ReportonProxyAdvisors–theEmpiricalEvidence.docxVIP

Report on Proxy Advisors – the Empirical Evidence The Realities of Stewardship Dec. 3, 2013 Jill E. Fisch jfisch@law.upenn.edu Overview Existing research on proxy advisors (mine and others) Correlation or causation? The market for advisory services What do proxy advisors do? Issue a report and recommendation in connection with shareholder voting Operate on a subscription basis serving institutional investors Coverage continues to increase ISS covers 40,000 meetings worldwide Issues recommendations and reports for 10,000 US issuers 3300 clients (institutional investors and issuers) What do they do? They also Provide voting services Assist institutions in formulating voting policies Advise issuers on corporate governance Why do we care about them? Shareholder voting has become increasingly important Majority voting Say on Pay Important proxy contests Proxy Advisors are said to have a big effect on voting outcomes ISS wields “tremendous clout” ISS sways up to 30% of the vote The Bottom Line ISS recommendation is a significant predictor of voting outcomes Choi, Fisch Kahan (2010) (2005 2006 uncontested director elections) Unadjusted “effect” of ISS: 20% Multivariate regression controlling for approximately 21 firm-specific factors Effect of ISS after controlling for other factors: 6-10% Why uncontested elections? Information intense, not event driven, reflective of ongoing governance oversight Similar effect on other votes -shareholder proposals Cotter, Palmiter Thomas (2010) (shareholder and management proposals - 2003-2008) Mutual funds followed ISS more often than other shareholders When ISS and management agreed, stockholders followed that recommendation more than 90% of the time. Similar effect on other votes -Say on pay Ferri Oesch (2012 working paper) Proxy advisor recommendations are the “key determinant of voting outcome” Negative ISS (GL) recommendations are associated with 24.7% (12.9%) more votes against the compensation plan When both recommend Ag