Proxy Advisor/Company Interactions: Room for Improvement

January 22, 2016

A joint Nasdaq/US Chamber of Commerce survey of 155 public companies regarding their interactions with ISS and Glass Lewis during the 2015 proxy season revealed that only 25% of companies believed the proxy advisor carefully researched and took into account all relevant aspects of the particular issue on which it provided advice, and only 38% of companies believe that their input into the proxy advisors recommendations (to the extent provided) had any impact.

Additional survey results include:

94% ofcompanies had a proxy advisor make a recommendation on a matterin their proxy statement.Companies asked advisory firms to provide input into the recommendation 47% of the time, and advisory firms permitted that input 53% of the time. As noted, only 38% of companies believe that input had any impact on the final recommendation.For companies seeking input, companies reported a wide spread in the amount of time the advisors granted them to respond anywhere from one hour to a month. 24 to 48 hours seemed most common.For companies that believe they had insufficient time to respond, only 26% expressed their dissatisfaction to the advisory firm and portfolio managers.More than half of companies (53%) notified the proxy advisor when it relied on inaccurate or stale data to make a recommendation. 43% of companies notified portfolio managers. No companies reported bringing the issue to the attention of the SEC.38% of companies surveyed reached out to proxy advisors to pursue opportunities to meet and discuss proposal issues. 60% of companies outreach resulted in a meeting with the advisor.20% of companies formally requested previews of advisor recommendations. About half (48%) reported that the advisor accommodated the request. Again, companies reported a wide spread of one day to one month in the time between the preview and the recommendation, with 1 2 weeks seeming most common.84% of companies monitor proxy advisors reports for accuracy and reliance on outdated information.13% of companies took steps to verify the nature of proxy advisor conflicts of interest, and even fewer (6%) reported finding significant conflicts during the current proxy season. While affected companies uniformly notified proxy advisors 100% of the time when the companies discovered apparent conflicts, none notified the SEC.78% of companies have some form of year-round, regular communication program with institutional investors.

See also Cooley Cydney Posners blog.

The SEC is closing at noon today due to the expected snow storm. See Brocs earlier blog for thefilings impact.

Congressman Questions SEC on Proxy Advisor Accountability

As discussed in this release, at an October 2015 Capital Markets and Government Sponsored Enterprises Subcommittee hearing: Oversight of the SECs Division of Investment Management, U.S. Rep. Ed Royce (R-CA) questioned SEC Director of the Division of Investment Management David Grim on proxy advisor accountability, and suggested that the SEC should be engaging in formal rulemaking on proxy advisors as opposed to simply issuing a staff legal bulletin as wasthe case with SLB 20.

Here is a key excerpt:

Following up on the staff legal bulletin on proxy voting that Chairman Garrett and Mr. Huizenga raised earlier: Should proxy advisory firms not be held to the same sort of accountability on corporate reporting and transparency as the SEC requires of the publicly traded companies that they advise on? continued Rep. Royce.

With respect to proxy advisory firms and the guidance that the staff did issue, I think it was focused on addressing two important issues as a general matter. One is, with respect to the proxy advisory firms themselves, doing what we can to encourage good disclosure of material conflicts of interests by those proxy advisory firms. The second focus of the guidance was on investment advisors and how they use proxy advisory firms, making sure that their oversight of the proxy advisors is robust and appropriate, replied Grim.

I saw the bulletin, one of the things it brought to mind was whether or not we shouldnt instead be having the Commission have a formal rulemaking on this. And I say it for these reasons: when we get to this question of what are the standards of performance, weve got a situation where youve got two entities, and they dominate here clearly over 90% of the market, and on top of it have a situation where their reports, I would think, would be subject to public scrutiny, after those reports are prepared. But we dont have that. So I think taking it higher than a staff legal bulletin and taking it to basically a question of rulemaking on this by the Commission is something I would suggest, continued Rep. Royce.

As a senior member of the House Financial Services Committee, Royce sits on two Subcommittees: Capital Markets and Government Sponsored Enterprises and Housing and Insurance.

See this video clipof the exchange.

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