It rankles a lot of corporate boards when so-called proxy advisory services come out with recommendations to institutional clients about how to vote on various proxy issues, and those recommendations don't jibe with the board's agenda. But perhaps proxy advisory firms--there are nearly a dozen, the biggest of which is Institutional Shareholders Services--have been misunderstood. They may have less power than the recent comments to the SEC from corporate board advocates would suggest.

The SEC has asked for public comment on the proxy system, and more than a few critics of advisory firms took the opportunity to suggest some additional regulations. "Public companies have said that the proxy services interfere with their boards' own internal governance. They criticize the services for what they say is the lack of evidential support for their recommendations," notes the New York Times. One suggested firms be subject to proxy solicitation rules, allowing them to be sued over their recommendation reports--which seems a bit dire. But others raised some good issues.

If it's true that proxy advisory firms do not disclose the entire nature of their contracts with corporate boards about whom they also make recommendations, they need to start disclosing these relationships. Required disclosure in this area would seem to be warranted. But in general, corporate interests may be giving ISS and its ilk a bit too much credit. They can issue recommendations that boards read as interference, but shareholders do not have to follow such advice. And the most savvy are willing to take the reports for what they are worth.

For more:
- here's the column

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