October 12, 2018
Last week, ISS and the Council for Institutional Investors (CII) launched a new – and highly flawed – public relations campaign in an effort to defend against the growing concern over practices of the proxy advisory industry and its impact on everyday investors. In addition to misstatements and factual inaccuracies – all debunked HERE — the new effort relies heavily on a misleading poll from Morning Consult in an effort to claim that voters do not support H.R. 4015, the Corporate Governance Reform and Transparency Act of 2017.
The campaign’s portrayal of the poll misrepresents its actual findings.
- For starters, totals are creatively added to create misleading sums. The website reports that “a vast majority – 61 percent – oppose their Senator backing H.R. 4015,” when that is plainly not the result obtained. The breakdown of data shows that only 15 percent of those polled strongly oppose the legislation and 17 percent somewhat oppose it – a total of only 32 percent of registered voters, not the 61 percent they claim. That’s hardly more than half as the campaign suggests, so how did they reach 61 percent? ISS and CII’s new effort negated people who either responded don’t know or had no opinion. This is nearly half of the respondents. The results were then recalculated among those who chose a side, radically and artificially inflating those who oppose the legislation.
- Next up, the questions asked in the poll are flawed. The questions in the poll don’t effectively assess voter views because most of them misrepresent the issues at hand in H.R. 4015. The poll questions are designed to lead people down a path that suggest the law is far more nefarious than it is. One of the poll questions was written as follows: “Going back to proxy advisors the companies hired to provide institutional investors with research and independent voting recommendations for public corporations shareholder meetings in your own opinion, who do you believe should get the first look at research and recommendations prepared by proxy advisors?” Taking away basic fact that the phrasing of that question would be confusing to most people, that question moves away from the content of legislation, which is designed to comprehensively protect retail investors and the U.S. economy “by fostering accountability, transparency, responsiveness, and competition in the proxy advisory firm industry,” not to determine who gets a first look at proxy advisory recommendations.
Despite what the campaign would have you believe, H.R. 4015 does not allow CEOs and management teams to interfere in corporate voting matters, but rather:
- Brings about transparency in the industry by requiring disclosure of firm structure, potential conflicts of interest and research methods and processes used; and,
- Fosters fairness by compelling the inclusion of processes by which the information used by the proxy advisory firms to make their recommendations can be corrected, clarified or updated.
This is a key fact as the provision requiring proxy advisory firms to implement a process by which erroneous data can be corrected or updated is crucial to protect both shareholders and the economy. First, this ensures that the information on which the recommendations are based is accurate. Currently, shareholders have no way to verify that the recommendations being made based on or that their shares are being voted based on accurate information. By requiring the proxy advisory firms to implement a process, H.R. 4015 aims to protect shareholders’ right to fair, accurate information and give companies a means by which they can question the accuracy or analysis of proxy advisory firms’ recommendations.
There have, in fact, been instances in which ISS issued recommendations based on erroneous or misrepresented information. For example, Abbott Laboratories wrote a letter to ISS detailing a number of factual misrepresentations in its analysis and tried to meet with them to address these issues, but ISS continued to ignore them – something that would have been prevented under H.R. 4015.
Second, implementing a standard process ensures there will be enough time for this to take place so that a vote doesn’t have to be decided before the information can be properly reviewed. According to the 2018 Proxy Season Survey from the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, “the amount of time companies were given to respond to recommendations varied” and companies commonly reported that only one to two days lapsed between when recommendations were issued and when votes were held. Some even reported having less than an hour. That is certainly not enough time to give a recommendation proper consideration. Companies must be given “reasonable time,” defined as no less than three business days under the new law, to ensure enough time for true review and consideration.
Bottom line: This poll has more problems than answers. Main street investors want and deserve to know how their money is being voted on based on facts and figures, and H.R. 4015 is a step in that direction.