Nationals vs. Mariners World Series? As Sure as Proxy Oversight

Feb 6, 2013

Fireworks go off over Nationals Park in Washington, D.C. Photographer: Mark Abraham/Bloomberg News

Now that we have all recovered from the blackout plagued Super Bowl, thoughts turn to spring and the upcoming baseball season. Two teams, the Nationals and Mariners, have never reached the World Series, much less won one.  The Nationals are loaded up and a favorite to win the World Series, while the Mariners are still a work in progress. But with the Nationals steamroller about to get underway, we may see something in 2013 that has never been seen before.

The same may finally become true with oversight of proxy advisory firms.

SEC Commissioner Dan Gallagher highlighted the issue in a speech last week in San Diego. Discussing why the SEC should act to monitor proxy advisory firms, he said, “Of particular interest should be accountability for accuracy as well as potential conflicts of interest, such as proxy advisory firms advising companies on their corporate governance while also rating them on it.”  

One on hand, proxy advisors are hired by institutional investors to make proxy vote recommendations and cast votes on corporate proxies on shareholders behalf.  It is said that one firm directly controls more than 30% of shareholder votes, essentially becoming a de facto standard setter without any oversight or transparency.  On the other hand, the advisors provide corporate governance consulting services to companies.  One hopes the two businesses don’t overlap.  It would seem unfitting for the firms to be subjectively grading the very policies and procedures they suggested in the first place.   Unfortunately, proxy advisory firms have operated without transparency and accountability, despite longtime rumblings about change.

Over the past few years former SEC Chairman Mary Schapiro said the commission would move on guidance to more closely watch proxy advisory firms. There was even a blurb included in the regulatory agenda released shortly before Christmas. However, those pronouncements ring hollow as SEC efforts to overhaul proxy voting systems consist of a lone concept release that has been gathering comments and dust for two years.

The time to wipe off the dust and do something has come.

Last December, the Chamber gathered thought leaders to explore the advice that proxy advisory firms dispense and how it relates to shareholder return for their clients. Setting out to investigate that central question revealed a host of other issues that require careful thought.

Over the last couple of months, the Chamber’s Center for Capital Markets Competitiveness (CCMC) has been working on a set of principles for responsible conduct for each of the key actors in the proxy voting process: proxy advisory firms, corporate issuers, and investment portfolio managers. Later this month, we at CCMC will send our principles to the SEC and the Hill to start meaningful conversations with regulators and legislators.

Between Bryce Harper and Dan Gallagher it could be a year of firsts in DC.


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