A number of large publicly-listed companies in the United States have started a campaign to counter the growing influence of large proxy advisers such as ISS or Glass Lewis. Pro-Governance has watched their activities also with concern as these outfits are profit-oriented businesses and their motives are not necessarily ruled by altruistic considerations. Pro-Governance misses the lack of any input from the REAL investors, that is the citizens who entrust their savings to fund management firms.These firms are the fiduciaries of the savers and should try to work in their best interests. This means not only to strive for the best possible investment performance but also exercising their duties as shareholders of the businesses they invest in. At present neither the fund managers nor the proxy agencies make any discernible effort to take account of the wishes of their investment clients. At best, Companies and Fund Managers bend to pressure from the media, politicians, the odd activist investor or NGO's. As a consequence it comes as no surprise when the proxy agencies find themselves under fire. Another aspect relating to their operation is the fact that their recommendations are often opaque cop-outs ('We recommend to abstain') or neglected by their clients (in that case it is not clear why they would pay any fees to the agencies as they are obviously a waste of investment clients' money). Proxy Agencies may have a role to play if they operate in a way that is somewhat similar to the operation of political parties. Fund Managers in that case would obtain a proxy from their clients and would receive binding instructions to follow the recommendations of the proxy agency selected by the client to represent his views. Alternatively, Fund Managers would solicit input from their clients directly. While this is impractical for the multitude of proxies that would be required if specific instructions on a company-by-company basis would have to be obtained, it would be perfectly possible to make more effort to obtain the clients preferences on questions of principle. Creating a link with their investor clients would also allow the fund management industry to exert more influence in discussions about corporate governance and regulatory affairs.
(08/02/2011)
John blogged earlier this month about the governance implications of the
DOJ’s fraud enforcement initiatives. A report issued last week by the U.S.
Governm...
18 hours ago
1 comments:
I think there is a saying somewhere about "not shooting the messenger" perhaps the campaign should be more properly focussed on the consumers of proxy advisors' work; after all it is the fund managers/asset owners that sign the contracts and pay the invoices. If a proxy advisor's client doesn't like what they get they can always cancel the contract. Likewise if an asset owner doesn't like what a fund manager is doing in their name, they can take their rights back and exercise them directly.
Speaking as a proxy voting agency which for the past 15 years has only ever taken account of its clients wishes and policy practices, your broad generalisations are completely off the mark.
You seem to object to advisors being "for profit" - why is this a concern any more than a fund manager being "for profit" or even an asset owner wanting a positive return on his/her investments? Should stockbrokers be "not for profit" also?
Lastly, a positive abstain is far from opaque or a "cop-out", it is a vote witheld from management. Think of it in football terms as a "Yellow Card".
If you would like to understand what a proxy advisor really does rather than what you think it does, please do by all means speak to us and we will be more than happy to be transparent about our business model.
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