For many years, “proxy advisory” services have been provided by a duopoly of two companies, Glass Lewis and Institutional Shareholder Services, which together have a 97 percent market share, driven by blatant political bias.
“Proxy advice” means recommendations to investors with large stakes in publicly traded companies, retirement funds and large asset managers about how they should vote on shareholder motions and other proposals.
for Very Distorted Recent Rulemaking At the Securities and Exchange Commission, both formal and informal, the proxy advisory process has been transformed into one that effectively mandates that large institutional investors in a given company accept the recommendations of their proxy advisors. In particular, a key SEC rule (Rule 14a-8) has been changed to require companies to consider “broader societal interest” solutions. As a result of this system, this proxy advisor duopoly, with no statutory authority whatsoever, has become the de facto regulator of public companies.
Because proxy advisors can make recommendations that do not affect their own financial interests, they have indulged their own political preferences with little regard for the interests of retirees or shareholders.
The result has been a flurry of proxy proposals that advance “environmental, social and governance” goals, including a variety of greenhouse gas and climate proposals, discriminating against fossil fuel investments, pursuing racial and gender quotas on corporate boards, and pursuing other political goals with other people’s money.
of Backlash against growing ESG gaming This is not surprising, as ESG represents a fundamental threat to the financial interests of many investors, retirees and companies.
Retirement funds and institutional investors have a fiduciary responsibility to their clients. The lawsuit loomed large Countries see threats to the pursuit of ESG goals Litigation and divestment for these efforts to weaken pension fund fiduciary responsibility and discriminate against vital local industries.
The three largest asset managers, BlackRock, State Street and Vanguard, already have Withdrew Given its historical enthusiasm for ESG investing, BlackRock has announced that it will introduce a new ESG rating in its 2023 annual stewardship report. report Only 7% supported environmental and social resolutions, down from 22% in the previous cycle. report from Share Actionexamines the ESG proxy voting records of the world’s largest asset managers and shows that Vanguard and State Street supported just 10% and 29% of ESG shareholder resolutions, respectively. 2023support fell further.
In a major new development, BlackRock Egan Jones has been announced as a new addition to the team. The third proxy advisory firm has expanded its Proxy Voting Initiative by adding two new Egan Jones proxy voting policies, one of which is “Do not prioritize environmental or social goals.”
Ignoring healing Black Rock Nonsense BlackRock speaks of its “commitment to offering choices that support the evolution of our clients’ investment preferences.” BlackRock’s emphasis on economic returns over ESG goals and the hiring of Egan Jones as its third proxy advisor are a frontal attack on the aforementioned duopoly and its penchant for political voting on proxy proposals.
Again, ignore Future claims The argument was made by those who pursue their own political interests with other people’s money that ESG goals are important to public companies and retirement funds, and that they would benefit anyway, and that they are an artificial constraint on investment options — “Divest from fossil fuels!” Failing to improve return on investment This will have a positive impact on the portfolio in the long term. Diversification is needed Maximizing expected return for a given level of risk.
Another option for proxy advice is therefore one that is not driven by political objectives.It’s a godsendThis is a win-win for investors and retirees, and other large asset managers and retirement funds would be wise to emulate it, just as BlackRock has established a competitive advantage. Thus, market forces have once again proven central to maximizing economic profits — protecting fiduciary interests and the larger economic goal of increasing the economic productivity of capital investment and the total capital stock.
The modern SEC is a highly politicized regulatory agency. The proxy investment adviser duopoly serves the SEC’s interests as it pursues political goals that the SEC cannot enforce because it lacks legal authority. The significant benefits of BlackRock’s announcement, even if matched by other assertive managers, cannot fully overcome the negative effects of the SEC’s unjust regulatory actions.
Therefore, we need legislation that reforms the SEC’s regulatory framework so that public companies and retirement fund managers are not pressured to follow the recommendations of their proxy advisers, ignoring the interests of investors and retiree fiduciaries.
Legislation is needed to limit regulators’ efforts to pursue climate policies that are not permitted by law, are not based on actual evidence, and are justified based on a fundamentally disingenuous cost-benefit analysis. Legislation to reform the SEC regulatory framework must make clear that investment choice neutrality must be a central element of the SEC’s traditional regulatory goals of transparency and materiality. Above all, legislation must remove artificial barriers to entry for proxy advisory services and allow competitive market forces to serve the interests of investors, retirees, and the economy as a whole.
Benjamin Zuiker is a senior fellow at the American Enterprise Institute.
