Mercatus on Policy published a policy brief, by American Enterprise Institute scholar James K. Glassman and Mercatus Center scholar Hester Peirce, that outlines the regulations that give power to proxy advisory firms, discusses the nature and adverse consequences of that power, and offers suggestions for reform.
The policy brief discusses the two major firms that dominate the proxy advisory industry and concludes that the firms' power derives from growth in the proportion of shares owned by institutions, the growing number of proxy votes, and the regulatory push toward reliance on outside proxy advice.
The authors go on to discuss the great power that proxy advisory firms wield over corporations, stating that shareholders may not necessarily benefit from proxy advisory firm's influence on corporate decision making. The policy brief also investigates proxy advisory firms' conflicts of interest, as well as recent regulatory developments.
Bevilacqua Quote: Clearly, it's time to let shareholders know that the proxy advisors are not necessarily motivated to provide value to your company. There is simply too much evidence to the contrary. Boards should not be afraid to challenge proxy advisors, especially when their conclusions do not increase long-term shareholder value, or are not supported by the facts. [Excerpted From the Cadwalader Quorum]
Click here to view "How Proxy Advisory Services Became so Powerful," by James K. Glassman and Hester Peirce.
Related news: SEC Commissioner Gallagher Discusses Corporate Disclosure System and Proxy Advisory Industry (January 27, 2014).