Do Proxy Advisors Have Too Much Power?

The Securities and Exchange Commission requires institutional investors, which control about 80 percent of the stock market, to vote on corporate governance issues. But the SEC allows them to use the recommendations of third-party proxy advisor firms.

Proxy firms have taken on growing importance as activists have increasingly tried to leverage shareholder proposals to pursue fashionable political goals, such as climate change, racial and ethnic diversity, and political spending disclosures. This activism may conflict with investors' fiduciary responsibilities to maximize shareholder return.