Voting with proxy advisory firms

VOTING WITH PROXY ADVISORY FIRMS

Cecil Simon

43621910

A meeting organized once a year Brings together the company and its shareholders To discuss about various matters and pass resolutions

ANNUAL GENERAL MEETINGS

Proxy An agent legally authorized to act on behalf of a person Can be any person mentioned in the proxy form Entitled to vote on matters on behalf of the shareholder either by

show of hands (unless specifically mentioned) or by poll

Annual General Meeting

Company / Issuer Shareholders / Proxy

ANNUAL GENERAL MEETINGS - INVESTORS

Types of Investors

Retail Investors Institutional Investors

•Any person / group that invests in the shares of the company

eg: Private Equity Investor, Angel Investor, Sweat Equity Investor

•Organizations that pool large sums of money and invests them in various assets and securities

eg: Banks, Insurance companies, Mutual Funds

•Voting power is low as the amount of investment is lower

•Voting power is much larger as the investment is higher

Also known as ‘proxy firms’, they represent an issuer’s institutional investor base

Recommend and sometimes cast votes on their clients’ behalf Investors maintain their right to final decision and vote but outsource

the information analysis to proxy advisors Wield significant influence in shareholder elections as their clients

have large stock holdings as compared to other investors Major areas of consideration include executive compensation,

majority voting and individual director elections Leading proxy firms include ISS (Institutional Shareholder Services)

and Glass Lewis & Co.

PROXY ADVISORS

MeetingInstitutional

InvestorsCompany Proxy Advisor

PROXY ADVISORS - AROUND THE WORLD

PROXY ADVISORS - HOW DO THEY WORK?



During proxy season, they assist investors in making decisions on various matters dealt with at the AGM and vote on their behalf

Outside the proxy season, they work with companies to ensure comprehensive and clear disclosures about various issues

Analysis is focused on publicly available information and disclosures made by companies outside the proxy season

Avoid any off-the-record discussions so as to leave out any non-public information

Prepare detailed reports for their clients based on the information attained



Proxy firms are currently regulated by the Securities and Exchange Commission (SEC) in USA

In Australia, proxy advisors have to have an Australian financial services licence provided by Australian Securities and Investment Commission (ASIC) to carry out their functions

Regulations provide several exemptions and limited governance to proxy firms

Several recommendations have been made to improve the transparency and disclosure requirements of proxy advisors

PROXY ADVISORS - REGULATIONS

On May 28, 2014, ISS urged the shareholders of Target Corp. to vote for the removal of seven directors out of the ten member Board.

PROXY ADVISORS – IN THE NEWS

At the AGM, the shareholders elected all 10 nominees to the Board despite several efforts made by ISS

The recommendation was made in view of the failure to protect the company from a massive data breach the previous year.

The recommendation focused on directors who were members of the company’s audit and corporate responsibility committee.

However Glass Lewis & Co. stood apart and said that there wasn’t enough evidence that the breach was due to any neglect by the company’s Board.

Cost-effective Ability of institutional

investors to outsource the task of information analysis

Provides detailed and specialized advice through reports

Encourages companies to be transparent and improve disclosures

PROXY ADVISORS – PROS AND CONS

Subject to minimal regulations

No strict regulation on transparency in disclosure of methodologies

Potential conflict of interest Use of incorrect factual

information to formulate recommendations

Tend to become influential on shareholders

PROS CONS

PROXY SOLICITORS



An organization engaged by the company / issuer Focuses on influencing shareholders to vote a certain way on

specific matters of corporate governance Discusses various matters with proxy advisory firms that affect the

company and its shareholders They are usually clients of proxy advisors – thus have access to

reports created by proxy advisors Intimates and prepares companies for questions and scenarios

prompted by advisor firms and institutional investors Also advises clients on ongoing regulatory changes and new topics

that would be focused on during the proxy season

Proxy Solicitor

RECAP

Company

Proxy Solicitor

Proxy Advisor

Institutional Investors

Off - proxy season

• Company hires a proxy solicitor

• Proxy advisor gathers information from meetings with proxy solicitor and company and other publicly available information

• The Institutional Investor appoints a proxy advisor

RECAP

Company

Proxy Solicitor

Proxy Advisor

Institutional Investors

• Proxy solicitor provides the company with information about the expected questions

• Institutional investor takes the decision to go “for” or “against” the resolution and informs the same to the proxy advisor

• Proxy advisor send a report of their findings to the institutional investor

Proxy season

Australian Institute of Company Directors

(http://www.theactivistinvestor.com/The_Activist_Investor/Proxy_Advisors.html) Business Insider Australia (http://www.businessinsider.com.au/why-proxy-

solicitation-firms-add-value-2011-4) Glass Lewis (http://www.glasslewis.com/) ISS (http://www.issgovernance.com/) Kingsdale Shareholder Services Inc

(http://thecomplianceconnection.wordpress.com/2011/05/17/the-role-of-a-proxy-solicitation-firm/)

Shareholder Coalition (http://www.shareholdercoalition.com/proxyadvisory.html) The Activist Investor

(http://www.theactivistinvestor.com/The_Activist_Investor/Proxy_Advisors.html) Wikipedia (http://en.wikipedia.org/wiki/Proxy_firm)

REFERENCES

THANK YOU

HAVE A NICE DAY

Voting with proxy advisory firms

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