GOVERNANCE

Proxy advisory firms should split businesses — CII speakers

(updated with correction)

Proxy-voting advisory firms should spin off their businesses that advise companies on corporate governance to avoid the conflicts of interest of trying to serve two different sets of clients — institutional investors and corporations — said Nell Minow and Richard Koppes, speaking Friday before some 400 attendees at the Council of Institutional Investors conference in Chicago.

“It is idiotic” to have a business with such conflicts, said Ms. Minow, co-owner and director of GMI Ratings, a firm whose focus includes corporate governance research and analytics.

“I hope they will split, and both parts will be the better for it,” Ms. Minow said, referring to Institutional Shareholder Services, the only proxy-advisory firm they mentioned.

Mr. Koppes, program fellow, Rock Center for Corporate Governance, Stanford Law School, and senior adviser, CamberView Partners, said he agreed with such a split.

But they both expressed opposition to regulation of proxy-advisory firms.

“I am beyond furious at the attacks on proxy advisers” Ms. Minow said. “It is the height of hypocrisy for these nitwits who keep blathering about the beauty of the free market and want to impose themselves on the free market and (call for) government regulation on (proxy-advisory firms).” Sophisticated investors “are happy” with the product. “What is the government's business to tell them what they can or cannot do? They are already registered as investment advisers.”

“It is unquestionably an effort by the business community to shut up their critics,” Ms. Minow added.

Mr. Koppes said he also is opposed to regulating the firms.

Ms. Minow acknowledged there is a “pseudo-monopoly” of one firm, ISS. The reason is because the market prefers its product more so than that of competitors, she said.

Ms. Minow and Mr. Koppes made up a panel devoted to a wide-ranging discussion about governance.

On the internal governance of institutional investors, Mr. Koppes said: “The governance of many institutional investors, pension funds, stinks. It needs to be cleaned up.”

“People in glass houses shouldn't be throwing stones," he added.