Robovoting and Proxy Vote Disclosure

Abstract

As detailed in a November 2018 report from American Council for Capital Formation, a significant number of asset managers are automatically voting in-line with the recommendations and policies of the two major proxy advisors – referred to as “robovoting” or “autovoting” – rather than actually evaluating the merits of individual proposal before casting their vote. Indeed, many asset managers are voting in line with ISS or Glass Lewis on almost every single proposal for every single company, regardless of whether the proposal is a management or shareholder proposal. Accepting the fact that proxy advisors play an important role in reducing costs for asset managers who must vote shares consistent with their fiduciary duties to beneficial owners, the lack of diligence with which many managers use the services of the advisors is cause for concern, particularly when many of the governance recommendations of proxy advisors are based on thin (or no) empirical evidence. Also of concern is whether investment advisers are providing transparent disclosure regarding their use of those proxy advisors, and whether that disclosure is matched by how reliant they are on proxy advisors’ recommendations. Despite public statements that these advisors are merely data aggregators and independent providers of information, it appears that some institutional investors have become overly reliant on the recommendations of proxy advisors, often outsourcing analysis and voting decisions to the two largest firms in the market without adequate disclosure of that reliance. The SEC has recently proposed additional transparency requirements for proxy advisors under its rules on proxy voting advice. However, without addressing the overreliance of a cohort of investors on proxy advisor recommendations, the impact of that rule may be blunted. Just as asset managers need transparency of process from the proxy advisory firms, so too do ultimate asset owners deserve transparency and complete disclosure from their asset managers.