Dear board directors, please don’t shoot the proxy messenger

In this article for the Financial Times, Andrew Hill explores the dynamics between corporate boards, shareholders, and proxy advisers, using the example of AstraZeneca's recent shareholder meeting where advisers recommended against a CEO pay package, but a majority of shareholders approved it, calling into question the true impact of proxy advisers.

Hill references a recent report from the UK's Financial Reporting Council (FRC), undertaken by Morrow Sodali in collaboration with Durham University Business School, noting that the impact of proxy advisers and ESG rating agencies might be more nuanced than commonly believed. The report highlights that while ISS and Glass Lewis dominate, they often disagree, and their influence is less extensive than assumed, with nearly a third of investors consulting multiple advisers for varied perspectives. The FRC's report suggests that boards' frustrations with shareholder revolts should be directed more towards asset owners and managers, emphasizing engagement over reliance on proxy advisers.

Despite criticisms, proxy advisers play a critical role in facilitating informed shareholder democracy, aiding fund managers in decision-making, and enabling smaller shareholders to consolidate influence efficiently. The article urges board chairs to embrace these mechanisms rather than engage in proxy wars, advocating for direct engagement with shareholders to address concerns, ultimately supporting a healthier shareholder democracy.

Please click here to read the full FRC study. View the full article by clicking here (subscription required).