By Sinead Cruise
LONDON Feb 19 Groups who advise institutional
investors on which way to vote at shareholder meetings on such
matters as executive pay need a code of conduct but not
regulation, the European Union's financial services watchdog
ESMA said on Tuesday.
After extensive analysis and consultation with market
participants, The European Securities and Markets Authority
(ESMA) said it had concluded that the proxy adviser industry did
not need regulatory intervention but a voluntary Code of
Connduct could give reassurance on the independence of advisers
and the quality of their advice.
"ESMA has identified a number of concerns regarding the
independence of proxy advisors, and the accuracy and reliability
of the advice provided, which would benefit from improved
clarity and understanding amongst stakeholders," it said in a
Pension funds, insurance companies and other big
institutional investors often consult proxy advisors to help
them make decisions on how to vote their shares on such matters
as boardroom appointments and pay and takeovers.
Tensions between them and the firms they monitor have ramped
up since the financial crisis, as the advisers step up their
criticisms of a company's management over policies that they
believe go against the best interests of their client
As the influence of proxy advisers grows so has the debate
on whether they are as independent and transparent in their
thinking as they claim.
The recommended code will focus on identifying and managing
potential conflicts of interest among proxy advisers and
increasing disclosure of voting policies and methodologies.
Work on drafting the code is expected to begin in the next
few weeks, ESMA said.
ESMA said several leading proxy advisers were supportive of
beginning work on a Code, including Glass Lewis, MSCI's
Institutional Shareholder Service (ISS), IVOX, Manifest, Nordic
Investor Services, Pensions Investment Research Consultants
(PIRC), and Proxinvest.
Alan MacDougall, managing director of PIRC, said: "ESMA has
done an important job of demystifying how proxy advisors work in
practice. The proposals it has put forward are, in our view,
Some of the advisers, however, said the initiative lacked a
thorough examination of how the industry has grown in recent
years and the varied roles played by each adviser.
"Codes of conduct are motherhood and apple pie but they will
not address a genuine issuer concern - the structure of the
proxy analysis market," Sarah Wilson, chief executive of
Manifest told Reuters.
"We very much hope this will not be the end of the line for
regulatory scrutiny of the entire proxy voting process; we are
extremely concerned about the abuses in the voting chain which
are causing investors and companies so many problems."