May 10, 2019
Yesterday, the Institute for Pension Fund Integrity held a panel on proxy advisory firms, ESG investing and public pensions. Opening the discussion was Representative Sean Duffy (R-WI) articulating his position on proxy advisory firms and the “racket” they bring to the process for every-day retail investors:
“I find it to be anti-American… Whether it’s pensions or mutual funds. We invest to improve the performance of our dollar, but then we’re outsourcing the corporate governance to two companies that might not share our view of the world, they might have a different political view than we share and there’s really no oversight, and I think very little responsibility that falls on behalf of these proxy advisory firms.”
For the past two congressional sessions, Representative Duffy has been working with fellow congressmen, including Representative Greg Meeks (D-NY), to propose legislative reform of the proxy advisory system. Although their proposed legislation was not considered in the Senate last session, Duffy and Meeks have very clear and promising intentions for future reform.
“We’re going to work together again in this Congress. But in essence, we want to bring more accountability, more transparency and responsiveness to the proxy advisory firms. We want to have them registered with the SEC, disclose conflicts of interest, and make available publicly their methodologies. So we’re not rocking the world here, we’re just trying to bring more accountability to this space.”
Panelist Wayne Winegarden reiterated Representative Duffy’s remarks on the need for increased transparency and disclosure to earm back the trust of retail investors.
“The other issue has a lot to do with transparency, and when the congressman was talking about the ESG bills and proxy advisors, I think the more disclosures that we have, the more transparency that we have, that’s always the ‘cleansing agent.’”
That same day, during a budget hearing at the Senate Appropriations Committee, Securities and Exchange Commission (SEC) Chairman Jay Clayton reiterated his belief that the proxy process needs reform. Clayton discussed how this reform is an important initiative for the corporate finance and investment management world. He mentioned the success of the SEC’s November 2018 Roundtable on the Proxy Process and agreed improvements to the proxy process are necessary:
“While we heard a wide range of views, we saw more agreement than disagreement, and I believe that we should act to improve each of these areas with an initial focus on the matters where there was broad agreement action is appropriate.”
Clayton also reiterated the work his staff is doing to review and formulate changes to the proxy process:
“On timing, it is clear to me that these issues will not improve on their own with time, and I intend to move forward with the staff recommendations, prioritizing those initiatives that are most likely to improve the proxy process and our markets for our long-term Main Street investors.”
These two events demonstrate how reform of the proxy process and increased oversight of proxy advisory firms is an important and bipartisan issue. Thanks to both Chairman Clayton and Representative Duffy, the concerns of main street investors are being raised in both the SEC and Congress.