FT.com reported, contrary to many perceptions, that investors in the UK’s largest companies often ignored the guidance of proxy advisers when voting on pay issues. After votes at WPP, Xstrata and Prudential, some company executives complained that advisers carried too much influence. (Investors not tied to proxy advisers, 8/26/2012)
Manifest, a UK proxy voting agency, looked at the 26 company meetings of FTSE 100 companies where votes against pay packages exceeded 10%.
In 11 out of the 26 instances the Association of British Insurers had issued “blue top” notes, indicating no significant cause for concern. ISS, the proxy advisers, had recommended voting for pay reports 15 times, although it flagged issues for shareholder attention in most of those cases.
Sarah Wilson, chief executive of Manifest, said investors often used the pay vote as a way of signalling dissatisfaction about a company’s performance generally. She contrasted the revolt at Aviva – where the investors’ rejection of the pay report led to the exit of Andrew Moss, chief executive of the insurer – with the lesser opposition faced by Polymetal International, even though the pay policy at the miner drew heavier criticism from corporate governance experts.
According to Sarah Wilson,
Historically, shareholders . . . have not felt comfortable voting on individuals, and are much happier voting on structural issues such as reports. Addressing this aspect of shareholder behaviour is one of the unresolved challenges of introducing a binding ‘say on pay’ vote, as the government intends.
The report reinforces what Wilson said last March (The future of proxy advisors – is there one?)
Don’t confuse what you’ve become familiar with over the last few months about the so-called “tyranny of proxy advisors” with the truth.
The overhyped anti-proxy advisor propaganda is not “the truth”, it’s a point of view, largely emanating from issuers and their advisors in the USA. Just as with shareholder rights themselves, the UK and EU are not the USA, as such our governance problems are not the same. Moreover, not all proxy advisors are the same either.
Hyperbole and propaganda are not, in any rational world, the basis for an evidence-based approach to problem solving or regulation. If Manifest wrote its research reports like the critics wrote their anti-advisory propaganda we’d be out of a job very quickly. We use facts and thoughtful analysis as the basis of our reports, not witch hunts and ducking stools.
Groundless cries for regulation based on emotion and unproven accusations do two things:
- Makes the critics as bad as they think proxy advisors are;
- Detracts from resolving the very significant barriers to informed voting and engagement which really do exist.
Georgina Marshall, head of European governance at ISS, told FT said the contrast between recommendations and votes is a “healthy” sign, showing that investors turn to proxy advisers for information but make up their own minds.
Towers Watson performed a similar analysis in the US of 2012 say-of-pay votes indicates that a majority of shareholders voted in alignment with ISS “against” recommendations less than 25% of the time. While advisors are influential, funds do not vote in lock-step with proxy advice.
A recent filing by Exxon Mobil Corporation added to their previous comments concerning the SEC’s “proxy plumbing” concept release.
We understand from recent public comments that the SEC staff is developing guidance regarding proxy advisers. To assist in that effort, we wish to reiterate our prior comment on the critical importance of full disclosure by proxy advisers and expand on that point with these additional recommendations:
- Proxy advisers should disclose how the methodologies they use to assess pay-for-performance were developed, and why they believe those methodologies provide an appropriate basis for their voting recommendations.
- Proxy advisers must ensure that all information they publish which could affect an investor’s voting decision is accurate and not misleading.
- Proxy advisers should fully disclose the involvement of any third party in the formulation of particular voting recommendations.
- The SEC staff should remind investment managers of the need to monitor the performance, on an ongoing basis, of any proxy advisers on which a manager may rely.