Ex-Financial Reporting Council exec Hodge to steer review of proxy advisors’ industry code

Best Practice Principles Group for Shareholder Voting Research under review

Corporate governance expert Chris Hodge – who was instrumental in the creation of the world’s first Stewardship Code while he was at the UK’s Financial Reporting Council – is in charge of reviewing the European proxy industry’s best practice code.

The Best Practice Principles Group for Shareholder Voting Research (link) was introduced in 2014 and Hodge’s review should be ready by the end of 2017 after a consultation period during the summer.

The move follows the recently approved EU Shareholder Rights Directive, which has introduced a number of transparency requirements for proxy advisory firms.

Asked whether there is a link between the transposition of the Directive in each member state — which should be ready in two years’ time — and the review of the code, Hodge told RI: “It’s not for the group to say that this is the Code that must be accepted by the European Commission or member states but we hope it will be at the very least ‘Directive-compliant’. We hope those organisations that chose to follow this Code will satisfy the expectations of national regulators.”

Among the disclosure requirements mandated by the Directive is information related to proxy advisory firms’ methodologies, research and sources verification, as well as whether they follow a code of practice — and if they don’t explain why.The creation of the BPP Group was prompted by the European Securities and Markets Authority (EMA) which recommended industry players come up with a code of principles.

ESMA’s intent was also to shed some light on how this industry works; the work of proxy advisory firms is better known in the UK and the US, but not so much in other jurisdictions.

“For many regulators this will be the first time they have to consider the role of proxy advisors and what information to require from them. One exception is France where the AMF [Autorité des marches financiers] issued a non-binding recommendation a few years ago on certain pieces of information it wanted from them,” Hodge said.

The BPP Group is formed by Glass Lewis, ISS, Manifest PIRC, and Proxinvest.

Hodge has been appointed BPP’s Independent Chairman of the Review and will be assisted by a stakeholder panel. He said the panel will consist of a mixture of investors, companies and hopefully regulators but recruitment hasn’t yet started.

After leaving the FRC in 2016, where he was Executive Director of Strategy, Hodge has been working as an independent consultant for corporate governance consultancy Nestor Advisors, the International Corporate Governance Network, the Institute of Chartered Secretaries and Administrators and the OECD.