If you read the Wall Street Journal article, For Proxy Advisers, Influence Wanes (May 22, 2013), you might think that both Institutional Shareholder Services (ISS) and Glass, Lewis & Co. (Glass Lewis) are on the ropes. There’s even a quote from Glass Lewis’ VP of proxy research, David Eaton, that seems to buttress that conclusion:
“Our power is probably shrinking a little bit.”
The article discusses how some of the larger mutual funds and money managers, like BlackRock and Vanguard Group Inc., have teams that handle more of the leg work that used to be in the proxy advisors’ wheelhouse. But these large institutional shareholders still subscribe to the ISS and/or Glass Lewis proxy reports. In many cases the ISS and Glass Lewis proxy report are viewed as background research on the company, which then may be supplemented by the institutional shareholders’ staff (which are generally too small for them to handle all the research themselves in a cost efficient manner).
The article cites a 2002 study that found that a negative ISS vote recommendation on management proposals influenced from 13.6% to 20.6% of the vote. Additionally, with the passage of the Dodd-Frank Act with its say-on-pay requirements, the influence of proxy advisors has grown. According to a 2012 study by the Conference Board, about 70% of 110 large and midsize companies indicated that their pay practices were influenced by proxy advisory firm policies.
Glass Lewis and ISS indicated that they are recommending against fewer say-on-pay votes this year and fewer have actually failed. According to Broc Romanek’s blog today on CompensationStandards.com, there have been only 23 say on pay votes that failed so far in the 2013 proxy season.
The conclusion I reach? A bit different than the article–proxy advisors’ influence is still going strong.
Why? Because at this point many large and midsize companies are either incorporating the proxy advisors’ policies regarding pay practices into their pay designs up-front or at least considering them during the design phase. Therefore, more companies are either complying with the proxy advisors’ policies or are aware of anything done outside the lines of those policies and can then do a better job of explaining the rationale for such compensation actions to their shareholders.
So while it might appear from a pure vote perspective that the influence of the proxy advisory firms is waning (which I question a bit given what I’ve seen in the context of equity plan proposals for some time, see the white paper Reid Pearson of Alliance Advisors and I published earlier this year on the topic which shows that failed equity plan proposals have stayed at about the same level over the past five years, Equity Plan Proposal Failures: 2007-2012), I believe their influence on executive compensation at public companies is actually growing.
Equity Plan Propsal Failures: 2007-2012: https://www.exqty.com/Media/Publications/EP%20Proposal%20Failures%202007-2012_20130107.pdf
On May 21, 2013, Big Lots released this Form 8-K indicating that the SEC had concluded its investigation into executive trading and determined that no further action will be taken. Where’s the front page story in the Wall Street Journal announcing that? Where’s the infographic showing that the SEC decided not to take any further action?
Here’s the link to Big Lots’ Form 8-K announcing that the investigation was completed and no further action would be taken by the SEC:
On May 23, 2013, the SEC charged ISS in the breach of clients’ confidential proxy voting information as part of its investigation that found an ISS employee provided a proxy solicitor with material, nonpublic information revealing how more than 100 ISS institutional shareholder advisory clients were voting their proxy ballots. ISS agreed to settle the SEC charges by paying a $300,000 fine. Here is the link to the SEC Press Release announcing this action:
I have just posted my 2013 ISS Burn Rate Calculator. You simply have to add n a few details about your company, its equity grants and weighted average common shares outstanding for the past 3 years and it will calculate your ISS Burn Rate for 2013. You will also need to know your volatility and 4-digit GICS code to get valid information about the ISS Burn Rate Cap that applies to your company for 2013.
Right click the link below and save the file to your computer and then enter the requested data and the 2013 ISS Burn Rate will be calculated.
As I wrote last week, ISS has launched a new corporate governance ranking system, Governance QuickScore. ISS announced today that the data verifications website is now up and available for companies to review and verify the corporate governance data that ISS has on file. The website is www.issgovernance.com/quickscore. Companies can access the data verification section under the Data Verification tab (companies must have a log-in ID to access).
Here’s ISS’s timeline for implementing Governance QuickScore:
|January 28||Data review and verification site opens for companies to review their data against the Governance QuickScore factors.
|February 15||Data review and verification site closes (although the site will open again and remain open after QuickScores are calculated and released in late February/early March)
|Late Feb/early Mar||ISS Governance QuickScore launches. Governance QuickScores are applied to all 4100 companies in the coverage universe. We anticipate a Governance QuickScore launch date on or around February 25, but will confirm/update that date in subsequent communications.