SEC weighs influence of proxy advisers

Should regulators impose rules to make businesses more transparent?

As proxy battles become more commonplace in Corporate America, the Securities and Exchange Commission (SEC) has assembled a troupe of financial and legal experts to deliberate whether proxy advisers have grown so powerful in corporate elections that regulators need to impose rules to make their business more transparent.

The roles of the two biggest proxy advisory firms — Institutional Shareholder Services Inc. and Glass Lewis & Co. LLC — in shareholder voting will be debated by institutional investors, brokers, business groups and unions today at a meeting hosted by the SEC in Washington, D.C. The panel will weigh in on the use of proxy advisory firm services by institutional investors and investment advisers.

Proxy advisory firms offer services to assist investors and investment advisers in voting on matters presented to shareholders. Some proxy advisory firms also provide consulting services, including to publicly traded companies that may use these services to help develop proposals to be put to a shareholder vote or to improve their corporate governance ratings.

Panelists will discuss, among other topics, the current use of proxy advisory services, including the factors that may have contributed to their use, the purposes and effects of using the services, and competition in the marketplace for such services, according to the SEC.

In the second session, participants will also explore issues identified in the Commission’s 2010 concept release on the U.S. proxy voting system, including potential conflicts of interest that may exist for proxy advisory firms and users of their services, and the transparency and accuracy of recommendations by proxy advisory firms.

SEC Commissioner Daniel Gallagher has warned that the SEC had created a regulatory environment that has allowed investment advisers to adopt a mindset in which they “blindly vote” in line with proxy adviser recommendations, Reuters reported.

Speaking at a European Corporate Governance Institute conference this week, SEC Chairwoman Mary Jo White said that corporate boards and management should engage with shareholders to help improve governance.

 

For more stories relates to corporate governance, check out InsideCounsel’s coverage below:

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