Ethos’ Biedermann supports common standards for proxy advisors

Leading figure calls for end to confusion and conflicts of interest

Dominique Biedermann, President of Swiss proxy firm Ethos, has called for common standards for proxy firms like Ethos itself and rivals like Institutional Shareholder Services (ISS) and Glass Lewis, noting that their absence is sowing confusion among investors as well as potential conflicts of interest.

Biedermann, interviewed by Switzerland’s Neue Zürcher Zeitung (NZZ), cited the example of Credit Suisse. He said that while Ethos had urged the bank’s shareholders to vote against a CHF34.6m (€31.5m) bonus for the management board in 2015, ISS had no qualms about it.

Ethos, which represents 220 Swiss pension schemes and foundations, opposed the bonus on the grounds that Credit Suisse posted one of its biggest losses (CHF2.9bn) ever last year. The bonus was nonetheless approved at the bank’s annual meeting last Friday, with almost 80% of shareholders voting in favour.

Beyond the Credit Suisse example, Biedermann told the newspaper: “Things get even more confused for the investor if you consider that ISS has rejected executive pay at Swiss companies where we think it was merited.”

According to Biedermann, another problem is the fact that firms like ISS generate 15% of their revenue from corporate governance advice – including that given to companies.

“I believe that proxy advisors should be independent and, as a result, not accept business from companies that they analyse,” he said, adding that the advisors should furthermore be transparent about their shareholders.

ISS declined to comment on Biedermann’s criticisms directly. However, it stressed that it and other proxy advisors already adhered to common standards like those outlined in the Best Practice Principles Group (BPPG).ISS, Glass Lewis as well as UK peers Manifest and PIRC are all members of the BPPG, which was formed in 2013, whereas Ethos is not.

The body was formed in the wake of a review by the European Securities and Markets Authority (ESMA). ESMA found no market failure and instead called on proxy firms to self regulate – which led to the best practice group.

ISS told Responsible Investor: “ISS provides its institutional investor clients with extensive information to ensure that they are fully informed of potential conflicts and the steps that ISS has taken to address them. ISS’ standard institutional client contract contains disclosures regarding its work with corporate issuers, and each voting research report issued by ISS contains a legend indicating that the subject of the analysis or report may be a client of ours and reminds institutional clients of how they can inquire about any issuer’s use of our products and services.”

Regarding the bonus at Credit Suisse, ISS said in a report published before the AGM that it was justified as it “appears to have yielded remuneration outcomes that reasonably reflect the company’s declining performance.”

Like Ethos, which has Swiss schemes as shareholders, Glass Lewis and ISS are transparent about their ownership structure. The co-owners of Glass Lewis are Canadian institutional investors Ontario Teachers’ Pensions Plan (OTPP) and Alberta Investment Management Corp. (AIMCo). Glass Lewis says that while the two schemes are among its clients, it goes to great lengths to avoid any conflicts of interest.

ISS, meanwhile, is owned by US private equity firm Vestar Capital Partners.