Roy Gilbert

Gensler Blesses the Proxy Duopoly

Large institutional investors rely on recommendations by the two giant proxy advisers, Glass Lewis and Institutional Shareholder Services (ISS), since they don’t want to take the time to analyze the tens of thousands of shareholder ballot items. Instead, they pay the advisory firms to research companies, tell them how to vote on issues, and often cast ballots in lock-step with recommendations.

Institutional investors are three times more likely to cast votes in proxy elections than are retail investors. A 2018 study by the American Council for Capital Formation found that 175 asset managers, controlling more than $5 trillion in assets, voted with ISS more than 95% of the time. The result is that the proxy advisers play an outsize role in U.S. corporate governance.

Proxy advisers “are effectively our largest shareholders, despite having no direct stake in Exxon Mobil ’s success,” the oil and gas giant noted in a public comment last year responding to Mr. Clayton’s proposed rule-making. Glass Lewis and ISS along with public pension funds assisted hedge fund Engine No. 1’s boardroom coup at Exxon last month.

“We believe Engine No. 1 has presented a compelling case that, without a more concerted response and well-developed strategy for confronting the business risks and challenges related to the global energy transition, Exxon’s returns, cash flow and dividend, and thus its shareholder value, are increasingly at threat,” Glass Lewis wrote.

Proxy firms offer opinions to clients that are supposedly based on industry research, though they often don’t disclose their sources. Nor do they […]