Clashes pitting the proxy advisers against big investors, management and regulators look poised to intensify
Save time by listening to our audio articles as you multitaskEnter proxy-advisory firms, hired by investors to sift through the resolutions and make recommendations on which boxes to cross. There may be no monopoly in the market for ideas, but when it comes to proxy advice the market is a cosy duopoly. Institutional Shareholder Services and Glass Lewis meet more than 90% of the demand for such counsel in America.
The pronouncements of these corporate philosopher-kings grew in prominence after 2003, when new rules required American institutional investors to disclose their voting polices. For most investors it is cheaper instead to outsource the task to, which has annual revenues in excess of $250m, was bought by Deutsche Börse, a German exchange operator, for $2.3bn. The same year two Canadian public pension funds sold Glass Lewis to a private-equity firm.
The duo’s recommendations carry weight. One study identified 114 institutional investors, representing more than $5trn in assets under management, who “robovoted” in lockstep with eitheror Glass Lewis during the 2020 proxy season, mechanically deferring to their recommendations. It is difficult to tell how a shareholder would have voted but for a proxy recommendation. Still, the advisers have almost certainly moved the needle in some important shareholder votes .
As shareholders’ concerns expand from narrow profits to broader “purpose”, you would expect the advisers to be enjoying a golden age. In fact, their proxy power may start to decline, for three reasons. The first is structural. In the past decade share ownership in America has become ever more concentrated in the hands of giant asset managers such as BlackRock, State Street and Vanguard. These behemoths run their own departments of corporate-governanceIn 2008 the trio between them owned 13.
Second, managements are putting up a fight. This year’s votes are still being tallied, but environmental and social resolutions have not had the knock-out run their backers expected, in part because companies that were caught off guard last year got their act together.
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