Dutch corporate governance forum Eumedion, which represents 69 institutional investors with a combined €1trn in assets, has called for an independent body to monitor the new EU industry code for proxy voting agencies that is being developed.
The proposed body would monitor the effectiveness of a new set of principles that the industry has drafted at the request of the European Securities and Markets Authority (ESMA).
Eumedion would also like the code to be narrowed so that it specifically refers only to proxy agencies and that investors who are engaged owners don’t fall under its scope. This would entail a “clear and single definition” of proxy advisors.
And it would also support “restrictions” for proxy firms providing consulting services to companies, as it says the conflicts arising from offering services to both investors and companies affect advisors’ independence and reliability.
“We believe that the effectiveness of the code could benefit from establishing an independent body that monitors the code on a regular basis and publicly reports on the monitoring outcomes,” Eumedion says in a comment letter. The body would be similar to the UK’s Financial Reporting Council and the Dutch Corporate Governance Code Monitoring Committee.Eumedion represents not only Dutch institutional investors but also non-domestic entities such as the UK’s Local Authority Pension Fund Forum, Hermes and USS as well as leading asset managers such as BlackRock, Capital Group and Allianz.
In February ESMA called for the proxy advisory industry to develop a Code of Conduct focusing on “identifying, disclosing and managing conflicts of interest” that would “foster” transparency to ensure accuracy and reliability.
Six proxy firms (Glass Lewis, ISS, IVOX, Manifest, PIRC and Proxinvest) responded with a set of draft best practice principles – not referred to as a ‘code’ – in October. The comment period ends on December 20 ahead of the principles being finalised next February.
ESMA had called for the code despite having found no evidence of market failure, following concerns about the influence of proxy firms over investors’ voting decisions at company meetings. Although ESMA opted for a self-regulatory approach, RI understands there is still a possibility that the European Commission may consider regulating the sector.
In the US, the Securities and Exchange Commission is still grappling with the proxy voting system, having issued a ‘concept release’ back in 2010. It held a roundtable with the industry and investors earlier this month at which there appeared to be little appetite for regulatory action.