Securities Regulation Daily Wrap Up, PROXIES—ESMA Calls for Code of Conduct for Proxy Advisory Firms, (Feb 22, 2013)
By Jim Hamilton, J.D., LL.M
Proxy advisory firms are typically retained by mutual fund and hedge fund asset managers, pension plans, and other institutional investors to provide voting recommendations and otherwise assist in voting by these institutional investors, which range widely in size of assets under management.
ESMA suggested that the Code establish the principle that proxy advisors should seek to avoid conflicts of interest with their clients. Where a conflict effectively or potentially arises the proxy advisor should adequately disclose this conflict and the steps which it has taken to mitigate the conflict, in order that the client can make a properly informed assessment of the proxy advisor’s advice. Another principle that should be embodied in the Code is that proxy advisors should provide investors with information on the process they have used in making their general and specific recommendations and any limitations or conditions to be taken into account on the advice provided so that investors can make appropriate use of the proxy advice.
Another principle that should be embodied in the Code is that proxy advisors should provide investors with information on the process they have used in making their general and specific recommendations and any limitations or conditions to be taken into account on the advice provided so that investors can make appropriate use of the proxy advice.
Proxy advisors should also disclose both publicly and to client investors the methodology and the nature of the specific information sources they use in making their voting recommendations, and how their voting policies and guidelines are applied to produce voting recommendations. Proxy advisors should also be aware of the local market, legal and regulatory conditions to which issuers are subject, and disclose whether and how these conditions are taken into due account in the proxy advisor’s advice.
Proxy advisors should inform investors about their dialogue with issuers, and of the nature of that dialogue. Proxy advisors currently have no legal obligation to dialogue with issuers. But if they decide to dialogue with issuers, they should disclose it, including the nature of the dialogue and its outcome.
RegulatoryActivity: Proxies