(Update with clarity that the Principles are Global Principles, not just European.)
The industry body of proxy advisory firms active in the Europe Union that was set up at the behest of the securities supervisor ESMA has launched a consultation to see if it has been effective.
The Best Practice Principles Group for Shareholder Voting Research was formed in the wake of a review of the proxy advisory industry that was kicked off by the European Securities and Market Authority in 2011.
ESMA found no clear evidence of market failure in the sector, but it wanted the industry to develop a code centering on transparency and disclosure. This led to the formation of the Best Practice Principles body in 2014.
Now the BPP has unveiled a review to see if the voluntary code has “been effective in ensuring the integrity and efficiency of the services provided by proxy advisors”.
The review will also consider what actions are needed to ensure the Principles are fully compatible with the mandatory requirements for proxy advisors operating that are contained in the revised EU Shareholder Rights Directive, which takes effect in 2019.
The review is being carried out by a steering group chaired by Chris Hodge, the former Director of Corporate Governance at the UK’s Financial Reporting Council.The members of the steering group are representatives of the five current signatories: Glass Lewis; Institutional Shareholder Services; Manifest Information Services; PIRC; and Proxinvest.
This group is supported by an advisory panel of representatives from BlackRock, the Council of Institutional Investors, Pirelli, Amundi Asset Management, the CFA Institute, BHP Billiton and Allianz Global Investors.
Hodge, who was involved in the creation of the world’s first Stewardship Code, said the debate about proxy firms “can often generate more heat than light”.
“This review is an opportunity to shed more light on their activities, and to identify ways in which the standards in the Principles might be strengthened and reporting against them made more informative.” He was keen to get first hand evidence from investors and companies.
In a report in December 2015, ESMA was generally supportive of the action that had been taken – though it found that the governance of the Principles was “viewed less positively”. It was the main area in which ESMA wanted the industry group to take further steps.
It is being stressed that the Principles are Global Principles, not just European. ISS and Glass Lewis signed up to the Principles as their US entities, not their European ones.
The consultation is open until December 15.