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SEC Holds Proxy Advisory Services Roundtable

The SEC recently held a Proxy Advisory Services Roundtable with a two part agenda.  The first part of the program focused on the reasons why proxy advisory services are used.  The second part of the program focused on current topics, including conflicts of interest, transparency, and how investors rely on these services.  SEC Chair Mary Jo White indicated that she was particularly interested in the conflicts issue, especially what the conflicts are and how they should be addressed.  Commissioner Aguilar wondered whether the potential conflicts with these firms could be “effectively cured by disclosure and by efforts to insulate proxy advisory recommendations from a firm’s consulting business.”  Chair White also expressed a desire to understand how proxy advisory firms “formulate their voting positions and governance ratings, the transparency of the process, and whether and how additional transparency may be introduced into the process.”  Similarly, Commissioner Aguilar hoped to learn more about how investors and investment advisers use proxy advisory firms.

SEC Commissioner Piwowar expressed the most concerns about the wide-spread use of proxy advisory firms, including the industry’s lack of competition and its high barriers to entry.  He also is troubled by advisers and investors placing too much reliance on these firms, stating “I see many similarities between the current situation with proxy advisory firms and the pre-crisis situation with credit rating agencies, including an unhealthy over-reliance on their recommendations by investors.”

A video of the roundtable is available here: