{"id":154351,"date":"2021-01-14T15:05:00","date_gmt":"2021-01-14T12:05:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/opinion-shareholder-voting-is-another-electoral-process-that-needs-more-access-and-transparency\/"},"modified":"2021-01-14T15:05:00","modified_gmt":"2021-01-14T12:05:00","slug":"opinion-shareholder-voting-is-another-electoral-process-that-needs-more-access-and-transparency","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/opinion-shareholder-voting-is-another-electoral-process-that-needs-more-access-and-transparency\/","title":{"rendered":"#\n  Opinion: Shareholder voting is another electoral process that needs more access and transparency"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a2ab77716f0a\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a2ab77716f0a\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/opinion-shareholder-voting-is-another-electoral-process-that-needs-more-access-and-transparency\/#Proxy_advisory_industry_is_broken_and_heres_how_to_fix_it\" >Proxy advisory industry is broken and here\u2019s how to fix it<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/opinion-shareholder-voting-is-another-electoral-process-that-needs-more-access-and-transparency\/#Lawrence_A_Cunningham\" >Lawrence A.\u00a0Cunningham<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong>#<br \/>\n  Opinion: Shareholder voting is another electoral process that needs more access and transparency<br \/>\n<\/strong>&#8221;<\/p>\n<h2 class=\"article__subhead\" itemprop=\"alternativeHeadline\"><span class=\"ez-toc-section\" id=\"Proxy_advisory_industry_is_broken_and_heres_how_to_fix_it\"><\/span>\n  Proxy advisory industry is broken and here\u2019s how to fix it<br \/>\n<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><\/p>\n<div class=\"column column--full article__content\">\n<div id=\"js-article__body\" class=\"article__body article-wrap at16-col16 barrons-article-wrap\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0000127802\">\n<div class=\"barrons-article-ad-wrapper\">\n<div data-track=\"barrons-article-ad-wrap\" class=\"barrons-article-ad sticky_item\">\n<div class=\"barrons-main-article-ad-target sticky_target body_ad\" aria-hidden=\"true\"><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<p>       The proxy advisory industry is broken. Things are so bad that even Congressional Republicans promoted legislation to regulate it. But there is a simple market solution to improving this function: technological disruption.<\/p>\n<p> Shareholder voting rights are central to corporate governance, authorizing owners to weigh in to protect their economic interests. Some matters are momentous, such as contested director elections and corporate takeovers. All are potentially important, including those that seem mundane, like advisory votes on compensation plans or annual reelection of incumbent directors.<\/p>\n<div class=\"paywall\">\n       Despite rhetoric about shareholder democracy, the current proxy voting regime is failing. To start, share ownership today is dominated by institutions, not individuals (about 70% and 30%, respectively), and institutions have higher voting participation rates (voting about 91% of shares held versus 29% for individuals).<\/p>\n<p>Among institutions, ownership is dominated by indexers, not decision makers. Today, only a minority of institutions do any homework before buying shares or casting votes. Indexers indiscriminately buy all stocks in a given basket. Many indexers cast votes almost as freely, relying heavily on preset <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a> guidelines or recommendations of outside advisers \u2014primarily Institutional Shareholder Services (ISS) or Glass Lewis, which control 97% of the proxy advisory market.<\/p>\n<p>These two oligopolies, one owned by private equity and the other by two large Canadian pension funds, operate with lean staffs on low budgets. With just 1,000 employees at ISS and 1,200 at Glass Lewis, they cover a huge market: ISS has 1,700 institutional clients, while Glass Lewis\u2019s clients together manage $35 trillion in assets. The two firms opine on hundreds of thousands of separate decisions annually \u2014 ISS addresses 40,000 annual meetings and Glass Lewis 20,000. \u00a0(By comparison, Moody\u2019s, the bond rating agency, employs 12,000.)<\/p>\n<p>Measuring the exact influence of ISS and Glass Lewis is difficult, since some investors might vote the same way anyhow. But estimates range from swaying 6% to 33% of any given vote, which is significant considering that many proposals are decided by small margins. Evidence also shows that institutional investors are substantially more inclined to vote for proposals that advisers support than oppose \u2014 by margins ranging from 16%-27% on executive compensation to 64%-73% on directors in contested elections.<\/p>\n<p>Two forces propelled proxy advisers to such prominence. The rising popularity of low-cost index fund investing has made it too expensive for indexers to do independent research. That stokes rising market demand. Since 2003, the Securities and Exchange Commission has let institutional investors meet their fiduciary duty to adopt and disclose proxy voting guidelines by relying on advisers. That created a governmental license for such firms, a recipe for market failure. \u00a0<\/p>\n<p>Under this government-sanctioned system, indexers not only avoid homework and responsibility for stock selection but for voting decisions. As indexers pushed their fees towards zero, they shifted from traditional market competition based on price to a novel form of competition based on virtue signaling: they woo customers by stressing <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">social<\/a> and environmental factors in their voting preferences. While advisers disclose little about how they develop their guidelines, they do stress surveying such indexer <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>etites.