by James K. Glassman, Hester Peirce
June 18, 2014
Proxy advisory firms (PAs) have become a powerful force in American corporate governance. These firms counsel pension plans, mutual funds, and other institutional investors about how to vote the shares of the corporations they own. Demand for their services has largely been generated by regulatory requirements and expansive interpretation of those requirements. The widespread reliance on PAs by fiduciaries that vote large blocks of stock means that PAs can wield great influence over corporations. Shareholders may not benefit from this influence; PAs can only make one-size-fits-all recommendations, and often face conflicts of interest between clients. The Securities and Exchange Commission ought to eliminate extraneous voting requirements and all regulatory imperatives to rely on PAs. Mutual funds and pension funds should be the sole arbiters of when it makes sense to vote. Absent such reform, government voting mandates will continue to benefit PAs at the expense of investors and pensioners.