Roughly 4 in 10 public companies believe proxy advisory firms carefully researched and took into account all relevant aspects of a particular issue on which the firms provided advice in 2019.
That statistic — the same as 2018 — illustrates the chasm between public companies and proxy firms, according to the 2019 Proxy Season Survey from the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness and Nasdaq, which was released Thursday.
Of the 172 companies surveyed, 17% formally requested that proxy advisory firms provide them with a preview of vote recommendations, down from 21% in 2018 and 30% in 2017. For companies that did request a preview, proxy advisory firms provided them 39% of the time, down 5 percentage points from 2018, according to the survey.
The declining numbers indicate that companies view engaging with proxy firms as a "wasted effort," said Erik Rust, director of the Chamber's Center for Capital Markets Competitiveness, said in a press call Thursday.
Also down was the number of companies asking proxy firms for opportunities to provide input both before and after the firms' recommendations were finalized: 30% in 2019, down from 38% in 2018 and 51% in 2017. Companies commonly reported that, if such a request was granted, they were often given only one to two days to provide input, the survey noted.
"What you see in these numbers is a recognition of the futility of the current system," said Edward Knight, vice chairman at Nasdaq, in the press call. "The SEC proposals, if enacted, would rebalance the relationship and give companies a voice."
The Securities and Exchange Commission on Nov. 5 proposed new rules for proxy advisory firms. If finalized, proxy firms would have to disclose more about their process and potential conflicts of interest and give companies the opportunity to make revisions before making final recommendations to clients.
Business groups, such as the U.S. Chamber of Commerce, welcomed the changes after years of campaigning for tighter controls on proxy advisers that they saw as having too much influence and no process for companies to correct errors, particularly the dominant firms Institutional Shareholder Services Inc. and Glass, Lewis & Co.
Nearly 1 in 5 respondents identified "significant conflicts of interest," at proxy advisory firms in 2019, up from 10% in 2018, according to the survey. Moreover, 58% reported being approached by ISS Corporate Solutions during the same year in which the company received a negative vote recommendation. ICS, a wholly owned subsidiary of ISS, provides governance data, analytics and services to corporate issuer clients.
Thomas Quaadman, executive vice president of the Chamber's Center for Capital Markets Competitiveness, said in the call that new regulations are needed to combat conflicts of interest.
"Proxy advisory firms sit in an ivory tower ignoring the realities of the marketplace," Mr. Quaadman said. "We believe these findings demonstrate the need for the SEC to exert more oversight of proxy advisory firms."
ISS, a registered investment adviser, has developed a comprehensive program to manage potential conflicts of interest as required by current regulations, ISS spokesman Subodh Mishra said in an email. "ICS does not and cannot provide any client with any assurance as to how ISS will recommend with respect to the matters that appear on any client's proxy statement," Mr. Mishra said.
The SEC's proposed rule changes are in the midst of a 60-day public comment period. Investor advocacy groups such as the Council of Institutional Investors, US SIF: The Forum for Sustainable and Responsible Investing, Ceres and the United Nations-backed Principles for Responsible Investment oppose the proposed rules.
