The Big Thumb on the Scale: An Overview of the Proxy Advisory Industry

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Top Highlights

• Proxy advisory firms have significant influence over the voting decisions of institutional investors and the governance choices of publicly traded companies.

• third-party proxy advisory firms to play a substantial role in the proxy voting process.

• There are five primary proxy advisory firms in the United States:

• Institutional Shareholder Services (ISS). ISS is the largest proxy advisory firm in the United States and globally. Founded in 1985,

• Glass Lewis & Co. Glass Lewis is the second largest proxy advisory firm in the U.S. and globally. Founded in 2003,

• Egan-Jones Proxy Services. Egan-Jones Proxy Services was founded in 2002 and is based in Haverford, Pa.

• Segal Marco Advisors. Segal Marco Advisors was formed in 2017 by the merger of Segal Rogerscasey and Marco Consulting Group.

• ProxyVote Plus. ProxyVote Plus was established in 2002. Based in Northbrook, Il., it provides proxy voting services to 150 clients.

• ISS has room to either improve the rigor and objectivity of its policy development process or increase transparency about the steps it takes to review and incorporate evidence and feedback to demonstrate its rigor and objectivity.

• A 2012 survey by The Conference Board, NASDAQ, and the Rock Center for Corporate Governance at Stanford University finds that approximately three-quarters (72 percent) of publicly traded companies review the policies of a proxy advisory firm

• 32 percent change disclosure practices 24 percent reduce or eliminate certain severance benefits 16 percent reduce other benefits 13 percent adopt stock ownership guidelines or retention guidelines 9 percent introduce performance-based equity awards (as opposed to straight equity-grants).

• Research shows that proxy advisory firms are influential over the voting decisions of institutional investors and the governance choices of corporations.

• Proxy advisory firms are not transparent about the process they use to develop their guidelines, the models they use to determine recommendations,

• Proxy advisory firms do not disclose their historical recommendation data, arguing that this data is proprietary.

• Impact of proxy advisory firms recommendations on shareholder value and corporate actions appears at least in some situations to be direct and significant.