At the start of September 2013, computer giant Dell Inc. released a series of findings made by three US proxy advisory firms – Institutional Shareholder Services (ISS), Glass Lewis, and Egan Jones – recommending Dell shareholders to support a proposed sale transaction for $13.88 per share in cash. The nature of this recommendation, and the impact such a recommendation has on the financial decisions of companies, highlights the growing impact of proxy advisory firms in the financial marketplace, as well as their complicated regulatory position within the investment advisory world.
The heightened role of proxy advisory firms has increasingly become an issue for the Securities and Exchange Commission (SEC), particularly as highlighted by a July 11, 2013 speech by SEC Commissioner Daniel M. Gallagher. In his remarks given at the Society of Corporate Secretaries & Governance Professionals conference, Commissioner Gallagher spoke of the growing “willingness” on the part of investment advisers and large institutional investors to “rely on [proxy advisory firms] in order to ostensibly carry out their fiduciary duties,”. He voiced his concern that investment advisers, when voting proxies for clients “may view their responsibility to vote on proxy matters with more of a compliance mindset than a fiduciary mindset.”
While Commission Gallagher sadly acknowledged the SEC’s possible role as a “significant enabler” of this current mindset, his speech focused on his worry over the fact that there is not a greater level of dedicated research performed on proxy proposals by investment advisers and other institutional shareholders, and the possible implications surrounding the blanket dependence on recommendations from proxy advisory firms that appear to be prominent. In closing, the Commissioner provided suggested steps the SEC should consider taking, which included adopting changes to the regulations covering proxy advisory firms, and providing guidance to institutional investors (investment advisers) regarding their fiduciary responsibility pertaining to voting clients’ proxies.
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