VEA Vice Chair Nell Minow Comments on SEC’s Proposed Proxy Advisor Rule

VEA Vice Chair Nell Minow has submitted a comment to the SEC on its proposed rule about proxy advisory firms. The comment is attached in full below. Some excerpts:

My most important point: There is no justification for any regulation of proxy advisors beyond the rules already in place. The claims by issuers (and their fake, dark money-funded think tanks) of undue influence and conflicts of interest are not just unsubstantiated; they are conclusively disproven by the data. It is important to remember that the origin of proxy advisory services and the focus on the issue of proxy voting by fund managers both stem from documented conflicts of interest stemming from actual and potential commercial relationships between fund management firms and portfolio companies. The only proven undue influence in proxy voting comes from these conflicts, as fund managers are more likely to vote in favor of excessive pay plans and against worthwhile shareholder proposals if the securities are in a company doing business with the fund manager’s firm. For example, a recent study by As You Sow found:

Proxy voting biases favoring clients occurred at all four asset managers [BlackRock, State Street, T. Rowe Price, and Vanguard] on management resolutions and occurred at three of the four asset managers; environmental, social, and governance (ESG) resolutions; and climate-related resolutions. The bottom line is that proxy voting by major asset managers favors their clients — a clear conflict of interest. More stringent reporting requirements and new technological and policy solutions should be implemented to remove proxy voting conflicts of interest and allow shareholder interests, as intended, to be the primary driver of proxy voting.

The key findings of the study:

  • From January 2015 through June 2020, BlackRock, State Street, T. Rowe Price, and Vanguard all voted in favor of management resolutions more often when they also had business ties for financial services. 
  • BlackRock, State Street, and T. Rowe Price supported shareholder ESG proposals less often when they received compensation for financial services from January 2015 through June 2020. 
  • BlackRock was three times more likely to vote with shareholders when no business ties were present on climate-related proposals from January 2015 through June 2020, voting with shareholders 9.5% with no relations versus 3.1% when commercial relations were present. 
  • State Street had the highest level of bias on shareholder proposals across the same timeframe, voting with shareholders only 23% when business ties are present versus 37% when no relations were present — showing a 14% bias to favor companies providing compensation. 
  • In 2019, the four managers analyzed received $489 million in compensation across a total of 932 corporations where they also voted proxies on behalf of shareholders — demonstrating conflict of interest for fund managers that vote proxies at corporate clients. 
  • The number of years each asset manager favored management recommendations by resolution type is summarized in Figure 1, demonstrating the trend to favor commercial clients. 

The Commission’s focus should be on clarifying the obligation of fund managers to vote for the exclusive benefit of beneficial holders and data like that found by As You Sow should create a rebuttable presumption of failure to do so. Unless a fund manager can show that there is a legitimate reason to favor management that has commercial ties to the organization, the Commission should undertake enforcement actions and impose penalties. 

Proxy advisory firms mitigate these conflicts of interest with affordable independent analysis. The conflicts of fund managers are a vastly greater problem than the conflicts claimed for ISS by issuers, which have not produced a single data point showing, for example, more support for management at consultant clients than at non-clients. The other two major proxy advisory firms do not have those relationships, and any client who wishes to avoid a proxy advisor that also performs consulting services thus has other choices.

I note that for several years when I worked at another firm, we were retained by one of the world’s biggest fund managers to vote proxies at the two dozen or so portfolio companies where they believed their commercial connections or pending transactions could create a real or apparent conflict of interest. I am no longer in this business but I encourage the Commission to consider this as a possible model for fund managers to consider as one option for preventing tainted votes.

The Commission’s priorities here should be (1) to clarify the fiduciary obligation to vote proxies solely in the interests of beneficial holders, especially in light of its recission of guidance, (2) to investigate conflicted votes like those documented by As You Sow, (3) to fix the extensive proxy plumbing issues, (4) to provide more accessible information to retail investors about proxy votes by fund managers, and (4) to encourage competition and remove barriers to entry in the proxy advisory sector.


Proxy advisory firms play a more subtle but equally crucial role in market efficiency. Unlike buy/sell decisions, which can be evaluated solely in terms of the costs and benefits to each fund or even each account[1]proxy voting in our gigantic capital market is sub-optimally efficient due to the collective choice problem[2]. Even multi-billion-dollar funds can be “rationally apathetic” because the cost of doing the research and analysis on any given proxy issue plus the cost of overcoming the kind of conflicts of interest described by John Bogle is likely to outweigh the marginal benefits of a “correct” proxy vote. That is, unless enough other large investors vote the same way. Only independent, objective proxy advisory firms can minimize the collective choice problem by bringing down the cost through economies of scale. For buy/sell/hold decisions there is a competitive advantage in having exclusive information (except for inside information, which may be micro-market efficient but not macro because it raises the risks of self-dealing to damage the credibility of the capital markets). But for proxy voting decisions, the more shareholders who have access to independent advice, the better, because it takes a critical mass of votes across a wide variety of investors to make a difference.[3]

[1] I note that while it is justifiable to make different buy/sell/hold decisions in different portfolios depending on the stated goals of each fund, the same calculus does not apply to proxy voting. As most investment managers recognize, the interest of fund clients is better served by an enterprise-wide approach to proxy voting. 

[2] See for example Proxy voting and the SEC: Investor Protection Versus Market Efficiency, John Pound, Journal of Financial Economics, Volume 29, Issue 2, October 1991, Pages 241-285, incorporated in full here by reference.

[3] We recommend this scholarship on a related or analogous issue as a subject for future consideration by the Commission.

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