BlackRock Calls for Transparency at Proxy Advisory Firms Following SEC Roundtable

November 27, 2018

Shortly after participating in the Securities and Exchange Commission (SEC) roundtable on the proxy process, BlackRock, the world’s largest money manager, called for the SEC to promote “a principle of transparency throughout the proxy ecosystem.” According to BlackRock, this principle of transparency extends to proxy advisory firms.

Proxy Firm Methodologies and Conflicts of Interest

Specifically, BlackRock noted the current lack of disclosure required of proxy advisors regarding how they reach their recommendations and information about potential conflicts of interest. Right now, companies that are interested in obtaining information about how proxy advisors formulate their recommendations often must purchase that information from the proxy advisory firm. In the case of Institutional Shareholder Services (ISS), the companies can also purchase consulting services to help them navigate the process, a clear conflict of interest. To deal with this important issue, BlackRock recommends that proxy advisory firms be required to disclose more information about the services they provide:

“The research and recommendations of proxy advisors are an important input for many institutional investors. Yet, there are currently no standards or regulations that apply to reports prepared by proxy advisory firms to summarize proxy statements, and provide analysis and recommendations. Notwithstanding general proxy voting guidelines, proxy advisors do not disclose their methodology for their analyses and vote recommendations, and offer limited insight into which companies receive consulting services. Additional disclosure around potential conflicts of interest and how they are mitigated may be warranted.”

Ensuring that Proxy Advisors’ Recommendations are Accurate

BlackRock also noted the need for information that proxy advisory firms base their reports to be completely accurate and called out the “compressed time frame” that companies are up against. At present, companies do not receive reports issued by proxy advisors before they officially release their recommendations, which gives companies little or no time to respond to correct the error. The use of “robo-voting”, or automatic voting in line with proxy advisors on the part of investors, exacerbates the problem because oftentimes a significant portion of a company’s shares will already have been voted before they respond. In light of this problem, BlackRock recommends that companies are given time to review the reports before they are finalized:

“We recommend that the SEC pursue solutions that ensure accuracy, completeness and a fair and consistent process with regard to the proxy advisory firm’s preparation of its company reports. Given the volume of proxy votes and the compressed time frame of U.S. public company annual general meetings, we recommend exploring technology solutions such as a digital portal for the review of draft company reports.”

Ensuring that Proxy Advisors’ Recommendations Positively Impact Companies Financially

Given the growing importance of Environmental, Social, and Governance (ESG) shareholder resolutions, which deal with external issues where it is harder to estimate the financial impact, BlackRock also recommends that proxy advisors be mindful of the costs that such resolutions may pose to companies in their regulations:

“…when a proxy advisory firm recommends in favor of a shareholder proposal, their analysis and report should consider the costs to the company associated with the implementation of the proposal. We believe that asset managers should similarly consider cost as a factor in their own vote determination.”


Like BlackRock, the Main Street Investors Coalition has examined proxy advisory firms and concluded that more transparency is necessary. The American Council on Capital Formation released a report detailing proxy advisors’ conflicts of interest and a report that examines factual errors along with the impacts of “robo-voting” – all key issues raised by BlackRock. The Main Street Investors Coalition applauds the investment manager’s recognition of the need for more transparency from proxy advisory firms. This latest comment from BlackRock indicates that a powerful consensus is building among the key stakeholders who are impacted by the current harmful practices of proxy advisory firms.

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