The Realities of Robo-Voting
Bottom Line: A troubling number of asset managers are automatically voting in alignment with proxy advisor shareholder recommendations, in a practice known as “robo-voting.” As a result, proxy firms are able to operate as quasi-regulators of America’s public companies, despite lacking any statutory authority or regulatory oversight.
In a review of asset managers that historically vote in line with the largest proxy advisor firm, 175 entities, representing more than $5 trillion in assets under management, follow the advisory firm recommendations over 95% of the time. Of these, nearly half follow the advisory firm recommendations 99% of the time. Outsourced voting is a problem across different types of asset managers, including pension funds, private equity, and diversified financials.
The reality is clear: hundreds of firms representing trillions of assets under management are voting their shares almost exactly in line with proxy advisors’ recommendations. Given the sheer numbers, the counter-arguments that proxy advisors are independent data providers or that this is a mere coincidence are implausible.
Robo-voting is more concerning given recent concerns over the accuracy of advisor recommendations, the limited amount of time proxy advisors allow for company corrections, and the need for investment managers to align voting with fiduciary considerations.
The growing increase in institutional ownership has correspondingly increased the power and influence of proxy advisors. These firms provide a number of services related to proxy voting, including voting recommendations.
While some institutional advisors have internal analysts, many institutional investors have been disincentivized to carry out their own independent evaluations of proxy votes and governance practices, outsourcing their shareholder voting policies to a proxy advisor industry that relies on a “one size fits all” approach to assessing corporate governance.
In this current environment dominated by proxy advisors, corporate directors and executives are subject to decision making on critical issues by these proxy advisor entities that have no direct stake in the performance of their companies; have no fiduciary duty to ultimate beneficial owners of the clients they represent; and provide no insight into whether their decisions are materially related to shareholder value creation. Informed shareholders, who have such a stake and carry out their own independent research, suffer as well because their votes are overwhelmed by these same organizations.
It seems out of sync with effectively functioning capital markets that proxy advisory firms remain unregulated, despite essentially representing trillions of dollars of assets at the annual shareholders meetings of U.S. corporations.
Read the full report here.
Number of Asset Managers Voting In-Line with Largest Proxy Advisor At Least 95% of Time
By Tim Doyle
American Council for Capital Formation
- 175 entities, representing more than $5 trillion in assets under management, follow the advisory firm recommendations over 95% of the time.
- Of these, nearly half follow the advisory firm recommendation 99% of the time.
- Outsourced voting is a problem across different types of asset managers, including pension funds, private equity, and diversified financials.
- As a result, proxy firms are able to operate as quasi-regulators of America’s public companies, despite lacking any statutory authority or regulatory oversight.