The proxy voting system has gained importance given the growing interest in environmental, social and governance (ESG) issues and the best way investors vote on related shareholder proposals. Institutional Shareholder Services (ISS) And Glass LewisIn particular, they supply crucial guidance and shareholders who want to vote for his or her proxies depend on them to exercise their proxies in a prudent and transparent manner. But with only two players dominating the market, are investors really getting the variety of perspectives they should make informed proxy votes?
The Importance of the ISS and Glass Lewis
Of course, ISS and Glass Lewis are essential pillars of the proxy voting system by providing research, advice and record keeping. Investors with hundreds of stocks of their portfolio can hardly research every proxy vote. They are higher off adopting a policy to guide their voting, while paying particular attention to specific issues that align with their expertise and interests.
Are two platforms enough?
Regulators, academics and investors have acknowledged that the predominance of ISS and Glass Lewis may lead to a scarcity of other views on how shareholders should vote and that this might force investors to not follow the suggestion of the proxy advisory service to which they’ve subscribed to follow.
Pension funds and other large investors have a possibility to mitigate this duopoly problem by subscribing to ISS and Glass Lewis, or each, and incorporating their guidance as an information input fairly than a typical vote. They can then contribute their very own research and perspectives on specific proxy voting practices that transcend what ISS and Glass Lewis provide or what could be possible through a typical voting policy approach. However, as a result of time and price constraints, usually many small and medium-sized corporations haven’t any alternative but to show to the 2 dominant players.
A helpful step
With OxProxThe publicly accessible and searchable database of world voting records allows investors and analysts to match how investors voted on their proxies and their motivations for voting when these are disclosed. When does an investor’s proxy voting comply with ISS and Glass Lewis guidelines? When is it different? Does an investor at all times support management or shareholder proposals? OxProx makes such data available and discoverable.
Voting disclosure requirements and practices are regulated on the national level, so OxProx, as a worldwide database, allows for more informed comparisons.
Who Benefits from Proxy Data Transparency?
ShareAction in Great Britain, How you sow within the United States and SHARE In Canada, stakeholder and shareholder interest groups, amongst other stakeholders, are all doing essential work on ESG issues. However, these organizations don’t view proxy voting from a shareholder or financial materiality perspective. That is, they will not be unduly influenced by whether shareholder returns are materially affected by specific ESG decisions. Rather, they engage with corporations and industries on greenhouse gas emissions and other ESG issues to advocate for changes that profit all stakeholders and society at large, even when they might reduce shareholder profits.
OxProx data might help these organizations inform learn how to engage and hold corporations and investors accountable when their political voting runs counter to each long-term shareholder and stakeholder interests. The contested director elections Exxon Mobil in 2021 is a working example. The investment company Engine No. 1 was skeptical of the corporate’s carbon transition strategy and ran a successful activist campaign for board seats.
The investor and the advisor
The proxy voting system is an important channel for listed corporations and their investors, most notably ISS and Glass Lewis. But the challenges around transparency and accountability are real and OxProx might help address these shortcomings by providing accurate and timely data on how different investors voted.
As ESG aspects change into increasingly essential in investment decisions, platforms like OxProx might help promote responsible investing and drive positive change in company outcomes.
For a few years, reconciling ESG issues with investment performance has been a challenge for fiduciaries, who equate ESG considerations with choosing stocks from portfolios. All other things being equal, an audited portfolio is less diversified. Without the market mispricing the investments into account, such a portfolio will produce lower risk-adjusted returns. Incorporating material ESG issues into investment evaluation and security selection is now common practice for energetic managers and is taken into account a part of their fiduciary duty. For some managers, working with select corporations on ESG issues can provide additional analytical insights and encourage the businesses wherein investments are made to strive for higher outcomes for shareholders and stakeholders.
Stakeholders and interest groups can, in turn, influence investment managers to strive for higher ESG results. Even if these don’t increase financial returns, they have to not affect them either.
In fact, the transparency that OxProx provides can persuade investors to enhance their proxy voting on ESG issues – to the purpose where there aren’t any reduced financial returns and positive net present value (NPV) ESG proposals receive greater support.
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