Canada eyes potential regulation of proxy advisory firms

Further scrutiny for research firms which advise investors on governance

The Canadian authorities have issued a consultation paper to determine whether proxy advisory firms such as MSCI’s Institutional Shareholder Services (ISS) and pension fund owned-Glass Lewis should be regulated.
Canada is following the US and European regulators in running the rule over proxy firms, who advise investors how to vote at company general meetings.
The Canadian Securities Administrators (CSA) put out for comment Potential Regulation of Proxy Advisory Firms saying it was to “address specific concerns” about the firms and their potential impact on markets.
The CSA is seeking feedback on potential conflicts of interest, a perceived lack of transparency, potential inaccuracies and “limited engagement” with the companies they research. It is also looking at the extent to which institutional investors rely on the firms’ recommendations.

It comes as Glass Lewis, which is owned by the C$117bn (€90.6bn) Ontario Teachers’ Pension Plan (OTPP) has recently had to defend itself against charges of conflicts of interest for advicegiven during a bitter boardroom battle at Canadian Pacific Railways.

And in a letter to shareholders last month, Chevron CEO John Watson slammed ISS for issuing “misleading” information. In the UK the firms have come under fire from advertising company chief Martin Sorrell of WPP.

“An ugly sign of the times” – Bob Monks

Efforts in the US to get the Securities and Exchange Commission to regulate the firms are an “ugly sign of the times” says ISS founder and corporate governance pioneer Bob Monks.
He points out that the firms provide advice which investors are under no obligation to either buy or use.
“This consultation is aimed at providing the CSA with more information from market participants to assist us in our analysis into the need for potential regulation of proxy advisory firms,” said CSA Chair Bill Rice.
The comment period is open until August 20.