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It’s not often that the business community seeks more regulation. But when it comes to the unchecked, outsize influence of proxy advisory firms on our nation’s public companies, regulatory action is long overdue. Bringing greater transparency and oversight to the proxy firms and the shareholder proposal process is necessary to keep our public markets vibrant generators of wealth for everyday Americans.
The powerful duopoly of Institutional Shareholder Services (ISS) and Glass Lewis controls 97% of the proxy market. These two companies provide institutional investors with recommendations on management and shareholder proxy proposals – often on corporate governance, social, and environmental issues – that impact broad swaths of the market. ISS has its hands in 44,000 meetings a year and executes over 10 million ballots annually. Glass Lewis works with more than 1,300 corporate clients and holds sway over more than $35 trillion in assets.
These firms have operated with blatant conflicts of interest and have opaquely developed one-size-fits all voting recommendations. The current proxy process also allows special interest activists to push politically motivated agendas, even when shareholders have repeatedly rejected those proposals. These two proxy advisory firms and a handful of special interest activists have tremendous influence over the corporate policies of public companies.
Fortunately, this could soon change. Earlier this month, the SEC proposed regulatory action on proxy advisory firm and shareholder reforms – a step the U.S. Chamber has been urging for a decade. The SEC’s proposed reforms would ensure investors have access to transparent and unconflicted proxy advice, improve the shareholder proposal process for the first time in half a century, and ultimately allow the will of the majority to prevail.
Why are these reforms so important? It’s no coincidence that the rise of advisory firms has coincided with the decline in public companies. Shareholder activism is a strong disincentive to companies going and staying public.
There are half as many U.S. public companies today as in 1996, and the initial public offering market is a fraction of what it was in the 1980s and 1990s. Given that public companies are a key driver of growth and job creation, the decline in IPOs has significant long-term implications for our economy. A lack of IPOs impacts Main Street investors, limiting investment options for retirement and other savings and harming the ability of employees and companies to grow capital and wealth.
We commend the SEC for advancing reforms to make the public company model more attractive to growing companies, and we will continue to help more Americans partake in the economic success of vibrant corporations.