“My question is how can we solve this without throwing it over to the regulators,” she said.
But securities lawyer Lara Nathans said a basic level of regulation of proxy firms – including a requirement they be registered as investment advisers – would allow officials to impose standards for disclosure and transparency.
“The concern a lot of people have is that these firms have garnered more influence without being regulated,” she said. “There’s no oversight over them and no one really knows anything about them.”
Big investors who are clients of the advisory firms are not keen to press for major reforms at proxy firms.
David Denison, chief executive officer of the Canada Pension Plan Investment Board, says the CPPIB uses two proxy advisory firms – ISS and Glass Lewis – for analysis, but ultimately controls its own voting decisions and has voted contrary to recommendations on a number of occasions.
“From our perspective, we hire them to provide input to us, not to tell us what to do,” Mr. Denison said. “We make the decisions ourselves. They are just a resource.”
Stephen Griggs, executive director of the CCGG, which represents most of Canada’s largest investors, says the coalition often hears complaints from companies about proxy firms, but said big investors need the service because they have thousands of companies to vote on each spring. (Ask Mr. Griggs your questions in a live discussion Wednesday.)
Mr. Griggs said the most useful regulatory reform would be more detailed disclosure about conflicts of interest, such as when an advisory firm has done paid consulting work for a company.
“I think there is a certain element of cynicism when there is a potential for a conflict of interest, so I think it would be helpful for investors to know whether or not there is a conflict.”
ISS, however, told the SEC it believes conflicts are not a concern because they are carefully managed by the company. The company says it has strict ethical guidelines and personal trading restrictions for staff, as well as internal controls and “firewalls” so that people making voting recommendations have no idea which companies have hired ISS to also do consulting work.
