Proxy advisors hold less sway over AGM votes than thought

This article, by Gavin Hinks, Managing Editor at Board Agenda, discusses a report conducted for the Financial Reporting Council (FRC) by Morrow Sodali, in collaboration with Durham University Business School, that challenges the perceived influence of proxy advisors on annual general meeting (AGM) votes. The report reveals that there is less correlation between the recommendations of proxy advisors, such as ISS and Glass Lewis, and shareholder revolts during AGMs than previously believed.

While revolts occur in only half of the cases when either ISS or Glass Lewis recommends voting against directors' reappointment or remuneration policies, the likelihood of a revolt increases to 77% when both proxy advisers make the same recommendation. These findings suggest that proxy advisers may not wield as much influence over AGM voting as commonly assumed.

The research further reveals that companies modify their proposals to avoid negative recommendations from proxy advisors, particularly on "non-strategic" issues. Companies proactively anticipate the positions of proxy advisors and analyze their share register to understand their potential impact on voting. They are also influenced by Environmental, Social, and Governance (ESG) ratings providers, fearing that headline ratings may not fairly reflect their actions or performance, which could affect investor perception. Consequently, companies feel compelled to engage with ratings agencies to maintain favorable ratings.

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