Proxy advisers play an important role in the UK’s stewardship ecosystem. They help pension funds and asset managers assess governance practices across large portfolios and support informed voting at AGMs.
The QCA’s concern is not with proxy advisory firms themselves, nor with the principle of external governance analysis. The concern is that the current system gives proxy advisers significant influence over company outcomes, while providing limited accountability for how that influence is exercised.
For small and mid-sized quoted companies, this can be particularly acute. Proxy advisers may make recommendations that materially affect voting outcomes, despite often having limited direct understanding of the company, its size, stage of development, board composition, shareholder base or commercial context, and as the QCA’s 2024 report Publish and be Damned set out, not enough has been done to correct this.
The most immediate concern is fairness – AIM companies following the QCA Corporate Governance Code are routinely assessed against the UK Corporate Governance Code. AIM Companies are not required to report against regimes such as this, yet proxy advisers assess them as though they are.
As one QCA member put it: “We feel like we have to appease and remind the proxies we are an AIM company.”
When a proxy adviser publishes a recommendation, companies may have fewer than 24 hours to identify an error and get it corrected before it reaches shareholders. When companies push back, proxy advisers rarely engage. Over three-quarters of those that contested a recommendation received no meaningful response. The recommendation goes out regardless.
One anonymised case from the QCA’s 2024 report Publish and be Damned is instructive: a company was given just nine hours to respond to a recommendation that introduced a new concern without warning. Despite proactively engaging its largest shareholders, who expressed support, the proxy adviser issued a strongly negative recommendation. The company suffered a significant vote against, generating the perception that it did not listen to its shareholders.
A negative recommendation based on inaccurate information can strain shareholder relations, generate negative media coverage, and lead to the loss of board directors. Larger listed companies have the investor relations teams to push back quickly. Smaller quoted companies pay the highest price for a system that was never designed with them in mind.
This is not a problem unique to the UK, but the UK has been slowest to act. In the US, a Presidential executive order issued in December 2025 directed regulators to increase oversight of ISS and Glass Lewis, two firms that dominate the global proxy advisory market – while motivations behind that order differ from the QCA’s concerns, the direction is clear. In Europe, an independent oversight body with a formal complaints process has been in place for years.
The UK’s approach requires proxy advisers to disclose how they operate but leaves accountability largely to voluntary codes that most companies are barely aware of. Other jurisdictions have recognised this problem and acted. The UK has not.
Why this matters now
Proxy advisers play an important role in supporting investor stewardship. However, the current framework is not working effectively for smaller quoted companies, and a more proportionate approach is available. Three live opportunities make this the right moment to act. We are calling on the FRC, FCA and LSE to use them.
The FRC’s updated UK Stewardship Code took effect on January 1 2026, introducing dedicated principles for proxy advisers for the first time. This was a welcome step forward, but it does not go far enough. Greater transparency is important, but smaller quoted companies also need more meaningful engagement, clearer routes to correct factual inaccuracies, and stronger accountability for the quality and impact of proxy advice.
The FCA has a secondary objective to support the competitiveness and growth of the UK economy. If that objective is to have practical meaning for smaller quoted companies, the 2019 Proxy Advisors Regulations should be strengthened. The existing framework is primarily focused on transparency, but transparency alone is not sufficient where proxy adviser recommendations can materially affect company outcomes.
The LSE’s review of the AIM rulebook presents the same opportunity. Repositioning AIM as a destination for ambitious growth companies will be harder to achieve if the governance environment surrounding those companies continues to work against them.
Without reform, smaller quoted companies will continue to bear the cost of a system that was not designed with them in mind. That is bad for companies, bad for investors and bad for the competitiveness of the UK’s public markets.
Ahead of the 2026 AGM season, we will be writing to proxy advisers directly to remind them of their responsibilities when assessing growth companies. We will emphasise the importance of proportionate analysis, proper consideration of company context, timely engagement, and effective processes for correcting factual inaccuracies before voting recommendations are issued.
We will continue to engage with the FRC, FCA and LSE on these issues. Members with concerns about how proxy adviser practices are affecting their company should not hesitate to get in touch.
Read the QCA’s full report: Publish and be Damned – The Problems with Proxy Advisers
Get Involved
Stay tuned for further updates as we continue to lobby for a fairer, more competitive financial market policy.
