Speakers Debate Proxy Advisers' Influence, Tools to Improve Transparency

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By Michael Greene

Jan. 8 — Speakers at a Jan. 7 U.S. Chamber of Commerce event debated the influence of proxy advisers and whether more should be done to increase their transparency.

Robert Coury, executive chairman of Mylan Inc., said it is undisputed that proxy advisers have a disproportionate influence on the outcome of elections and lack transparency. Accordingly, he said that the playing field needs to be leveled so that proxy advisory firms are observing the same rules as everyone else when it comes to disclosures.

However, Robert McCormick, chief policy officer of Glass Lewis & Co. LLC, which with Institutional Shareholder Services Inc. controls 97 percent of the proxy advisory services market, said there is no clear consensus about how much influence proxy advisers have. He said there also is a lot of misperception that proxy advisers use a “one size fits all” approach in making recommendations.

He added that advocates for more proxy adviser disclosures must consider that the firms' clients are not required to hire them and that the services the firms provide exist to empower their clients with more information.

The chamber's Center for Capital Markets Competitiveness hosted the event in Washington, during which other speakers addressed the Securities and Exchange Commission's recent guidance clarifying proxy advisers' obligatory disclosures.

Proxy Advisor Perspective

In terms of transparency, McCormick said there is not much more Glass Lewis can disclose other than its proprietary information. He said that his firm engages with its clients, posts its guidelines on its website and describes its methodology.

He also added that his company engages in constructive dialogue with lots of companies and that transparency with issuers enhances Glass Lewis' ability to examine companies more broadly.

In addressing concerns regarding his firm's influence over proxy votes, he stated that investors have different values and that clients make up their own minds, noting that they use Glass Lewis' services to receive another perspective.

He added that his company has robust procedures for correcting errors in the information that it provides because its recommendations are often not as important to their clients.

More Dialogue

Coury said that issuers, institutional investors and proxy advisers all need to be open to more dialogue.

He said that executives and issuers need to realize that telling their story in the proxy material is not enough. “A proxy alone is a monologue, it is not a dialogue.”

However, with this in mind, he noted that institutional investors that rely on proxy advisers for recommendations should allow issuers to tell their side of the story.

Otherwise, this creates an unfair election where there is not equal access, he said.

More Transparency Ahead?

Although Coury noted that the SEC's guidance was a first step in leveling the playing field, he believes that everyone should be playing by the same rules when it comes to disclosure.

Proxy advisers provide a service that is needed, he said, but they need to provide more transparency and become more accessible to issuers.

He noted that investors and proxy advisers often do not have all the information they need to make informed decisions and that sometimes institutional investors pawn off their responsibilities to proxy advisers.

McCormick responded that many investors do not have a problem with proxy advisers and that much of the criticism relates to how investors make their decisions, not with proxy adviser policies.

“The market is the ultimate supervisor. If somebody doesn't like a proxy adviser they can hire someone else,” he said.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com