09 Nov 2019 Investors rise up against SEC anti-proxy adviser proposals
In November 2019, the Securities and Exchange Commission (SEC) voted a controversial proposal for more stringent scrutiny of proxy advisers, companies which support investors managing their votes at corporate meetings.
The US financial regulator required proxy adviser to let listed companies’ management review proxy advisers’ recommendation before it goes to investors. Moreover, it set a new threshold for shareholders before they can submit proposals. Currently, shareholders must hold $2,000 shares for a year. SEC plans to change this to $25,000 holding for at least a year, declining to $2,000 for three-year holdings.
Big US business such as the US Chamber of Commerce, the Business Roundtable and the Center for Capital Markets Competitiveness (CCMC) have long lobbied for stricter examination of proxy voters. Therefore, they welcomed the SEC’s vote. For instance, CCMC’s executive vice president, Tom Quaandam, happily greeted the vote which in his view will improved investors’ decision-making process. Already back in 2013, JPMorgan Chase’s chief executive, Jamie Dimon, criticised shareholders who rely on proxy advisers, allegedly after Glass Lewis and ISS had advised the bank’s investors to vote against his pay and to appoint an independent chairman. Those lobbying in favour of SEC’s proposal, including ExxonMobil and Chevron argue that the groups are too powerful, beset by conflict of interest, and prone to errors.
On the other hand, investors’ representative bodies like the Council of Institutional Investors (CII) together with major proxy advisers like Institutional Shareholder Services and Glass Lewis think that the proposal is “over the top”. CII’s executive director, Ken Berths, argues that the proposal is management biased, and he asked for an extension to the 60-day consultation period. Investors are worried that this proposal will leave small investors without a voice, preventing significant topics such as climate change, human rights and governance reforms to be discussed.
The rise of proxy advisers came after scandals of corporate mismanagements like the Enron and WolrdCom cases. ISS, which was founded in 1985, has become a major player guiding shareholders to properly using their voting power. In 2017, it was acquired by private equity firm Genstar Capital. Among its clients there are giant asset managers such as BlackRock, Allianz Global Investors and Legal & General Investment Management. The other major proxy adviser, Glass Lewis, was established in 2008, and it is own by institutional investors Ontario Teacher’s Pension Plan Board and Alberta Investment Management Corporation.
The debate around SEC’s controversial proposal is getting bigger and bigger, and some speculations even drag up US President Donal Trump in the discussion. Whether his involvement into the lobbying against proxy advisers is misplaced or not, public consultation on the proposed rules open until early February, and a final frenzy of lobbying from both sides is expected to be unleashed.
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