RI Americas 2016: $25trn Council of Institutional Investors fears Trump-era smackdown on proxy advisors

CII says it will fight hard on shareholder protection in 2017.

RI Americas: 2016. The powerful US investor group, the Council of Institutional Investors (CII), says its expects Congress and the SEC to row back on a number of critical investor protections under new president-elect Donald Trump, notably on shareholder voting advisory services, which it fears could wind up putting all but one of the proxy advisory firms out of business.
CII’s voting members include more than 120 pension and benefit funds with $3 trillion in assets. It also has more than 140 non-voting members, including more than 50 of the largest U.S. and non-U.S. asset managers, with combined assets in excess of $20 trillion. Other non-voting members include top law firms and service providers.
Speaking at the RI Americas 2016 conference in New York last week (December 6/7) Amy Borrus, Deputy Director of the CII, said there were two main points of contention for its members that it would be “fighting hard” against in 2017.
The first, she said, was the re-tabling of legislation first presented a couple of years ago, which she dubbed “The bill to throttle proxy advisors”.
The bill would require proxy advisors to submit their corporate research well in advance of any AGM to company management, who would then likely have the potential to lobby for changes to the research, and seek recourse from an ‘ombudsman’.Borrus said the CII believed the approach would increase costs for research dramatically and drive all but one of the proxy advisors out of business, creating a shift towards monopoly pricing. Borrus said the bill could be fought by a lawsuit, adding: “Letters have been sent to the House and the Senate and this issue will take up a lot of our time this year. We think the business world greatly exaggerates the influence of proxy advisors.”
Borrus said the CII feared that the proxy changes could be wrapped up in other legislative bills, notably because the issue has bi-partisan political support.
Michael Kagan, Managing Director, Portfolio Manager at ClearBridge Investments, said any legislation could fall foul of the US first amendment: “If there was a law that muzzled proxy advisors it would be a free speech issue and there would be a legal challenge.”
Borrus said the second major point of contention for shareholders at present were moves by the Business Roundtable, the association of CEOs of US corporations, to lobby to raise the threshold for shareholder proposal filings up to an ownership level of 2% of company shares. Borrus said: “The Business Roundtable believes that it is too easy for investors to file resolutions. But, in the case of Apple, for example, what is being proposed would mean that a shareholder would have to own $850m worth of shares before they could have a resolution on the ballot!”