Corporations are increasingly beholden to proxy-advisory firms that often ignore the interests of everyday investors.
Corporate America’s proxy season is upon us, with most public companies preparing to hold their annual meetings. This year, an array of social activists and labor unions have called on asset managers to vote in favor of various socially oriented shareholder proposals, among other ideas buried in proxy statements that outline matters up for shareholder votes.
We don’t yet know how these votes will turn out, but if history is any guide, we can predict how most institutional investors will cast their ballots. Among the largest shareholders in most public companies, large asset managers tend not to consider ballot items individually. Instead, they outsource their votes to one of two major proxy-advisory firms, Institutional Shareholder Services (ISS) and Glass, Lewis & Co., which — despite generating relatively modest revenue — wield outsized influence over shareholder voting. ISS and Glass Lewis are each owned by private-equity firms and together control more than 90 percent of the proxy advisory market. Last year, 114 institutional investors voted in lockstep with one of these two major proxy advisers. These “robovoting” institutional investors collectively managed more than $5 trillion in assets.
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