Wednesday, December 1, 2010

Proxy Firms Need More Rules, Companies Say

Via DealBook.
Institutional investors like mutual funds and pension funds do not have the resources to analyze and consider all these proposals. The large asset manager TIAA-CREF estimates that it holds stock in more than 7,000 companies and has more than 80,000 different votes to cast every year.
To fill this gap, there are proxy advisory services. For a fee, these firms recommend how institutional investors should vote. There are fewer than a dozen such services and Institutional Shareholder Services is the largest with 1,300 clients. And they wield substantial influence. There is pressure on boards to conform to proxy firm recommendations — particularly those of I.S.S.
These proxy firms formulate their own good governance principles to guide their recommendations.
The problem with this approach is defining what exactly is good governance.
Public companies have said that the proxy services interfere with their boards’ own internal governance. They criticize the services for what they say is the lack of evidential support for their recommendations.
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