Norges Bank Investment Management, the arm of the Norwegian central bank which manages the NOK3.6trn (€447bn) Government Pension Fund, has called for aspects of the European proxy voting industry to be regulated.
It argues that some parts of the industry stray into subjective investment research and are thus “worthy of regulation”.
“For those recommendations built upon proxy analyst judgment, particularly outside the normal confines of corporate governance, we consider this to fall within the regulated regime of investment advice,” NBIM says.
NBIM also argues there are conflicts of interest which are “opaque and suboptimal for investor clients”.
It would also welcome reform of proxy advisors’ dialogue with companies, saying it has no wish for them to act as “negotiating agents” on its behalf – a situation made worse by the introduction of ‘stewardship services’.
There were also clear conflicts where proxy firms sell services to both companies and investors – which NBIM says is an area where regulation is also warranted.
In a submission to the European Securities and Market Authority (ESMA), Norges calls for voting platforms to be unbundled from research – and suggests it may be beneficial for platforms to contain competing research.
“We will support proxy advisory reforms and regulatory initiatives if the outcome is to protect the industry’s independence, enhance its transparency and raise the quality of the services provided,” the influential investor says.Its views differ from the likes of Eurosif, the European Sustainable Investment Forum, which argues is not appropriate for proxy firms to be regulated – although the body does want greater transparency and disclosure.
Likewise Eumedion, the Dutch corporate governance forum, says there is no evidence for regulatory interference in the “small and vulnerable” proxy advisory market.
Eumedion published statistics showing the limited impact that leading proxy firms ISS and Glass Lewis had during the 2012 Dutch annual general meeting season.
ESMA’s consultation exercise also drew responses from corporate lobby groups. For example, the US Chamber of Commerce said proxy firms “serve the narrow interests of a small group of vocal shareholder activists that may have an agenda unrelated to the best interests of the vast majority of shareholders”. The Investor Relations Society and the Hundred Group of finance directors called for an industry code.
The Association of British Insurers made the point that legislation may have the unintended consequence of “validating and embedding” proxy firms’ influence, in the same way that credit rating agencies’ advice came to be seen as beyond reproach.
ESMA will take all the submissions on board and issue a feedback report in the fourth quarter this year. The consultation drew a wide response from investor groups, proxy providers and corporate groups which are available here