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Scrutiny on Proxy Advisory Firms as Legislators Question Potential for Conflicts

The Financial Times is reporting that U.S. regulators are seeking more information on proxy advisory firms ISS and Glass Lewis, who critics claim are dominating firms’ corporate governance work as a result of the rise in passive investing. A U.S. Treasury Report on the capital markets sector observed that there was “inadequate oversight and accountability of proxy advisory firms” and recommended further study and evaluation of these firms, including regulatory responses if appropriate. A House bill, which is included in a list of broader financial reforms that is currently moving through Congress, requires proxy firms to register with the SEC, disclose the procedures and methodologies proxy advisors use in developing proxy voting recommendations and any potential or actual conflicts of interest, including whether the proxy advisory firm engages in services ancillary to the provision of proxy advisory services such as consulting services for corporate issuers. The bill has been sharply criticized by some industry participants as anti-competitive and possibly unconstitutional.

 
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