22nd June 2012
An Overview of the Proxy Advisory Industry. Considerations on Possible Policy Options – European Securities and Markets Authority Discussion Paper Thank you for the opportunity to take part in the above consultation. I am pleased to enclose The (UK) Investor Relations Society’s response
The Investor Relations Society’s mission is to promote best practice in investor relations; to support the professional development of its members; to represent their views to regulatory bodies, the investment community and government; and to act as a forum for issuers and the investment community. The Investor Relations Society represents members working for public companies and consultancies to assist them in the development of effective two way communication with the markets and to create a level playing field for all investors. It has over 600 members drawn both from the UK and overseas, including the majority of the FTSE 100 and much of the FTSE 250. As such, through our members, we have direct experience of working with proxy agents both in the EU and globally.
The development of the proxy advisory industry in Europe is recent years is a key issue for investor relations practitioners and listed companies more generally. This trend is growing sharply and we consider it is likely to continue to do so. We understand that nearly all institutional investors subscribe to one or more proxy advisory agencies (“PAAs”) and that in the case of all but contentious resolutions, or in corporate actions, institutional investors will follow the advice of the PAAs. Therefore we support the analysis and scrutiny of the proxy industry that this consultation undertakes. We understand there is a role for proxy advisors in ensuring that diversified investors do not cite resourcing issues as a reason for implementing passive investment strategies, as outlined in ESMA/2012/SMSG/25, and that proxy advisors offer significant savings in cost and time to investors. However, on behalf of our members, we have a number of concerns regarding the industry. These can be summarised as follows:
• The lack of scrutiny from investment funds in habitually following proxy advisor recommendations.
• The de facto transfer of voting rights from investors to proxy advisors without a corresponding transfer of investor stewardship responsibilities.
• The potential conflicts of interest that can arise when proxy advisors have multiple roles both as administrators of the voting process and as advisors on voting issues.
• The lack of accountability and transparency over proxy advisory decisions with potentially major implications for issuers.
• Lack of understanding regarding the methodologies being employed by the proxy advisory agencies.
We discuss these points amongst others in our response to consultation questions below in leading to our preferred policy option for ESMA to implement (Question 8).
It is important to draw a distinction between proxy advisory firms (the focus of this consultation) and proxy voting agencies that deliver executive voting services. Often, but not always proxy firms do both. We have restricted our answers to the proxy advisory question in almost all cases, as per the consultation, making it clear on the few occasions when we discuss the voting process itself. We understand that voting agency activity involves matters of company law and is therefore excluded from ESMA’s remit. If you have any questions regarding our consultation responses please contact us for further discussion.
Michael Mitchell General Manager, The Investor Relations Society
3 Bedford Street London WC2E 9HD 020 7379 1763
Emma Burdett, Chair of The Investor Relations Society’s Policy Committee
020 7379 5151 firstname.lastname@example.org
Published: 25 June, 2012