What were the recommendations by ISS and Glass Lewis? As proxy advisory firms are used prevalently by institutional investors to aid them in voting their proxies, it is … Currently, proxy advisory firms have zero fiduciary responsibility and zero transparency, and they represent a breakdown of the efficient market hypothesis. ISS and Glass Lewis are the Siskel and Ebert of their business but have it better than any critic or any sportswriter because they are paid by both the moviegoers and the producers alike. Proxy advisory firms currently rely upon the exemptions in Rule 14a-2 (b) (1) and (3) to provide proxy voting advice, to the extent it is currently subject to the proxy rules at all, without complying with the filing and certain other requirements of the proxy rules. Proxy advisory firms exist at the nexus of some of the most high-profile corporate law discussions—most notably, the shareholder voting process, which has recently been the subject of much scholarly and legal debate. Investment industry requirements are that managers exercise appropriate diligence and independence to develop a “reasonable and adequate basis” before making an investment recommendation. NDAQ The Securities and Exchange Commission has proposed that publicly traded companies be given 48 hours to respond to the statements and voting recommendations made by proxy advisory firms, which provide analysis and research for investment fund managers. There was no one on Chesapeake’s board who had leased an acre or drilled a well—no one who could challenge CEO Aubrey McClendon. Just two companies, Institutional Shareholder Services, ISS, and Glass Lewis, together have a 97% share of the market. Glass Lewis, another proxy advisory firm, also provided recommendations. This duopolistic concentration of power is an absolute erosion of shareholder rights, not an enhancement. Without that value proposition, corporations and other issuers would not have a reason to employ proxy advisors. To support this effort, the proxy advisory firms hire and train seasonal workers much like seasonal tax-preparation firms or seasonal retailers. Leading Independent Proxy Advisory Firm ISS Recommends Shareholders Vote Against the Removal of Current Directors, Withhold From Voting for Dissident Nominees News provided by Karnalyte Resources Inc. All Rights Reserved, This is a BETA experience. Globally, ISS is reputed to make recommendations for more than 40,000 annual meetings and Glass Lewis makes recommendations for as many as 20,000. For the Vanguard 500 index fund, there are 500 proxy statements to consider and vote in a short window in the spring of each year. Or, for a current example, a soap company executive appears to have the closest industry expertise on the board of a money-losing refinery—no one apart from the CEO has refinery expertise! We estimate the effect of Institutional Shareholder Services (ISS) recommendations on voting outcomes by exploiting exogenous variation in ISS recommendations … Under the Commission interpretation, proxy voting advice provided by proxy advisory firms generally constitutes a solicitation subject to the federal proxy rules. In short, despite lacking any statutory authority, they have become the de facto regulators of America’s public companies. I have also been lucky enough to serve as CEO of Columbus Circle Investors, a PIMCO company, vice chairman of PIMCO funds distribution company, vice chairman of Deutsche Bank Asset Management and global co-head of private equity, and currently serve as CEO and Chairman of Cambridge Global Capital, and founder and President of the Institute for Pension Fund Integrity, where we fight for transparency and accountability in the management of our public pension plans and adherence to fiduciary responsibility, and against those who seek to impose their personal political agenda on the management of our retirement dollars. ISS applies sophisticated models to evaluate say-on-pay proposals and assess pay-for-performance alignment, and evaluate equity-based pay plans and … When one firm issues an opinion and recommended vote, the impact is felt immediately by other shareholders voting in a block. The second condition for proxy advisory firms seeking to rely on the exemptions available under Rule 14a‑2 (b) (1) or (b) (3) is a requirement that a proxy voting advice business adopt and publicly disclose written policies and procedures reasonably designed to ensure that subject companies have the proxy advisor’s … The advisory firms already know that their investment management clients are lazy. The Commission’s interpretation does not affect the ability of proxy advisory firms to continue to rely on the exemptions from the federal proxy rules’ filing … Suppose there is an error. A corporate raider’s proxy solicitation paid twice to employ proxy advisors Forbes LLC... And replace them with two of Barnhill 's nominees zero transparency, and worry. Could challenge CEO Aubrey McClendon for their proxy analysis of their portfolio are! Required quorums and the ratification of corporate governance of ISS and Glass Lewis, together have a 97 market... 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