(Reuters) - Nasdaq OMX Group’s top attorney called on regulators to finish a review of the proxy system that governs U.S. companies, saying proxy advisory firms are too opaque.
Completing a review of the proxy voting system begun several years ago “is absolutely necessary” for the new chairman of the U.S. Securities and Exchange Commission, said Edward Knight, Nasdaq general counsel, on Wednesday.
Knight spoke at an event in Washington, D.C. sponsored by the U.S. Chamber of Commerce. The business lobbying group lately has ramped up criticism of proxy advisers like the ISS unit of MSCI Inc and Glass, Lewis & Co. Some executives say the two firms have gained too much influence over how shareholders vote on matters like executive pay and are not responsive to criticism.
“We need to evolve these firms so they are more accountable, less opaque,” Knight said.
Representatives of ISS and Glass, Lewis also attended the event and stood up for their work. Glass, Lewis Chief Policy Officer Robert McCormick compared the complaints of executives to the satirical website theonion.com, saying: “It’s like a headline from The Onion - ‘Corporations Call For More Regulation’.”
McCormick and ISS Special Counsel Patrick McGurn were making something of an appearance in the lion’s den, as the Chamber has been one of both firm’s sternest critics. Since May, for instance, the Chamber has called for the SEC and the Labor Department to review Glass, Lewis.
Chamber spokeswoman Lisa Burgess said via e-mail that neither agency has responded.
Together the two firms advise thousands of big investors like pension systems and mutual funds on how to cast their ballots in annual proxy contests. Once sleepy affairs, these springtime gatherings have soared in importance as activist investors, labor groups and others use them to pressure companies on areas like takeover defenses and pay.
In 2010 the SEC issued a “concept release” seeking input on how to improve the proxy system. But the agency has said little since then, leaving the area high on the agenda. SEC Chairman Mary Schapiro said last month she will leave the agency on December 14. She will be succeeded as chairman by commissioner Elisse Walter at least in the short run.
At Wednesday’s event, which was webcast, Nasdaq’s Knight said the stock exchange operator wanted clearer rules about proxy advisors and other elements of corporate governance in order to encourage the formation of more public companies.
Former SEC Chairman Harvey Pitt said investors themselves must take more of a role in their voting. He said too many big shareholders simply follow the advisors’ suggestions, and called that “a dereliction of a core fiduciary obligation of the portfolio manager.”
Pitt said he would like to see more analysis before he would back new rules for proxy advisors, however. Pitt said a better step would be for the SEC to withdraw two administrative letters it sent investors in 2004 that effectively encouraged them to rely on the advisors in deciding how to vote.
Reporting by Ross Kerber; Editing by Richard Chang