale behind the creation of the new web page and campaign: ‘There are calls – largely from corporate interests – for the SEC and Congress to impose new regulations on proxy advisers. As part of these efforts, there has been a distinct lack of facts and accurate information around the important role proxy advisers play in making sure investors have the critical information and data they need to support their proxy voting and governance activities.

‘To help set the record straight, ISS established this web page to ensure that interested parties who want to learn about the true value of proxy advisers have a place to turn for factual, non-biased information. As the page demonstrates, the corporate interests pushing these new regulations on proxy advisers lack the broad support they claim to have.

‘We welcome a robust and meaningful debate on proxy advisers and the valuable role they play in supporting the critical governance and stewardship needs of the institutional investors that are entrusted with helping hard-working Americans achieve their financial goals.’

The narrative may already be starting to shift, with the SEC’s investor advocate Rick Fleming becoming a dissenting voice in the regulator’s approach.

‘Some have criticized proxy advisers and allege that they have conflicts of interest in their business models, factual errors in their analytical processes, and a political agenda that supports social policies at the expense of investment return,’ he says. ‘All of these things would cause me great concern, except for one thing: the investors who are paying for this service are not the ones who are expressing those concerns.

‘Indeed, at the Roundtable on the Proxy Process the commission held last November, I think the investors made it pretty clear that they are relatively happy with the services they receive from proxy advisers. This is not to suggest that proxy advisers are perfect, but to the extent that any problems exist, it seems their paying customers should be the ones to raise them.

‘The simple fact of the matter seems to be that proxy advisers have given asset managers an efficient way to exercise much closer oversight of the companies in their portfolios, and those companies don’t like it. That’s understandable. And it is also understandable that companies, rather than directly asking the SEC to suppress shareholder voting or give companies more of a say in the advice that is given, would try to cloak their arguments under the mantle of investor protection.

‘But the investors themselves – again, the ones paying for proxy advice – are not asking for protection. In fact, I keep hearing opposition from investors to proposals that might lead to interference in the proxy voting process.’

Summing up the situation, Fleming concludes: ‘I sincerely hope the commission will not prioritize a rulemaking that could impair the independence of proxy advice or lead to even greater inefficiencies in proxy voting.’