Proxy advisory firms provide institutional investors with research, data, and recommendations on management and shareholder proxy proposals that are voted on at a company’s annual meeting. Over the past 20 years, proxy advisory firms have emerged as a major player in executive compensation and corporate governance as a result of several factors, including the growth of institutional investor stock ownership and mandatory say on pay. As a result, the research and voting recommendations proxy advisory firms provide can have a significant impact on the level of support a shareholder proposal receives. The Center has several concerns regarding the practices of the two leading proxy advisory firms:
Conflicts of interest in proxy advisory firm business models raise questions about the independence of their analysis. In certain cases inaccuracies in the final proxy advisory firm report may impact the outcome of proxy votes. Additionally, proxy advisory firm policies may result in illogical Peer Groups which in turn result in inappropriate pay for performance evaluations. The Center believes the best approach to address these issues is for institutional investors to more carefully monitor proxy advisory firm recommendations and that SEC oversight and regulatory guidance would assist in the development of improved proxy advisory firm practices.