From Minerva Analytics’ comment to the SEC for the Proxy Roundtable (link to the full comment below):
- We note the activities of the immensely vocal, but narrow, anti-ESG and governance lobby which continues to ignore and disrespect the beliefs and preferences of capital providers. Investors use governance research and vote execution services to legitimately help protect their interests and support long-term capital formation.
- The very well-funded and ideologically-fixated lobby is intent on diverting the SEC from the major structural inefficiencies in the vote plumbing (execution). If they were to succeed, it would be immensely damaging for corporations and investors, both institutional or retail. As you will hear during testimony from others in the industry, the US proxy plumbing system lags global peers and is no more fit for purpose than it was when the original concept release was published in 20102. We urge the SEC not to stray from the critical task of improving the system for all stakeholders.
- The problems of plumbing are not those of by either technology or standards. Rather they are a function of legacy regulations, systems and procedures which have resulted in anti-competitive business models. There is extensive and consistent evidence from international markets which shows that firms whose profitability is entirely dependent on such archaic systems are at the root of nearly all the plumbing blockages.
- The “power and dominance” issues raised in respect of proxy service vendors (be they research or distribution firms), are more properly anti-trust/anti-competition issues. The market for proxy services is severely constrained, to a much greater extent than either audit or credit ratings, and barriers to entry are high. Regulations which further inhibit competition and innovation need to be carefully considered for their foreclosure effect. While regulatory action may be aimed at US actors, it will have an extra- territorial effect due to the globalised nature of financial markets. As we have seen with earlier proxy regulation, the laws of unintended consequences are difficult to repeal.
- The anti-ESG and governance lobby is attempting to impose onerous regulation on analysts based on “evidence” that is poorly researched, non-peer reviewed, deeply conflicted, lacks funding transparency and invariably wrong in fact and substance. Their attempts represent an unnecessary, unjustified, discriminatory and unconstitutional attack on the market for ideas. If allowed to succeed they would would create information asymmetries for investors that could only be described as totalitarian speech by corporations.
- No problem can be effectively solved without clear definitions and agreed understanding of stakeholder needs. Based on our experiences with other global regulators who have also investigated proxy plumbing, agreed definitions will be critical to effective regulation and systems development.The problems of US proxy plumbing are not confined to domestic US shareholders.
- A substantial proportion of US securities are owned by international shareholders either directly or through ADRs. US proxy plumbing is therefore a global concern. Although Minerva is based in the UK, its clients hold substantial blocks of US securities and experience considerable difficulties with exercising their ownership rights. Additionally, many international asset managers have either US parents or affiliates which inevitably shapes local market conduct and business practices. Regulations developed in the US will therefore have a direct impact in overseas markets and by extension non-US governance service providers.