Stephen Davis is a Senior Fellow at the Harvard Law School Program on Corporate Governance.
For the first time, six of the world’s most influential shareholder voting research and analysis firms (better known as “proxy advisors”), which help institutional investors vote shares at stock-exchange-listed companies worldwide, have each publicly released reports showing how they comply with the latest industry Best Practice Principles. [1]
Proxy advisors have been a target of corporate criticism ever since Institutional Shareholder Services (ISS) pioneered the voting-recommendation industry in 1985. Through its landmark 1988 Avon Letter, [2] the US Department of Labor first declared the share ballot an asset—making it all but mandatory that ERISA-regulated funds cast them. The rule paved the way for an expanded industry of voting research and advisory firms. But for decades many institutional investors commonly handled the responsibility as a low-status compliance exercise. In 2007 Lord Paul Myners, later UK City Minister, scathingly referred to proxy staff as the “open-toed sandal brigade” beavering in the basements of investment houses. [3]
That’s not the case today. Increasingly, investors are merging the voting responsibility with investor-corporate engagement in a new discipline that has become known as stewardship. Moreover, as asserted most prominently in annual letters from BlackRock’s Larry Fink [4] and State Street Global Advisors’ Cyrus Taraporevela, [5] stewardship is now seen as a central means for mainstream investors—not just activists—to seek and protect share value. As a result, institutions have piloted a steady drift away from routine endorsements of corporate management and toward more critical stances on executive pay, director nominations, ESG, and a host of other issues.