Report analyzes and offers reforms to the current US-proxy advisory system

Today, the Competitive Enterprise Institute released a new report that analyzes and critiques the current US proxy-advisory system and offers strong reforms that would restore stakeholder voting authority, accountability, and financial transparency to businesses and their investors.

Two proxy advisory firms, Glass Lewis and Institutional Shareholder Services (ISS), account for roughly 97 percent of corporate advisory services, with their role being to advise company investors on important financial matters pertaining to their corporate clients. Although institutional investors and asset managers have increasingly sought out firms that offer advice on how to vote their shares at corporate shareholder meetings, that has led to an over-reliance on firms that promote environmental, social and governance (ESG) investing advice to their clients. It has legitimized fringe and polarizing issues unrelated to the most important goal: shareholder returns.

“Policymakers can no longer afford to stand by and allow the current incentive structure to harm the long-term interests of asset holders,” said former CEI research fellow and author of “Assets Undermining Management: Proxy Advisor Pandering Enshrines ESG,” Stone Washington. “It’s time for asset managers to return to sanity and properly exercise their duty of care in growing and maintaining their clients’ investments.”

The report suggests several reforms that Congress should consider:

• Repeal the Security and Exchange Commission’s 2003 proxy voting rule, ending the ability of proxy advisory to robo-vote on behalf of investors;
• Require institutional investors themselves to establish proxy –voting policies;
• End requirements that financial advisors must vote on every proxy proposal;
• Require proxy advisors to disclose conflicts of interest, particularly related to consultancy work, and;
• Amend the Department of Labor’s 1974 Employee Retirement Income Security Act to clarify that pension fund managers should focus on legitimate financial benefits for retirees, using legislation like the Protecting Americans’ Investments from Woke Policies Act as a model.

“The proxy advisor duopoly of Glass Lewis and ISS have long hijacked the shareholder review process with politicized ESG matters,” Washington said. “The proliferation of ESG-related proposals has often diluted a company’s managerial focus on the issues that truly matter most for long-term financial success.”

Read “Assets Undermining Management: Proxy Advisor Pandering Enshrines ESG,” by Stone Washington on CEI.org.