Improvements Can Be Made Throughout the Proxy Process

Summary of Study

Bottom Line: BlackRock believes that improvements can be made throughout the proxy process, including around voting processes, shareholder proposals, and proxy advisors. Proxy advisors play an important role in the corporate governance ecosystem; however, we think that some improvements to transparency would benefit all stakeholders. Resolving the existing inefficiencies and opacity would be consistent with our collective desire to enhance the quality of proxy process research and promote competition within the industry. 

BlackRock recommends that any restructuring of the proxy process begin with a set of guiding principles setting out the objectives that would help shape any changes to the process. These include the following principles:  

Principle 1: Transparency encourages market integrity and reduces conflicts

  • BlackRock recommends a principle of transparency throughout the proxy ecosystem. It believes some of the issues that have been identified may prove self-correcting when all participants are held to a similar standard of transparency and when data is more readily available. 

Principle 2: Accurate information is critical to decision making

  • BlackRock recommends that the SEC pursue solutions that ensure accuracy, completeness and a fair and consistent process with regard to the proxy advisory firm’s preparation of its company reports. Given the volume of proxy votes and the compressed time frame of U.S. public company annual general meetings, it recommends exploring technology solutions such as a digital portal for the review of draft company reports.  

Principle 3: A need to balance the rights of all shareholders

  • BlackRock recommends the SEC gather data on shareholder proposals as discussed later under “Fact Finding.” It believes this research will help in modernizing the eligibility criteria for initial submissions and the rules addressing resubmission. 

Principle 4: Cost-benefit analysis should underpin recommendations and rulemaking

  • Cost-benefit analysis is a fundamental underpinning of effective regulation. It believes cost-benefit analysis should be incorporated into the shareholder proposal process. 

Principle 5: Voting integrity is paramount to investor confidence

  • BlackRock believes technology solutions can address the record keeping and reconciliation challenges across the multiple layers of data exchange and several solutions should be explored to modernize the antiquated proxy plumbing infrastructure. 

As interest in the proxy process has increased, a number of misperceptions have emerged in the ongoing dialogue. Changes to the proxy process should be grounded in data, not based on speculative statements. A robust discussion would benefit from some basic fact finding and level setting in advance of contemplating changes. It recommends further assessment of:

  1.  Actual voting records.
  2.  Shareholder proposals.
  3.  Registered fund processes. 

BlackRock recommends that the SEC undertake a survey of registered funds to better understand the process and costs associated with soliciting proxies for registered fund shareholders. In addition to cost data, this survey should collect data on the level of response to proxies from registered fund shareholders.

Read the full comment letter here.