Proxy Advisor firm recommendations are important tools for institutional investors, particularly passive investors with hundreds or thousands of proxy shareholder votes to submit annually and an increasing pressure to reduce fees for clients. Despite having little regulatory authority, they have succeeded in gaining an outsized role in our corporate governance system, with huge influence over the future of America’s public companies and their shareholders.
Despite this influence, proxy firms have been criticized on a number of other issues, including:
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Conflicts of interest that can impact the objectivity of voting recommendations made to institutional investors.
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A one-size-fits-all approach to voting recommendations that ignores the unique characteristics and operations of individual companies.
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A lack of willingness to constructively engage with companies, particularly small and midsize companies that are disproportionately impacted by proxy advisory firms.
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A lack of transparency throughout the research and development of voting recommendations.
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Frequent and significant errors in analysis and an unwillingness to address errors.
In addition to fiduciary concerns, these issues are cited as a hurdle by businesses to going and staying public. Over the last 20 years, the number of public companies in the U.S. has fallen by roughly half. This jeopardizes economic growth and limits investment opportunities for retail investors who rarely have the chance to invest in innovative private companies.
Essential Reading
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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 r
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The U.S. proxy system is overdue for reform. The array of issues highlighted during the roundtable revealed some of the system’s serious defects and limitations. These failings undermine publ
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Bottom Line: Institutional investors have a fiduciary duty to vote, but the use of uninformed and imprecise voting recommendations as provided by proxy advisors should not be their o...
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Bottom Line: Any regulation of the proxy advisory industry should carefully consider the effects on 1) institutional investors’ incentives to perform independent governance research ...
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Bottom Line: Greater attention to fiduciary duty fundamentals could help drive an increase in company and investor performance over the long term, enhance sustainability and encourag...
