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U.S. Chamber Releases Guidelines to Promote Transparency and Good Governance for Proxy Advisory Firms

Tuesday, March 19, 2013 - 8:00pm

WASHINGTON, DC—The U.S. Chamber’s Center for Capital Markets Competiveness (CCMC) today released principles seeking to create transparency, accountability, and good governance systems for Proxy Advisory firms that have become the de-facto standard setter for corporate governance in the United States. 

“The system is broken and it is time to fix it.  The voting standards and advice issued by proxy advisory firms need to be grounded in fact and reflect reality. As the number and complexity of issues on the proxy has grown exponentially, proxy advisory firms have failed to develop open, clear and evidence based standard setting systems to help ensure the advice they provide strengthens corporate governance and shareholder value.  They also are riddled with conflicts of interest and outdated processes that threaten the credibility and reliability of their recommendations.” said David Hirschmann, president and CEO of CCMC. “We believe that these guidelines are a start to creating the transparency, accountability and good governance needed to achieve those goals.”

The Chamber’s principles titled, “Best Practices and Core Principles for the Development, Dispensation, and Receipt of Proxy Advice” seek to improve corporate governance by ensuring that proxy advisory firms:

  • Are free of conflicts of interest that could influence vote recommendations;
  • Ensure that reports are factual correct and establish a fair and reasonable process for correcting errors
  • Produce vote recommendations and policy standards that are supported by data driven procedures and methodologies that tie recommendations to shareholder value;
  • Allow for a robust dialogue between proxy advisory firms and stakeholders when developing policy standards and vote recommendations;
  • Provide vote recommendations to reflect the individual condition, status and structure for each company and not employ one-size-fits all voting advice; and
  • Provide for communication with public companies to prevent factual errors and better understand the facts surrounding the financial condition and governance of a company.

Hirschmann added, “Proxy Advisory firms have simply failed to keep up with other positive changes in the proxy voting system including increasing dialogue between public companies and their shareholders, and enhanced due diligence by asset managers in voting their proxies.”

The principles were developed after consulting with a large number of stakeholders following a December 2012 conference hosted by the Chamber on proxy advisory firms.  The event included a presentation from Stanford University Professor David Larcker demonstrating a disconnection between proxy advice and shareholder return.

The CCMC has long-advocated for policies that promote effective shareholder participation in the corporate governance process.  Over the past decade, important and positive strides have been made to improve in that area. There is increasing communication between boards, management, and investors, and many asset managers have established programs to enhance their due diligence and independent judgment in executing shareholder votes. However, there have also been some negative trends.  Specifically, proxy advisory firms have exercised ever greater influence over an expanding array of issues without corresponding advances in their level of transparency and accountability.  This undermines assurances to shareholders that their interests are being advanced through the corporate governance system.

Since its inception in 2007, the Center for Capital Markets Competitiveness has led a bipartisan effort to modernize and strengthen the outmoded regulatory systems that have governed our capital markets. The CCMC is committed to working aggressively with the administration, Congress, and global leaders to implement reforms to strengthen the economy, restore investor confidence, and ensure well-functioning capital markets.

The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations.