October 3, 2018
Institutional Shareholder Services (ISS) and the Council for Institutional Investors (CII) yesterday announced the creation of a new public relations campaign to protect proxy advisory firms’ role as the self-appointed regulators of America’s publicly traded companies.
While the focus of the campaign is outwardly to push back against H.R. 4015, the Corporate Governance Reform and Transparency Act, which would bring much needed transparency to proxy advisory firms that are currently “functionally unregulated”, it also aims to discredit the Main Street Investors Coalition by furthering a number of false claims which have already been presented – and equally quickly debunked.
The new campaign is littered with deliberate mischaracterizations and inaccurate statements intended to hide the facts about ISS’s history of shoddy business practices. Here the Main Street Investors Coalition and our members set the record straight.
Claim: The campaign to “protect shareholders” characterizes the Main Street Investors Coalition as a corporate special interest led by Washington lobbyists.
Fact: It is ironic that ISS, the largest proxy advisory and consulting firm in the world, and CII, are attacking the Coalition as a special interest when their new campaign is designed to protect the financial interests of one company alone. It is also curious that the only other major player in the proxy advisory industry, Glass Lewis, has refused to join the campaign, reinforcing the impression that this Coalition is about one company’s special interests alone.
In contrast the Main Street Investors Coalition is made up of multiple organizations and individuals who share similar concerns. As Saul Anuzis, the President of the 60 Plus Association, points out:
“This is a campaign run by the largest proxy advisory firm and its industry association – the precise embodiment of the special interests they want to stop. Reform of the proxy advisory duopoly has been supported from elected officials from both sides of aisle and numerous organizations, including America’s seniors. Arguing that this is a campaign that will benefit shareholders when its only intended to protect the interests of two companies, would be laughable if it wasn’t so damaging. We are most concerned about transparency and disclosure about any potential conflicts or biases. Attacking a process that sheds light on their recommendations raises even more questions.”
Claim: The Main Street Investors Coalition exists only to push back on “Environmental, Social, and Governance” shareholder resolutions.
Fact: George David Banks, Main Street’s Executive Director, has long advocated for consensus based policy solutions to mitigate climate change:
“The claim the Coalition is only a vehicle to push back on ESG is disingenuous and deliberately misrepresentative. Our argument is just that ESG initiatives must be able to show that they will add value – as with any other proposal or investment. Challenging the orthodoxy of those who benefit financially from the growth of ESG does not mean we’re opposed to environmental measures or that we’re climate sceptics – as my record on the issue should show. What we do believe is fiduciary responsibility to maximize returns should come first.”
Members of the Main Street Investors Coalition believe ESG resolutions that clearly demonstrate they are improving the material value of the firm and maximizing profits are beneficial to all shareholders. The Coalition also has no issue with investors who explicitly opt into ESG funds which is a right of an individual shareholder. Our argument is that investment managers must focus on returns for their members ahead of political or other objectives.
Claim: This effort is created to combat an effort “spearheaded by corporate interests” and business groups to “protect shareholders.”
Fact: The Main Street Investors Coalition is focused on protecting the interests of shareholders, including retail investors, who overwhelmingly support value maximization; when asked, 75 percent of pension fund members indicated that the most important issue for fund managers should be to focus on maximizing returns and getting the pension fully funded.
Bernie Sharfman, Chairman of the Advisory Council and corporate governance expert, explains:
“The Main Street Investors Coalition aims to push back on the ‘agency costs of agency capitalism’, a new trend which has seen institutional investors disregard the preferences of the retail investors for wealth maximization, in favor of their own preferences. This evolution represents a divergence from the institutional investor’s fiduciary duty to act exclusively in the best interests of those who provide it with funds to manage. Attempts to portray the Coalition as anything else are inaccurate and distract from this important issue.”
Claim: The Main Street Investors Coalition is a “front-group” that has no link to retail investors.
Fact: The Main Street Investors Coalition proudly displays all of its members on our website including the National Association of Manufacturers, the American Council on Capital Formation, the Savings & Retirement Foundation, the Small Business & Entrepreneurship Council, the American Securities Association, and the 60 Plus Association. Further the Coalition also includes a representative of the retail investment community on our advisory council to ensure that our positions and actions are in line with the interests of retail investors.
Nan Bauroth, a member of the Advisory Council and retail investor, had this to say about the new campaign:
“Contrary to claims by the advocacy group Protect Shareholders, I am not a lobbyist or Washington interest, but an average retail investor who belongs to the Main Street Investors Coalition because my shareholder rights deserve attention by fund managers. When I invest my hard-earned money into a fund, as millions of fellow investors do, I expect fund managers to uphold their fiduciary duty. That is why the Main Street Investors Coalition is focused on empowering everyday investors like me to protect their shareholder rights, while ensuring that the financial institutions responsible for managing the retirements of millions of Americans are focused on maximizing returns, not politics.”
Bauroth is one of many voices calling for increased attention to the voices of everyday retail investors and the misuse of power on behalf of proxy advisory firms. These include:
- Rep. Sean Duffy (R-Wis.): “They (proxy advisory firms) hold companies hostage and make them buy services. It’s like Vinny down the street who says, ‘Hey look, I’ll protect your store and if you don’t pay, we’re going to come in at night and you know what happens.'”
- Sen. Heitkamp (D-ND): “Right now, there is no regulatory apparatus that applies to all proxy advisory firms, they are functionally unregulated.”
- The Securities and Exchange Commission: “Proxy advisory firms may be subject to conflicts of interest or may fail to conduct adequate research and base recommendations on erroneous or incomplete facts.”
- The Society for Corporate Governance: “In our view, proxy advisory firms exert outsized influence in the proxy voting process … (they) operate without providing adequate transparency into their internal standards, procedures, and methodologies. These firms are basically ‘black boxes,’ operating with little accountability or input into their internal processes.”
- Anthony Rueck (Teamster and Retail Investor): “… proxy votes are then outsourced to proxy advisory firms who offer very little insight into their methodologies and in some instances are paid for their recommendations by mutual fund companies. In other words, the only people looking out for my hard-earned money on these proxy votes are outside companies who I have no relationship with and don’t support.
- Manhattan Institute: “ISS receives a substantial amount of income from labor-union pension funds and socially responsible investing funds, which gives the company an incentive to favor proposals that are backed by these clients. As a result, the behaviors of proxy advisors deviate from concern over share value, [suggesting] that this process may be oriented toward influencing corporate behavior in a manner that generates private returns to a subset of investors while harming the average diversified investor.”
Claim: The Protect Shareholders campaign claims that it aims to “correct the record, reveal the mistruths and double-speak of the lobbying groups”
Fact: The campaign has immediately released an opinion survey that is wildly misleading and inaccurate, claiming that 61 percent of respondents oppose HR 4015. In fact only 32 of participants said they oppose the legislation, while 24% said they neither support nor oppose and 24% don’t know. The polling company simply disregarded these respondents to only cover those who expressed a firm view. You can see the full data laid out HERE.
The Bottom Line: The Protect the Voice of Shareholders campaign is the very embodiment of a special interest lobbying initiative, aimed to protect the interests of one company only. It has no real links to retail investors and lacks support from the wider academic, policy or business community. Its launch is clear evidence that momentum is on the side of retail investors and others who believe that tackling the proxy advisory firms must be a priority for the SEC this November.