ACCF documents a 28% increase in proxy advisor errors from 2021 Report
WASHINGTON, DC – As Congress holds hearings on the influence of proxy advisors on shareholder voting decisions on questions related to ESG investing, a new report from the American Council for Capital Formation (ACCF) found at least 64 instances where proxy advisors have formulated recommendations based on data or analysis disputed by the companies themselves in the 2023 proxy season, a 28% increase from the 50 filings uncovered in 2021. The material impact of shareholder proposals on public companies is only increasing, with the number of proposals reaching a recent high of 889 proposals during the 2023 proxy season. The surge in proposals comes after a change in policy at the Securities and Exchange Commission (SEC), calling on companies to include a wider array of proposals on often contentious environmental, social, and governance topics that could impact a company’s brand and value.
“While proxy advisors should play some role in helping investors make voting decisions, they should do so accurately, reliably, and transparently,” said Kyle Isakower, Senior Vice President of Regulatory & Energy Policy of the American Council for Capital Formation. The continued incidence of supplemental filings each proxy season indicates that proxy advisors fail too often on all three accounts..”
The continued prevalence of supplemental filings each proxy season demonstrates that errors and serious disagreements remain an issue, with the potential to harm the integrity of the proxy process. The report notes that supplemental filings still undercount the overall instances of errors or other methodological flaws contained in proxy advisory firm recommendations. To submit such a filing, companies must voluntarily increase their own legal risk and divert significant resources, often with limited impact on shareholder voting since many investors “robo-vote” in line with proxy advisor recommendations shortly after they are released.
The 2020 SEC rule addressed this issue by requiring proxy advisors to share their recommendations simultaneously with companies and their clients, as well as alert their clients of instances where companies believe there is an error or have a serious disagreement with a recommendation. The SEC simultaneously released guidance to investors urging them to make use of the new information that would be made available to them to encourage investor review of contested matters.
Overall, these findings are consistent with past analysis conducted by the ACCF explored in 2018, 2020, and 2021. The new report highlights ACCF’s latest review of companies’ supplemental filings to their proxy materials to the SEC during most of the 2023 proxy season.
“The patterns of errors could be alleviated if the SEC reverts to its 2020 proxy advisor rule. In addition, Congress should consider legislation to impose better oversight and regulation over the proxy advisors,” Isakower concluded. “These and any future reforms should prioritize transparency and accountability so that market participants will be able to make more informed voting decisions and do not disproportionally rely on proxy advisory firms.”
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