The Role of Proxy Advisory Firms

Proxy advisory firms are hired primarily by institutional investors to provide research about corporate issuers and to make proxy voting recommendations. Proxy advisory firms do not own shares in public companies, but they assist investors in making voting decisions and provide services to facilitate the voting process. The proxy advisory firm industry has grown substantially over the last three decades, and their increasing influence over corporate-governance matters and shareholder votes has become highly controversial. This Director FAQ explains the growth of the proxy advisory firm industry, the main players in the market, their voting policies, and how issuers can engage proxy advisors regarding their voting recommendations.

Q: What are proxy advisory firms and how can my board engage with them regarding their voting recommendations for my company’s annual meeting?

A: In the following sections, this memo describes the current environment surrounding the use of proxy advisory firms and how corporate boards can engage with them:

1. Growth of the proxy advisory industry
2. The U.S. proxy advisory firm market
3. ISS' voting policies and process for determining governance standards
4. Glass Lewis′ voting policies and process for determining governance standards
5. How institutional investors use proxy advisory firms
6. Influence of proxy advisory firms
7. Engaging proxy advisory firms