Analysis of 2020 Proxy Season Shows Proxy Advisory Firms Still Issuing Contested Recommendations

WASHINGTON, July 16, 2020 /PRNewswire/ -- As the Securities and Exchange Commission (SEC) prepares to vote to finalize their proposed rule on proxy advisors next week, a new report from the American Council for Capital Formation (ACCF) show that companies believe proxy advisors are still committing errors or basing recommendations on flawed methodologies during the 2020 proxy season.

The report, Are Proxy Advisors Still a Problem? 2020 Proxy Season Analysis Shows Companies Believe Errors Continue, analyzes companies' supplemental filings during the 2020 proxy season and finds at least 42 instances where proxy advisors have formulated recommendations based on alleged errors or analytical flaws disputed by companies.

The results of the study are consistent with a prior analysis of supplemental filings the ACCF conducted into the 2016, 2017, and part of the 2018 proxy seasons, which found a total of 107 supplemental filings from companies over the period.

The findings are significant as they show that disputes between companies and proxy firms have continued despite significant scrutiny from Congress and the Securities and Exchange Commission, including the Commission's August 2019 guidance.

The report comes shortly before the Commission is scheduled to vote on whether to finalize their proposed rule on proxy advisors and whether to adopt supplemental guidance regarding investment advisers proxy voting responsibilities.

The findings suggest the Commission should vote in favor of these further interventions in order to ensure that investors have as accurate information as possible before voting their securities.

Kyle Isakower, lead author of the report and a Senior Vice President at the ACCF, commented: "The results of this analysis show that despite the SEC's recent guidance on the use of proxy advisors – companies still believe that too many voting recommendations contain errors or have been based on flawed methodologies, with serious consequences on how investors vote.

The critical point here is regardless of whether these issues are errors, as companies contend, or in disputes in analysis, as the proxy advisors suggest, the SEC's proposed rulemaking will enhance the current laborious and flawed system of supplemental filings. Providing investors with more extensive, better quality information before they vote should be a non-controversial goal and a prerequisite to ensuring the efficient operation of our capital markets."

Read the full report: Are Proxy Advisors Still a Problem? 2020 Proxy Season Analysis Shows Companies Believe Errors Continue

Additional Report Details

ACCF undertook a search of the SEC's EDGAR database through July 9 and found 42 examples of public companies filing supplemental proxy materials during the 2020 proxy season, in order to correct the record regarding a proxy advisory firm vote recommendation.

The companies that have submitted these supplemental filings come from virtually every sector of the US economy. Most are small or mid-cap entities that do not have the significant legal and compliance resources of their larger counterparts.

We note that because our analysis is based on the supplemental filings of companies, the number of issues highlighted in this and previous ACCF reports may well represent the "tip of the iceberg".

Specifically, the data includes only those companies that have taken the extraordinary step of filing a supplemental proxy. Doing so not only entails voluntarily increasing the company's anti-fraud risk, but also requires diverting significant company resources to submit the filing in the limited window available.

About the American Council for Capital Formation

The American Council for Capital Formation is a nonprofit, nonpartisan economic policy organization dedicated to the advocacy of an improved regulatory process, innovation in energy policy, dynamic free trade, an efficient infrastructure policy, a modern corporate governance process, pro-growth tax policy and a robust retirement system.

SOURCE American Council for Capital Formation