First Independent Report on Proxy Voting Advisory Firm Best Practices

Stephen Davis is a Senior Fellow at the Harvard Law School Program on Corporate Governance.

All six of the world’s leading proxy voting advisors have met best practice industry standards for service quality, integrity, and communications, according to a first-ever assessment by an impartial international panel composed of investors, company executives, and academics. However, in its debut annual report released July 1, the Independent Oversight Committee (IOC) also called on the six to adopt a battery of improvements in practice and disclosure. Find the annual report at Best Practice Principles (BPP) Oversight Committee | Best Practice Principles for Shareholder Voting Research (

The industry of firms offering shareholder voting analysis and research has drawn rising stakeholder attention to the roles they play in the market, the IOC annual report asserts. Depending on their business model, services provide institutional investors with research, data, and/or advice they can use to make informed voting decisions at listed companies around the world. Since voting today involves how investors manage risk, value, and opportunity more than routine compliance, their ballot choices—and the research inputs they use to reach them—bear more directly than ever before on the future governance and strategic directions, and the electoral fate of board directors, of publicly-traded companies worldwide. With such relevance comes elevated expectations and scrutiny. Certain issuers, and regulators such as the Trump-era SEC and current Australian Treasury, have called on the proxy voting analysis and research industry to step up transparency and accountability. ESMA, the European Securities and Markets Authority, has been especially proactive in encouraging private and public sector solutions.

In 2014, at ESMA’s prompting, five proxy voting advisors—Glass Lewis, Institutional Shareholder Services (ISS), Minerva, PIRC, and Proxinvest—developed and voluntarily adopted Best Practice Principles for Providers of Shareholder Voting Research & Analysis. The original five Signatories have since been joined by a sixth: EOS at Federated Hermes. The current version of the Principles came into force in 2019, with firms committing to first reports covering 2020. These may be found here: Under provisions of the Principles, Signatories are to disclose information in annual compliance statements in three main areas:

  • Service Quality, including staff resources, research methodologies, and voting policies;
  • Conflict of Interest Avoidance or Management; and
  • Communications Policy, including descriptions of how they communicate with client investors as well as public companies and other stakeholders.

But while ESMA supported the idea of best practice principles together with regular self-assessments by Signatories, it also pressed for an independent body to test compliance and keep the code relevant as market demands changed. Thus, the 12-person Independent Oversight Committee was installed in July 2020 with distinguished international representatives of public companies, investors, and the academic community. The IOC’s purpose is to provide rigorously independent assessments of industry compliance reports, invite market views on proxy advisors’ performance against the Principles, and produce an annual report on whether the Principles and independent oversight are advancing stakeholder confidence in the proxy voting and research advisory industry.

In its first such annual report, the IOC’s assessment found all six firms met standards established in the three 2019 Best Practice Principles, and it identified proxy advisors which stood out as best in class in different reporting categories. But it also identified a range of topics where Signatory reporting could be improved in order to enhance stakeholder confidence in the industry. In particular, it asked service providers to disclose more information on staff analyst qualifications; resources firms deploy to provide informed coverage of each individual market; error tracking procedures; safeguards against conflicts of interest; and whether and how companies have opportunities to offer feedback on proxy reports. Further, the IOC found 2020 compliance reports thinnest in discussing procedures for handling complaints, and encouraged each industry member to expand sections on this topic in their 2021 statements. In addition to general findings in the annual report, the Committee provided detailed confidential assessments to each proxy advisory firm.

The IOC plans to review the next cycle of Signatory compliance reports to determine if its recommendations were implemented and, if not, why not. Further, the Committee is shortly to conduct a survey on stakeholder views on the proxy voting research and advisory industry, with findings to be released at a virtual stakeholder forum on October 6 2021 at 1600 CEST. This IOC Open Forum will be an opportunity for stakeholders worldwide—and especially investors, issuers, and regulators—to share perspectives on the proxy voting advisory industry. The IOC will consider outcomes in deciding whether to advocate an update of the Principles.

The IOC’s 2021 annual report includes details of its own governance together with a record of actions during its first year of operations. In 2020-2021 the IOC was composed of the following members:

  • Stephen Davis, Ph.D., chair; Senior Fellow at Harvard Law School; (United States)
  • Amy Borrus, Executive Director, Council of Institutional Investors (CII); (United States)
  • Clare Payn, Senior Global ESG & Diversity Manager, Legal & General Investment Management (LGIM); (United Kingdom)
  • Margriet Stavast, Senior Advisor Responsible Investment, PGGM; (Netherlands)
  • Massimo Menchini, Director of Institutional Relations and Corporate Governance, Assogestioni; (Italy)
  • Michael Herskovich, Head of Corporate Governance, BNP Paribas Asset Management; (France)
  • Michael McCauley, Senior Officer – Investment Programs & Governance, SBA of Florida (United States)
  • Jean-Baptiste Duchateau, VP Legal Corporate & Securities, Veolia Environnement (France)
  • Geof Stapledon, Vice President Governance, BHP (United Kingdom & Australia)
  • Hope Mehlman, Executive Vice President, General Counsel and Corporate Secretary, Bank of the West (United States)
  • Konstantinos Sergakis, Professor of Capital Markets Law and Corporate Governance, University of Glasgow (United Kingdom)
  • Nermeen Shehata, Associate Professor, The American University in Cairo (Egypt)

The Committee was also assisted by Independent Researcher Anna Tilba, Associate Professor, Durham University Business School. The home page of the Independent Oversight Committee may be found here:

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