By Ross Kerber
March 20 Proxy advisors should share drafts of
their work with public companies and fund managers should be
aware of proxy advisors' potential conflicts of interest,
according to proposals offered by the U.S. Chamber of Commerce
The ideas are contained in a "best practices" document the
trade group issued in its latest effort to limit the influence
of firms such as the Institutional Shareholder Services unit of
MSCI Inc and closely held Glass, Lewis & Co.
Their proxy voting recommendations are often critical of the
Chamber's corporate members, but are widely used by investment
firms deciding how to cast their shareholder ballots.
The difference in interests has led to a complex debate over
the role of the proxy advisors as the corporate annual meeting
season gets going, especially when advisors suggest votes
against company wishes. Both ISS and Glass Lewis recommended
that Hewlett-Packard Co shareholders oust directors at a
meeting on Wednesday, for instance.
Tom Quaadman, vice president of the Chamber's Center for
Capital Markets Competitiveness, said the ideas were meant to be
voluntary, in lieu of formal rules from an agency such as the
U.S. Securities and Exchange Commission.
"We don't think that regulation is the answer here,"
Quaadman said in an interview. "We think this can be done by a
collaborative effort by all the parties."
The group, which represents 3 million businesses, cited
complaints from members on issues such as how the proxy advisors
compare pay among peer companies.
On Wednesday, it offered ideas such as having proxy advisors
provide public companies with drafts of their research reports
in time to identify "any factual inaccuracies or other
concerns." It also suggested that asset managers consider if a
proxy advisor discloses potential conflicts of interest such as
offering consulting services on corporate governance while
evaluating governance practices.
The proxy advisors have defended their work and gained some
support from investment firms that rely on their research,
In a statement in response to the Chamber's comments, ISS
stressed how its client base overlaps with the Chamber's own
"We take exception with the Chamber's misinformed
characterization of the proxy advisory industry and with their
disrespect for the financial institutions that are our clients
and, ironically, some of the Chamber's own members," the
"We are accountable to our clients who place their
confidence in our service, to the companies we analyze and to
the regulators that set the real guidelines for fiduciary
Robert McCormick, chief policy officer for Glass Lewis, said
in an interview that some points raised by the Chamber could be
acceptable, such as agreeing on how to disclose potential
conflicts of interest. But others would be "non-starters," such
as sharing research with companies before it is published. That
would open the door to lobbying on a particular issue by the
company being evaluated, which would not serve paying clients of
the advisory firm, he added.
The chamber received a cool reception from some fund firms
for an earlier version of the guidelines. On Wednesday, a
spokesman for mutual fund firm trade group The Investment
Company Institute sent a statement that noted how funds already
face controls over their proxy activity.
The statement said fund managers "must vote proxies
consistent with their fiduciary duty to funds and their
shareholders. Their proxy voting process is subject to SEC
oversight, including a requirement that funds have and disclose
the policies and procedures that govern their proxy voting."
Aaron Bernstein, editor of corporate governance newsletter
Global Proxy Watch, said the Chamber's detailed recommendations
would be hard for many firms to adopt.
"That kind of new burden is ironically very much what the
Chamber always opposes for other businesses," he said.
In any case, the proxy advisors are working on their own
standards in response to requests from European regulators,
which could take momentum away from the Chamber's efforts,