Institutional Shareholder Services, Glass Lewis & Co. and other proxy advisory firms should be required to register as investment advisers with the Securities and Exchange Commission, according to testimony Wednesday from leaders of the Council of Institutional Investors and Florida State Board of Administration at a House Financial Services subcommittee hearing on “the market power and impact of proxy advisory firms.”
Ann Yerger, executive director of the CII, in her 13-page written testimony, said the proxy adviser also should “minimize conflicts of interest and disclose details of potential conflicts, including those involving companies or resolution sponsors.”
But Ms. Yerger said the agency opposes “regulatory involvement in methodologies used by proxy advisers to determine vote recommendations,” or requiring proxy advisers “to submit advance drafts of their reports to the subject companies.”
Michael McCauley, senior officer-investment programs and governance for the $167.8 billion Florida State Board of Administration, Tallahassee, in his six-page written testimony, said: “Registration would establish important duties and standards of care that proxy advisers must uphold when advising institutional investors. Additionally, the mandatory disclosures would expose conflicts of interest and how they are managed, and establish liability for firms that withhold information about such conflicts.”
Cheryl Gustitus, ISS executive director, head of global communications, said in part in an e-mailed response to Pensions & Investments: “ISS has been a registered investment adviser for more than a decade. We believe it is important to operate under the same SEC oversight as many of our clients, so we voluntarily registered and still believe that it is best practice for a proxy adviser to be registered.”
Robert McCormick, chief policy officer at Glass Lewis, said in part in e-mailed response to questions: “We do not believe registration is relevant to the proxy advisory business, since proxy advisers do not provide investment advice, execute trades or manage any client money, nor do we think it would resolve the main concerns raised by companies regarding conflicts, transparency and quality.”
Ms. Gustitus and Mr. McCormick said neither firm was invited to testify before the Subcommittee on Capital Markets and Government Sponsored Enterprises.