Second Supplement to our SEC Comment on Proxy Advisory Firms

Second supplement to our previous comment:

We endorse the comment of Ken Bertsch of the Council of Institutional Investors fully and incorporate it by reference into our own.

We note that there has yet to be a single specific example of a proxy vote that was incorrectly or harmfully cast as a result of inappropriate, biased, or otherwise improper analysis and recommendations of a proxy advisor. While there have been vague allusions to “political” votes, we have yet to see an example of a proxy vote by a fiduciary client of the proxy advisory firms that was not fully justified in terms of investment risk and return. While there have been vague aspersions about conflicts of interest, we have not seen a single credible example of any proxy advisor recommendation that was not fully justified in terms of investment risk and return.

We remind the Commission that no one has to purchase the research, analysis, and recommendations of proxy advisory firms, the decisions to purchase are made by the world’s most sophisticated financial professionals, the overwhelming majority of their recommendations are to vote as management urges, when their recommendations are to vote contrary to management, the clients often decide not to follow the advice, and even if 100 percent of the shareholders vote contrary to management’s recommendation on a say on pay proposal or a shareholder proposal, it is advisory only and not binding on corporate executives.

We are particularly concerned about the possibility of regulating proxy advisors as though they were proxy solicitors. They could not be more inapposite. Proxy solicitors are hired guns. They are paid advocates for one side or the other and the limited time and information available to investors makes it important to make sure that their communications are fully and fairly presented. But proxy advisory firms are not advocates. They are voluntarily subscribed to by sophisticated financial professionals who as fiduciaries are obligated to examine the issues and welcome the sole source of independent research and analysis on the questions presented to them. This is the ultimate expression of the free market — a product no one is required to buy, a choice of providers, and consumers who are skilled financial professionals bound by fiduciary obligation. The Commission should not interfere with the free market decision to purchase independent research and the “kill the messenger” lobbying campaign by the fake dark money front groups behind these vague, unsupported, market-distorting complaints should be rejected as a management-entrenching information silo-promoting, market test-distorting effort to silence the legitimate concerns of shareholders, the very group the Commission was created to protect.

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