The proxy advisory industry – in which independent third-party firms provide voting recommendations to institutional investors for matters on the annual proxy – has grown in size and controversy. Despite a large number of smaller players, the proxy advisory industry is essentially a duopoly with Institutional Shareholder Services (ISS) and Glass Lewis controlling almost the entire market.
In this Closer Look, we examine seven important questions about the role, influence, and effectiveness of proxy advisors.
We ask:
- Why have researchers been unable to demonstrate the purpose and market role of these firms?
- Is the proxy advisory industry a net benefit or cost to shareholders?
- What explains the large swings in voting outcomes that seem to be associated with their recommendations?
- What research do proxy advisory firms conduct to satisfy themselves that their guidelines are beneficial to shareholders?
- Why don’t these firms provide greater transparency around their methodologies?