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How has the proxy advisory system changed since ISS and Glass Lewis began dominating the market for advising large institutions? At an AEI event on Wednesday, two expert panels discussed the "unintended" consequences of changing the rules that govern the handling of proxy questions annually presented to public companies' shareholders.
Representative Patrick McHenry (R-NC) pointed out that ISS and Glass Lewis's dominance over the market has resulted in a lack a competition and in perceived conflicts of interest in the market. Rep. McHenry suggested removing no-action letters and allowing shareholders to abstain from voting based on predicted consequences. Although most panelists supported the removal of no-action letters, there was some disagreement about the voting rights of shareholders. The first panel concluded that although some of the convergence between recommendations and votes is explained by confounding factors, by itself, the proxy advisory firms' advice seems to influence the final vote.
During the second panel, some participants emphasized that it is economically sensible for small corporations to use proxy advisers and to vote in every instance. Hester Peirce also suggested that increasing transparency would result in even more pressure to rely on the proxy advisory firms. According to Steve Wallman, formerly of the Securities and Exchange Commission (SEC), in the coming days, the SEC will provide guidance on the use of proxy advisers.
A decade ago, the Securities and Exchange Commission changed the rules governing how large institutions handle proxy questions presented annually to public companies’ shareholders. Since then, two companies – ISS and Glass Lewis – have dominated the market for advising these institutions and have become the most important shapers of corporate governance policy in America.
How do ISS and Glass Lewis make their decisions? How influential are they? Do they have serious conflicts of interest? Can this arguably dysfunctional system be fixed? These questions are explored in an updated version of a paper coauthored by James K. Glassman of AEI and released last year by the Mercatus Center.
Please join AEI for a conference discussing the paper and broader issues of proxy advisory services and corporate governance.
If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.
Registration and Breakfast
James K. Glassman, AEI
Patrick McHenry, US House of Representatives (R-NC)
Panel I: The right role for mutual funds and other institutions in corporate governance
Glenn Booraem, Vanguard Funds
Jill Fisch, University of Pennsylvania and Fordham University
Harvey Pitt, Former Chairman, Securities and Exchange Commission
Alex J. Pollock, AEI
Damon Silvers, AFL-CIO
Peter J. Wallison, AEI
Panel II: How to fix the proxy advisory system
Paul Atkins, AEI and Former Commissioner, Securities and Exchange Commission
Allan McCall, Stanford University
Robert McCormick, Glass, Lewis, & Co.
Hester Peirce, Mercatus Center at George Mason University
Steve Wallman, Former Commissioner, Securities and Exchange Commission
James K. Glassman, AEI
For more information, please contact Brian Marein at [email protected], 202.862.5890.
For media inquiries, please contact [email protected], 202.862.5829.
Paul Atkins served as a commissioner of the Securities and Exchange Commission (SEC) from 2002 to 2008. He represented the SEC at various meetings of the president's Working Group on Financial Markets and at international bodies including the Transatlantic Economic Council, the Trans-Atlantic Business Dialogue, World Economic Forum (Davos), and European Parliamentary Financial Services Forum. Before his appointment to the SEC, he was a partner at PricewaterhouseCoopers, where he worked on regulatory compliance, internal controls, and risk-management issues for financial services firms. A lawyer by training, Atkins also represented US and foreign clients on corporate finance and business combination transactions while at Davis Polk & Wardwell, where he spent a number of years in the firm's Paris office. He was admitted as legal counsel in France in 1988. At AEI, Atkins works on issues related to US and international regulation of the financial services industry.
Glenn Booraem is a principal of the Vanguard Group Inc. and controller of each of the Vanguard funds. He has worked for Vanguard since 1989, where he currently oversees the firm’s corporate governance program covering nearly $2 trillion in equity market value. He periodically speaks on governance to industry groups and has served on the New York Stock Exchange’s Proxy Working Group and Commission on Corporate Governance. Most recently, he served on the Advisory Board on Corporate/Investor Engagement for the Conference Board Governance Center and the working group for the Shareholder/Director Exchange protocol. He has been recognized for the past three years on the National Association of Corporate Directors’ Directorship 100 list of the “most influential people in corporate governance.” In addition to his governance-related duties, he is responsible for fund accounting operations, security valuation, and fund-compliance monitoring for the Vanguard funds.
