SEC approves shareholder proposal for proxy advisor competition at Cisco

Proposal would have Cisco award proxy firms cash prizes for the “most useful” advice

A novel shareholder proposal whereby US technology firm Cisco would back a competition among proxy advisors to give advice on how to vote at the firm’s annual general meeting (AGM) in 2014 has been approved by the US Securities and Exchange Commission (SEC). The proposal was submitted by James McRitchie, publisher of, a shareholder interest group in California. McRitchie feels the proposal is necessary to spur competition in proxy advising, which is currently dominated by two US firms, ISS and Glass Lewis. According to him, their dominance has held down the quality of the voting advice given to shareholders of Cisco and other listed firms. To support his claim, McRitchie cited a passage from a March 2011 report on proxy advisors done by one of that industry’s own players, the Altman Group: “One of the primary complaints from corporate issuers is that proxy advisory firms rely heavily on a one-size-fits-all approach and may base recommendations on inaccurate and unreliable information in particular cases,” said the Altman Group. McRitchie’s proposal would have Cisco award the four proxy advisors that gave its shareholders what he described as “the most useful voting advice” for the firm’s 2014 AGM up to $50,000 (€37,500). McRitchie says the proposal has the added benefit of lowering costs forinstitutional shareholders significantly, as the advice obtained would only be paid for once and shared between them. Under the current system, each shareholder must pay ISS and Glass Lewis a fee for obtaining voting guidance ahead of AGMs. Asked why Cisco should back his effort to promote more competition in proxy advising, McRitchie said there were essentially two reasons. The first was the tradition of voting on shareholder proposals at Cisco AGMs and the second was the need for a shake-up at the firm. Regarding the latter, he said: “Ten years ago, Cisco traded at a heavy premium to the broader market. Today it trades at a discount. The enterprise-technology market has changed. Is today’s board savvy enough to move our company forward?” For its part, the San Jose, California-based firm sought to exclude McRitchie’s proposal by filing a no-action request with the SEC. It argued that the proposal was tantamount to an “illegal lottery.” Cisco said: “He (McRitchie) fails to address the fact that promotion does not establish any standard that would be used when evaluating the entries and making winning selections and does not even include any requirement that a participant has actually provided any advice.” But the SEC did not share Cisco’s view, which is why it will be put to a vote at the firm’s AGM on November 19.