Proxy firms move to centre stage

From the Financial Times

Annual meeting season is in full swing on both sides of the Atlantic. This year, a new player is being dragged onstage to perform alongside traditional characters such as the generously-paid-off former executive and the lone campaigning investor. The proxy adviser’s moment is here.

Proxy firms’ reluctant move from their behind-the-scenes role has two causes.

In the US, it stems from reaction to the first annual meetings to be subject to advisory “say on pay” votes. As shareholders have persuaded some companies to change pay policies and voted against the remuneration reports of a handful who were not listening hard enough, attention has shifted to the firms such as ISS and Glass Lewis & Co which advise institutional investors how to vote.

In Europe, meanwhile, regulators have started looking at proxy firms because institutional shareholders are becoming more dependent on them. This reliance comes as investors must respond to criticism that they were too dozy during the financial crisis, while managing widely diversified portfolios: Norges Bank Investment Management, the Norwegian state fund manager, has holdings in more than 8,000 companies, for example.

Sovereign Investor: Only the beginning of the FT's article on proxy voting companies has been reproduced here.  Email ftsales.support@ft.com to buy additional rights or use this link to reference the original FT article - http://www.ft.com/cms/s/0/976fd594-6e89-11e0-a13b-00144feabdc0.html#ixzz1KVhxoMSZ

The primary issue with transparent sovereign funds, and Norway is an example, is that the funds' voting records may be published.  Relying on proxy advisors is a useful administrative measure for sovereign investors, but efforts would seem to be justified in understanding the published policies of the proxy advisors (see, for example, the ISS policies) to be sure that stakeholders understand the reasons for the voting record.  Note that these policies, again looking to ISS for example, are subject to an annual consultation process and perhaps those institutions who rely on proxy voting companies should consider advising stakeholders to participate in that process.