Proxy advisers come under fire 14 November 2019
PROXY ADVISORY services used to be an obscure feature of corporate America. No longer. These geeky outfits, which review mountains of proposals put forward by shareholders on topics ranging from mergers and executive pay to climate change and diversity, then issue recommendations, can sway how their clients vote. Given that most are big institutional investors with clout, this advice matters. Earlier this year analysts at Credit Suisse, an investment bank, predicted that proxy advisers’ counsel would decide the fate of Bristol-Myers Squibb’s mammoth $74bn bid for Celgene, a rival drugmaker.
Big institutional investors like Capital Group and Fidelity have in-house teams to deal with such matters. But most funds rely on outside advisers. Two of them dominate the business. Institutional Shareholder Services (ISS), owned by Genstar, an American private-equity firm, provides proxy recommendations on over 40,000 shareholder meetings in more than 100 countries each year. Glass Lewis informs some 20,000 votes in 100 countries. It is owned by two Canadian asset managers. Between them, ISS and Glass Lewis control 97% of America’s proxy-advice market.
Their client base has boomed. In 1950 institutions held only 10% of American shares. By 2018 it was close to 80%. As shareholder activism has grown in America, so have proxy battles—…