Proxy Advisors play an important role in equity markets, their importance often the reason for the attention focussed on them. We are increasingly aware of the importance of communication for accurate decision making. Whilst there has been a good step in reviewing best practice principles, some companies still find that there is a need for further depth and transparency in communication between proxy advisers and issuers.
The Quoted Companies Alliance responded to the Best Practice Principles for Shareholder Voting Research (otherwise known as the The BPP Group) stakeholder survey. The process was run by its Independent Oversight Committee and was seeking responses from different market participants, investors, companies and representative bodies on:
- The scope and structure of the Principles
- The content of the Principles
- Service quality
- Conflicts of interest management
- Communications policies
- Reporting on the Principles
- Monitoring the application of the Principles
Although the survey itself asked some essential questions, we encouraged the BPPG to examine the responses with a focus on the bigger picture regarding the overall function and distribution of accurate information.
Overall, we think the principles do not yet place enough emphasis on the importance of meaningful communication with companies. Companies frequently cite difficulties with proxy advisers because of misinterpreted information being relayed to shareholders in the advisor’s reports. Companies then face significant barriers in correcting misinformation as they are not always entitled to see the report and signatories are not obliged to discuss their findings.
In order to better realise the objective of having more meaningful communication with companies we believe the best practice principles should contain the obligation for signatories to share their reports with companies in a timely fashion and for their access to such reports to be free of charge.
There should also be an obligation for signatories to report on how they deal with companies’ complaints. Signatories should be encouraged to track complaints, particularly regarding inaccuracies, and monitor the proportion of those complaints that are resolved.
A key issue that constrains effective communication is congestion from December year ends. Whilst this is not a problem that has an easy solution, one avenue could be to increase the period of time between publication of notice of AGM and AGM. This solution is not without drawbacks, however. Delays are already extensive and feedback from market participants is that a further gap would not be particularly welcome.
As the issues are complex and require stakeholder collaboration, further consultation regarding meaningful communication specifically may be necessary. Ultimately, by improving communication with companies, signatories will benefit their clients, the investors, by producing more accurate reports with more robust voting recommendations.
However, it does seem remarkable that proxy advisers seemingly take on a role that they are not resourced to deliver, and that investors do not require them to deliver to a standard that takes into account other stakeholders in the market, the companies.
The QCA has welcomed the opportunity to respond to this consultation and it is our hope that our view – representing a community of over 90% of quoted companies in the UK – is acted upon. We will be working with the proxy advisers to make sure that our members’ view is heard.