An important new report highlights the influence of proxy advisory firms, largely unregulated entities that shape decision-making at public companies.
The Conflicted Role of Proxy Advisors, released by the American Council for Capital Formation, explores proxy firms’ conflicts of interest and lack of transparency.
These firms advise institutional investors, such as pension funds and mutual funds, on how to vote shares of public company stock held by the funds. That grants the firms significant power over millions of workers’ retirement accounts.
Because of their substantial influence, the report identifies proxy advisors as “quasi-regulators with unchecked power” and makes the case for bringing them within the oversight of the Securities and Exchange Commission (SEC). The report specifically quotes former SEC commissioner Daniel Gallagher, who called for the firms to be “subject to oversight and accountability commensurate with their role.”
Bringing proxy advisory firms under SEC regulation is a longstanding goal of the National Association of Manufacturers. In particular, manufacturers support the Corporate Governance Reform and Transparency Act (H.R. 4015), bipartisan legislation sponsored by Reps. Sean Duffy (R-WI) and Gregory Meeks (D-NY) that was recently approved by the House of Representatives. The bill would increase transparency around the firms’ standard-setting processes, allow public companies to respond to errors in voting recommendations, improve the quality of information available to investors and require the firms to disclose and mitigate conflicts of interest.
As the report makes clear, the proxy advisory firms need accountability, transparency, responsiveness and competition.
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