Jill Fisch is Perry Golkin Professor of Law and codirector of the Institute for Law and Economics at the University of Pennsylvania Law School, where she teaches and writes on corporate law, corporate governance, and securities regulation. Fisch’s scholarship has appeared in a variety of publications, including the Harvard Law Review, Yale Law Journal, Columbia Law Review, University of Pennsylvania Law Review, and Cornell Law Review. Recent projects examine mutual fund regulation, proxy advisors, and securities arbitration and litigation. Fisch is currently working on an experimental project analyzing retail investor decision making; an article reporting the results from the first round of this project is forthcoming in the University of Pennsylvania Law Review. Before joining the University of Pennsylvania, Fisch was the T.J. Maloney Professor of Business Law at Fordham Law School and founding director of the Fordham Corporate Law Center. She has also served as a visiting professor at Harvard Law School, Columbia Law School, and Georgetown University Law Center. Fisch practiced law as a trial attorney with the US Department of Justice, Criminal Division, and as an associate at the law firm of Cleary, Gottlieb, Steen & Hamilton. She is a member of the American Law Institute and chaired the Committee on Corporation Law of the Association of the Bar of the City of New York and the sections on Securities Regulation and Business Associations of the Association of American Law Schools.
James K. Glassman is a visiting fellow at AEI, where he works on Internet and communications policy in the new AEI Center for Internet, Communications, and Technology Policy. Glassman rejoined AEI in August after having served as undersecretary of state for public diplomacy and public affairs, during which time he led America’s public diplomacy outreach and inaugurated the use of new Internet technology in these efforts, an approach he christened “public diplomacy 2.0.” He was also chairman of the Broadcasting Board of Governors, the independent federal agency that oversees all US government nonmilitary international broadcasting. Most recently, Glassman was instrumental in the creation of the George W. Bush Institute, where he remains the founding executive director. Before his government service, Glassman was a senior fellow at AEI, where he specialized in economics and technology and founded The American, AEI’s magazine. In addition to his government service, Glassman was a former president of The Atlantic, publisher of The New Republic, executive vice president of US News & World Report, and editor-in-chief and co-owner of Roll Call.
Allan McCall is a researcher at the Stanford Graduate School of Business. His primary research focus is corporate governance, with emphasis on shareholder voting mechanisms, executive compensation, equity compensation, and employee incentives. McCall is also a cofounder and principal of Compensia Inc., an executive compensation consulting firm. Before cofounding Compensia, McCall was the vice president of compensation and benefits for Providian Financial. Before joining Providian, McCall was a consultant for iQuantic Inc.
Robert McCormick oversees the policy development of Glass Lewis’s proxy voting guidelines and the analysis of more than 20,000 Proxy Paper research reports on shareholder meetings of public companies in more than 100 countries. Before joining Glass Lewis, McCormick was the director of investment proxy research at Fidelity Investments, where he managed the proxy voting of 700 mutual funds and accounts. He serves on the board of the Northern California Chapter of the National Association of Corporate Directors and on the International Corporate Governance Network’s Shareholder Rights Committee. McCormick serves on the advisory boards of the University of Delaware’s Weinberg Center on Corporate Governance and Governance magazine. He authored an article titled, “Good Governance and Shareholder Expectations-an Investor’s Perspective,” published in “Corporate Governance for Main Market and AIM Companies” (Tim Dempsey, 2012). McCormick frequently speaks at industry conferences and has appeared on National Public Radio, CNBC, Fox Business News, Business News Network, BBC, “This Week in the Boardroom,” Swiss TV, and Bloomberg. He was named one of the 100 most influential people on corporate governance by Directorship magazine from 2008 through 2012. McCormick was a panelist on the Public Consultation panel on corporate governance and the financial crisis at the Organization for Economic Cooperation and Development (OECD) in 2009 and served on the OECD's Latin American Roundtable Task Force on Related Party Transactions in 2012.
Patrick McHenry was first elected in 2004 to the US Congress and represents North Carolina's 10th Congressional District. He is currently the deputy Republican whip, garnering support for legislative priorities being considered on the House of Representatives floor. He is also a member of the House Committee on Financial Services, serving as chair of the Oversight and Investigations Subcommittee, and of the House Committee on Oversight and Government Reform. During the 112th Congress (2011–12), McHenry served as chairman of the Oversight and Government Reform's Financial Services Subcommittee. In 2011, he authored the primary legislation to legalize equity-based crowdfunding in the United States, which was included in the Jumpstart Our Business Startups Act and signed into law in April 2012. In 2013, he was presented the Crowdfunding Visionary Award by the Global Crowdfunding Convention for his work on equity-crowdfunding legislation and also earned a Crowdfunding Leadership Award from the University of California, Berkeley, Fung Institute's Program for Innovation in Entrepreneurial Finance. McHenry was special assistant to the US secretary of labor under the Bush administration.
