KMP Report No. 20 : Proxy Advisors – The Case For and Against Additional Regulation

This month industry bodies were scheduled to take part in an Australian Securities and Investment Commission (ASIC) roundtable on improving relations between proxy organisations and the entities they report on.

The case for and against regulation of proxy advisors

The move follows an eventful 2016 AGM season, where multiple high profile companies received a strike. The number of top 100 companies receiving a strike increased on the prior year. In addition, the number of companies in the top 100 receiving a “close call”, which Egan Associates would define as having an adverse vote of over 20%, increased.

Yet it was the scale of the companies receiving a strike that drew media attention.

In the past, strikes most often occurred among small cap companies. 2016 was different. The number of companies receiving a strike in the top 50 rose from one in 2015 to four in 2016.

The profile of the leading companies drew attention to the two strikes regime and more than one Director voicied opinions on the quality of proxy advisor research, with some parties calling for increased regulation of proxy advisor activities.

Proxy advisors meanwhile are more likely to hold the view that complaints against the quality of their research are generally made by companies with poor governance and believe there is no need for additional regulation.

In acknowledgement of how strongly many parties feel on this topic, Egan Associates has summarised views and suggestions on both sides of the divide and has reviewed the actions of other jurisdictions.