I know a lot of people have been waiting a long time for the Government Accountability Office’s report on the state of the proxy advisory industry.  The GAO report–which had been requested by two members of Congress–was finally released to the public on Monday.

I guess the big surprise from the report is that there really was not much in the way of surprise.  It appears that the primary purpose of the report was to hone in on Institutional Shareholder Services’s potential conflicts of interest (i.e., taking on both investors and issuers as clients).  But since ISS fully discloses those arrangements–and investors told GAO that they were comfortable with ISS’s practices in this area–ISS’s conflicts of interest proved to not be much of an issue for the report.

Here are some of the “notable” findings in the GAO’s report:

(1) There are over 28,000 public companies worldwide that send out proxy statements–with over 250,000 separate issues. Nice stats to know.

(2) Most institutional investors indicate that they conduct their own due diligence to obtain reasonable assurance that ISS is independent and free from conflicts.  But in many cases, the investors’ diligence consists only of reviewing ISS’s conflict policy.

(3) Proxy advisors may also be conflicted where their owners do other business with issuers and investors (and where the owners of advisory firms serve on boards of other companies).  In my view, this is the real conflict risk that exists in the industry.

(4) A helpful chart on page 13 shows how dominant ISS is within the industry, with more clients than the other 4 proxy advisory firms combined.  I have to admit that I had not heard of Marco Consulting Group before–and it has been around for nearly 20 years.

(5) Many of the investors that GAO contacted said that they do not vote their proxies; they hire asset managers to do that for them.

So what did the GAO miss in its review of the proxy advisory industry?

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