Hester Peirce is a senior research fellow at the Mercatus Center at George Mason University. Her primary research interests relate to the regulation of the financial markets. Before joining Mercatus, Peirce served as senior counsel to Senator Richard Shelby’s (R-AL) staff on the Senate Committee on Banking, Housing, and Urban Affairs. In that position, she worked on financial regulatory reform following the financial crisis of 2008 as well as oversight of the regulatory implementation of the Dodd-Frank Act. Peirce served at the Securities and Exchange Commission as a staff attorney and as counsel to Commissioner Paul S. Atkins. Before that, she clerked for Judge Roger B. Andewelt on the Court of Federal Claims and was an associate at a major law firm in Washington, DC. Peirce’s work has been published in such outlets as The Hill and American Banker, and she is a regular contributor to Real Clear Markets. She is the editor of and a contributor to the book “Dodd-Frank: What It Does and Why It’s Flawed” (Mercatus, 2012).
Harvey Pitt is the CEO of the global business consulting firm Kalorama Partners LLC and its law firm affiliate, Kalorama Legal Services PLLC. Before founding the two Kalorama firms, Pitt served as the 26th chairman of the US Securities and Exchange Commission (SEC) from 2001 to 2003. Before becoming the SEC’s chairman, Pitt was a senior corporate partner at the international law firm Fried, Frank, Harris, Shriver & Jacobson. Pitt held various other positions at the SEC between 1968 and 1978, including three years as general counsel (1975–78). Pitt is currently a director and audit committee member of George Washington University Medical Faculty Associates Inc. He is a member of the Global Advisory Forum of the CQS Hedge Fund and a member of the Regulatory and Compliance Advisory Council of Millennium Management LLC. Pitt also serves on the board of directors to the offshore funds of Paulson & Co. and its affiliates. He is a member of the board of directors of Premier Alliance Group Inc., and a member of its audit committee. He also serves as the chairman of the audit committee of the US Dream Academy Inc.
Alex J. Pollock joined AEI in 2004 after 35 years in banking. He was formerly president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is also the author of numerous articles on financial systems and the organizer of the Living in the Post-Bubble World series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues, including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is the lead director of CME Group, a director of Great Lakes Higher Education Corporation and the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.
Damon Silvers is the special counsel and director of policy for the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO). He joined AFL-CIO as associate general counsel in 1997. Silvers serves on a pro bono basis as a special assistant attorney general for the State of New York. Silvers is also a member of the Investor Advisory Committee of the Securities and Exchange Commission, Department of the Treasury’s Financial Research Advisory Committee, and Public Company Accounting Oversight Board’s Standing Advisory Group and its Investor Advisory Group. Silvers served as deputy chair of the Congressional Oversight Panel for the Troubled Asset Relief Program from 2008 to 2011. Between 2006 and 2008, he was chair of the Competition Subcommittee of the Treasury Department Advisory Committee on the Auditing Profession and as a member of the Treasury’s Investor’s Practice Committee of the President’s Working Group on Financial Markets. Before working for AFL-CIO, Silvers worked for the Harvard Union of Clerical and Technical Workers, the Amalgamated Clothing and Textile Workers, and as a law clerk at the Delaware Court of Chancery for Chancellor William T. Allen and Vice Chancellor Bernard Balick. Silvers served from 2003 to 2006 as pro bono counsel to the chairman of Ullico Inc.
Peter J. Wallison holds the Arthur F. Burns Chair in Financial Policy Studies at AEI, where he codirects the program on financial market studies. He was also a cochair of the Pew Financial Reform Task Force and a member of the congressionally authorized Financial Crisis Inquiry Commission. Wallison previously practiced banking, corporate, and financial law at Gibson, Dunn & Crutcher LLP in New York and Washington, DC. In 1986 and 1987, Wallison was White House counsel to former president Ronald Reagan. From 1981 to 1985, he was general counsel of the US Department of the Treasury, where he played a significant role in the development of the Reagan administration's proposals for deregulation in the financial services industry. He also served as general counsel to the Depository Institutions Deregulation Committee and participated in the US Department of the Treasury’s efforts to deal with the debt held by less-developed countries. Between 1972 and 1976, Wallison was special assistant to former New York governor Nelson A. Rockefeller and, subsequently, counsel to Rockefeller when he was vice president of the US.
Steve Wallman is founder and CEO of FOLIOfn Inc., a brokerage and investment company. He also founded PROXY Governance Inc., a proxy advisory and voting services firm serving institutional investors and advisors. Wallman is a recognized authority on securities markets and trading and the application of technology to financial services. He currently serves on the Security and Exchange Commission’s (SEC’s) Investor Advisory Committee, where he is chair of the Market Structure Subcommittee, which counsels the SEC on regulatory priorities and initiatives to protect investor interests. Before founding FOLIO, Wallman was commissioner of the SEC from 1994 to 1997, where he played a leading role in formulating policies that brought the Internet and other advanced technologies into wide use within the securities industry. He was previously a partner at the law firm Covington & Burling.