Real Clear Markets cites Club for Growth Foundation (CGF) research that examines the transparency problem in corporate governance.
Washington, D.C. – In case you missed it, Real Clear Markets cited the Club for Growth Foundation’s recent white paper on corporate governance in a piece covering how everyday investors have little visibility into who actually votes their shares. The Foundation’s research finds that two firms, Institutional Shareholder Services and Glass Lewis, make up 97% to 98% of the proxy advisory market, shaping how corporate America votes on directors, executive pay, and shareholder proposals, often without answering to the more than 100 million Americans whose retirement savings are at stake. The Foundation’s report also warns that the opacity creates an opening for foreign-affiliated capital and investors to gain influence through voting structures, potentially giving hostile nations a hand in key decisions for American corporations.
Click here to read the full article from Julio Rivera on Real Clear Markets.
Click here to read the full report from Club for Growth Foundation.
EXCERPTS:
You finally did it. You opened the brokerage account. You bought your first shares. Maybe you picked a few companies you actually know. Maybe you went the boring-and-responsible route and bought an index fund.
Congratulations. You’re officially an investor. Well… sort of.
Because here’s the part nobody tells you when you’re downloading the app, watching the little green numbers bounce around your screen and congratulating yourself for finally getting serious about your financial future:
You may own the stock, but you don’t necessarily control the vote. And that little distinction turns out to be a pretty big deal.
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Instead, much of that voting power is concentrated in the hands of giant institutional investors. And those investors often turn to another group you’ve probably never heard of: proxy advisory firms.
Yes, “proxy advisory firm” sounds about as exciting as a tax seminar. But these companies have a remarkable amount of influence.
Institutional Shareholder Services, known as ISS, and Glass Lewis dominate the proxy-advisory industry. Research from the Club for Growth Foundation estimates that the two firms account for roughly 97% to 98% of the market.
Think about that for a second. Two companies operate at the center of a system that can influence how huge numbers of shares are voted across corporate America.
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The Club for Growth Foundation (CGF) recently released research examining this problem, including the relationship between proxy advisors and activist investors and the broader question of transparency in corporate governance.
The research raises concerns about a system in which enormous voting influence can become several steps removed from the actual investor. That should make anyone who believes in free markets pause.
Not because every proxy advisor is evil. Not because every institutional investor is secretly plotting something. And not because every activist investor is a corporate villain. Some aren’t.
But markets don’t become freer simply because the people exercising power work for private companies instead of government agencies. Concentrated power is still concentrated power.
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CGF’s research also raises questions about how foreign-affiliated capital and investors can potentially gain influence through activist and voting structures.
Now, this doesn’t mean every foreign investor is a threat. It also doesn’t mean proxy advisors are foreign agents or that someone in Beijing is sitting around deciding whether your favorite American company needs a new CEO.
It means we should know who is exercising influence over strategically important American businesses. That’s not xenophobia. That’s due diligence.