London, July 22 2024.
PUBLIC companies must race against time to correct basic errors and misunderstandings in materials produced about them by proxy advisers.
In the latest survey from the Quoted Companies Alliance, most respondents said they had less than 48 hours to review and challenge research reports containing voting recommendations published about them before they are circulated to shareholders in AGM season.
Over three-quarters of companies that queried a voting recommendation found proxy advisers to be unresponsive and many found these firms to be unreceptive to engaging even outside the AGM season.
The fallout from poor communication and mistakes includes soured relations with investors, poor media coverage and depressed market sentiment.
The research comes as the Financial Reporting Council continues its review of the UK Stewardship Code 2020 which includes a set of principles for service providers, including proxy advisers.
James Ashton, the QCA’s Chief Executive, said:
“When such a premium is put on good governance to support growth it is hugely worrying that companies are so easily misunderstood or seemingly misrepresented and open dialogue is frowned upon.
“Large companies have the governance teams that can swing into action at short notice to tackle some of these problems; small companies do not.
“The review of the UK Stewardship Code is an ideal opportunity to look again at proxy advisers’ attitudes to operational transparency and good practice, as well as investors’ oversight of the service providers they choose to employ.
“These firms may well provide a useful filter for asset owners and managers but there is evidence they overreach themselves, for example by devising their own standards for companies in addition to the accepted corporate governance codes.
“Our public markets should work for all, especially the growing companies that would be the UK’s blue chips of tomorrow. Given the right conditions they can deliver substantial economic impact over the long term.”
Key Survey Findings:
- More than half of companies have less than 48 hours to review and challenge research reports containing voting recommendations published about them by proxy advisers before they are circulated to shareholders.
- For more than half of these companies, the timeframe is less than 24 hours.
- Factual errors occur regularly, such as inaccurate reporting of companies’ profit performance or details of their board composition.
- Over three-quarters of companies that queried a voting recommendation found proxy advisers to be unresponsive.
- For companies that try to engage with proxy advisers outside the AGM season, over half find them to be unreceptive.
- Companies report that proxy advisers’ lack of engagement has caused:
- Managements to devote more time to investor meetings to clarify misunderstandings;
- Negative media coverage;
- Depressed market sentiment;
- Loss of directors.
- More than seven in ten companies say proxy advisers have too much influence; three-quarters view them negatively.
- Key company concerns are of proxy advisers’ box-ticking or one-size-fits-all approach to governance and lack of understanding of their circumstances.
- Some proxy advisers devise their own standards for companies over and above the accepted UK corporate governance codes; sometimes companies are measured according to one governance code when they have committed to following another.
Download the full survey here.
What Directors Said:
“They either need to improve the quality of their process and people, or investors should take responsibility and accountability for their shareholdings themselves and vote accordingly with decisions communicated to the Board.”
“They effectively regulate AGM voting, even though they are not regulated themselves. They do what they want, when they want.”
“Appalling. There is no way to engage, despite what they may say. We have given up trying. They do not understand our business, resulting in recommendations against voting in favour of our resolutions.”
“We feel like we have to appease and remind the proxies we are an AIM company. When our CEO moved to become Chair, they used practices from the UK Corporate Governance Code, not the QCA Code, to judge us.”
“We comply with our chosen code and they said we didn’t. They close it at that. They don’t acknowledge or have a conversation about it.”
“It appeared that ISS accepted we reported under the QCA Code but then applied additional tests which led to negative views spreading.”
Notes:
YouGov surveyed 67 small and mid-cap companies on behalf of the QCA prior to the General Election campaign.
In February 2024 the Financial Reporting Council launched a fundamental review of the UK Stewardship Code 2020 to ensure it supports growth and the UK’s competitiveness.
The Code comprises a set of “apply and explain” Principles for asset managers and asset owners, and a separate set of Principles for service providers, including proxy advisers.
Two companies dominate the proxy adviser landscape: Institutional Shareholder Services (ISS) and Glass Lewis.
For further Information, please contact:
Ruby Halabi
Communications Officer, The Quoted Companies Alliance
E: ruby.halabi@theqca.com
T: 020 7397 8140