\u00a0\u00a0<\/p>\n<p>Which begs the question:  Are adviser recommendations good for shareholders? While the firms have never disclosed how their recommendations have worked out for shareholders, independent empirical research offers insights. On extraordinary matters, such as proxy contests and takeovers, where the proxy advisers do firm-specific analysis, recommendations tend to increase shareholder returns.<\/p>\n<p>But on prosaic topics, including compensation plans and director elections, where the advisers\u2019 recommendations tend to rely on general guidelines and check-the-box governance, recommendations tend to reduce shareholder returns. An intuitive explanation: when advisers deploy resources to engage specific questions, they do better than when relying only on preset general guidelines. \u00a0<\/p>\n<div id=\"cx-membership-tile\"><\/div>\n<p>Proposed legal reforms start with rules for proxy advisers along the lines of those governing credit rating agencies, such as transparency and disclosure of conflicts. More severe interventions would impose fiduciary duties on advisors or mandate testing and disclosure of the value of their recommendations. Yet such oversight risks unpredictable side-effects. The SEC could repeal its authorization of indexers to rely on advisers. But that would create substantial costs for indexing that are part of its legitimate appeal.\u00a0<\/p>\n<p>Another alternative, fashioned by Maurice Lefkort of Willkie Farr &amp; Gallagher, would move to pro-rata voting.\u00a0 Indexers could cast their votes in proportion to the votes of all other shareholders. As with their stock purchase decision, indexers incur no costs but freeride off resources invested by attentive shareholders. Lefkort acknowledges that the SEC would have to agree that the approach meets investor\u2019s duties, which may prove difficult.<\/p>\n<p>Here is a simpler, patented idea that I developed with Richard Brand of Cadwalader: \u00a0a voting visibility database. Managed autonomously, a website would capture intended voting positions of active funds ahead of shareholder votes. Index funds would be able to consult the data to inform their voting.\u00a0\u00a0No legal changes are required.<\/p>\n<p>While the precise upshot of a voting visibility database cannot be predicted, it would certainly offset the outsized influence of proxy advisers. By adding another resource to shareholder voting, the quality of shareholder voting would improve, elevating the ideal of shareholder democracy.<\/p>\n<p> <em>Lawrence A. Cunningham is a professor and director of the\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3697259\" class=\"icon none\">Quality Shareholders Initiative<\/a>\u00a0at George Washington University.\u00a0His books include\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.amazon.com\/gp\/product\/0231198809\/ref=dbs_a_def_rwt_bibl_vppi_i12\" class=\"icon none\">Quality Shareholders<\/a>;\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.amazon.com\/gp\/product\/B084MK5PY9\/ref=dbs_a_def_rwt_bibl_vppi_i3\" class=\"icon none\">Dear Shareholder<\/a>; and\u00a0<a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.amazon.com\/gp\/product\/B082VN9KTN\/ref=dbs_a_def_rwt_bibl_vppi_i0\" class=\"icon none\">The Essays of Warren Buffett<\/a>.\u00a0\u00a0Cunningham owns stock in Berkshire Hathaway and is a shareholder, director and vice-chairman of the board of Constellation Software.\u00a0<\/em> <\/p>\n<p><strong>Read:  <\/strong>Trust is the secret sauce that Warren Buffett and others value highly in companies <\/p>\n<p><strong>More:  <\/strong>The No. 1 job in America pays $100,000 a year \u2014 and it\u2019s not in Silicon Valley <\/p><\/div>\n<\/div><\/div>\n<p><\/p>\n<div class=\"byline article__byline\">\n<p>      <span>By<\/span><\/p>\n<div class=\"author  hasMenu\" data-scrim='{\"type\":\"author\",\"header\":\"Lawrence A.\u00a0Cunningham\",\"subhead\":\"The Wall Street Journal\",\"list\":[]}' itemscope itemprop=\"author\" itemtype=\"http:\/\/schema.org\/Person\">\n<h4 itemprop=\"name\"><span class=\"ez-toc-section\" id=\"Lawrence_A_Cunningham\"><\/span>Lawrence A.\u00a0Cunningham<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/p><\/div>\n<\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"http:\/\/www.marketwatch.com\/news\/story.asp?guid=%7B21005575-02D4-D4B5-4572-D1F33A605D9F%7D&#038;siteid=rss&#038;rss=1\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Opinion: Shareholder voting is another electoral process that needs more access and transparency &#8221; Proxy advisory industry is broken and here\u2019s how to fix it The proxy advisory industry is broken. Things are so bad that even Congressional Republicans promoted legislation to regulate it. But there is a simple market solution to improving this&#8230;<\/p>\n","protected":false},"author":1,"featured_media":154352,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[],"class_list":["post-154351","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/154351","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=154351"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/154351\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/154352"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=154351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=154351"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=154351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}