Concerns About the Quality and Influence of Proxy Advisors, and Its Implications for the Preparations of the Shareholders Meeting

Prior research in corporate governance has extensively investigated the mechanisms through which a variety of actors (financial analysts, investment managers, shareholder activists) monitor and discipline corporate executives. However, one recently emerged actor has received little attention so far: the proxy advisory firm. Mobilising Foucault’s concept of disciplinary power, this study uses historical analysis to examine the role of proxy advisors in corporate governance. This article shows that proxy advisors actively contributed to developing and implementing disciplinary mechanisms. This involves (1) hierarchical observations of corporations and their executives on a global scale. These observations are made available to institutional investors on proxy advisors’ voting platforms which have Panopticon-like features; (2) normalisation of judgements through the provision of generic voting policies, generic voting recommendations and corporate governance ratings prepared by proxy advisors and delivered to many institutional investors; (3) ritualised examination of the performance of corporations and of their executives during the annual general meeting, including record-keeping of all past voting results.

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Regulating Proxy Advisors Through Transparency: Pros and Cons of the EU Approach

European Company and Financial Law Review ◽

10.1515/ecfr-2017-0001 ◽

2017 ◽

Vol 14 (1) ◽

pp. 1-36 ◽

Cited By ~ 1

Author(s):

Gaia Balp

Keyword(s):

Status Quo ◽

Legislative Process ◽

European Regulation ◽

The Us ◽

The Status ◽

Pros And Cons ◽

Proxy Advisors ◽

Legal Constraints ◽

The Eu

This article outlines potential pros and cons of a future European regulation of proxy advisory firms, as set forth in the Commission’s Proposal for a Directive amending Directive 2007/36/EC. After summarizing criticisms concerning the proxy advisory industry, and findings regarding its de facto influence on investors’ voting conduct both in the US and in the European context, the article adverts to why the power of proxy advisors appears to be overestimated. Uncertainty on the status quo of the industry’s actual impact on key decisions in listed companies, as well as costs associated with a regulation, need to be considered for assessing the suitability of the rules drafted to ensure adequate levels of independence and quality of voting recommendations. While transparency rules may be preferred to stricter legal constraints or requirements in a first stage, possible shortcomings of the Draft Directive exist that may undermine its effectiveness. Analyzing the amendments to the Proposal adopted by the European Parliament, and the Council’s Presidency compromise text, may suggest a preferable approach as regards single rules still making their way through the European legislative process.

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TRANSPARENCY OF INSTITUTIONAL INVESTORS, ASSET MANAGERS AND PROXY ADVISORS

The Shareholder Rights Directive II ◽

10.4337/9781839101236.00014 ◽

2021 ◽

pp. 142-142

Keyword(s):

Institutional Investors ◽

Proxy Advisors ◽

Asset Managers

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The agency role of proxy advisors in family firms

Academy of Management Proceedings ◽

10.5465/ambpp.2021.14401abstract ◽

2021 ◽

Vol 2021 (1) ◽

pp. 14401

Author(s):

Laura Jimenez ◽

Cristina Cruz

Keyword(s):

Family Firms ◽

Proxy Advisors

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Do foreign proxy advisors export corporate governance views? Differences in coverage, recommendations and influence on voting outcome between foreign and domestic proxy advisors

Die Rolle institutioneller Investoren und Stimmrechtsberater in der deutschen Corporate Governance ◽

10.1007/978-3-658-27399-6_5 ◽

2019 ◽

pp. 161-193

Author(s):

Vanda Heinen

Keyword(s):

Corporate Governance ◽

Proxy Advisors

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Determinants of commitment and opportunism of institutional investors’ behaviour: an empirical investigation on Robo-voting Phenomenon

Sinergie Italian Journal of Management ◽

10.7433/s113.2020.11 ◽

2021 ◽

Vol 38 (3) ◽

pp. 191-214

Author(s):

NICOLA CUCARI ◽

SALVATORE ESPOSITO DE FALCO ◽

SERGIO CARBONARA ◽

KONSTANTINOS SERGAKIS ◽

DOMENICO SARDANELLI

Keyword(s):

Institutional Investors ◽

Analysis Of Covariance ◽

Central Research ◽

Shareholder Engagement ◽

Legal Enforcement ◽

Opportunistic Behaviour ◽

Italian Market ◽

Research Questions ◽

Proxy Advisors ◽

Practical Implications

Purpose of the paper: Recent research identifies a troubling number of institutional investors that automatically follow the advice of their proxy advisors so that they can prove to have complied with their fiduciary duties in a practice known as robo-voting. Therefore, our central research questions are: How could the characteristics of institutional investors affect robo-voting phenomenon? How could robo-voting phenomenon favour the creation of new opportunistic behaviour, changing the scope of shareholder engagement? Methodology: Our paper directly addresses these questions by using ANCOVA (Analysis of Covariance) to test the effect of characteristics of institutional investors on the dependent variable under study. We use a manually constructed sample of coverage information from 123 Annual General Meetings held by large Italian companies in the 4-year period 2015 to 2018 and the voting reports of three proxy advisors. Findings: We show that such voting based on robo-voting phenomenon is restricted to specific types of institutional investors and it may be highlighted as a negative aspect of a duty to ‘demonstrate’ engagement on the part of institutional investors. Specifically, this duty could depend on location, strategy and category of institutional investors. Research limits: We refer only to the Italian market and it may be considered as a peripheral market by investors. Practical implications: We argue that legal enforcement of the conceptual and operational spectrum of engagement duties currently sits uncomfortably upon institutional investors and proxy advisors. Originality of the paper: We think it is important to consider how to promote shareholder engagement in general in a European context and at the same time curb negative activism by some shareholders.

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