Very few individual investors participate in the proxy voting process, where ballots are cast to influence corporate governance and allow shareholders to voice their opinions on changes in corporate operations, but the number interested in doing so has increased over the years. Institutional investors and fund managers are mostly engaged in proxy voting, while many retirees and pensioners have likely never heard of or been involved in the proxy voting process. However, there has been a growing interest from shareholders to be more engaged in their investments and ensure their funds, and subsequently their proxy votes, are not being used to push environmental, social and governance preferences on corporations.
Allowing proxy advisory firms that is the supposed expert would not be as concerning if there wasn’t a duopoly in the marketplace between Glass Lewis and the Institutional Shareholder Service (ISS). Due to both a lack of oversight and regulations, these two firms have incredible influence on the proxy voting process, swaying proxy votes by as much as 30 percent. This means they are, in essence, regulating the marketplace and changing it as they see fit. No two companies should have that type of power.
The two main proxy advisors have repeatedly shown they broadly support environmental, social, and governance (ESG) shareholder resolutions. A report from ShareAction, a shareholder advocacy group, found that ISS recommended voting favorably towards ESG resolutions 70 percent of the time while Glass Lewis recommended voting in favor of ESG resolutions 41 percent of the time. ISS has taken steps to limit this by introduced guidelines that are “board aligned” or “ESG skeptic”, but that doesn’t solve the real problem of their marketplace control.
Clearly, proxy advisors are influential, and having a duopoly in the marketplace pushing an agenda does not allow for the free movement of the markets. It limits the ability for people to voice their preferences of solely focused on financial returns, regardless of political ideology or agenda. It also draws into question the potential conflicts of interest that arise from both engaging as an active participant in the debate around stakeholder investments, and provide the services by which to make such votes heard.
Most of the pushback against ESG investing has fallen on asset managers, namely the “Big Three” of BlackRock, State Street, and Vanguard. However, over the past two years, asset managers have backed away from ESG policies and investment decisions, especially in regard to proxy voting. In 2023, Vanguard shared that they supported only 2 percent of shareholder ESG resolutions, a major decrease from the 12 percent they supported the year before. BlackRock supported only 7 percent of environmental and social proposals. These major asset managers all offer proxy voting options for their retail investors, but unfortunately most of them use ISS or Glass Lewis.
But today, BlackRock announced they will begin offering proxy advisory services through Egan-Jones beginning in July 2024. One of the two new offerings will be more conservatively aligned proxy voting guidelines – which BlackRock stated is thanks to client interest. This decision demonstrates the market is working as it is intended to, and reacting to the needs and wants of shareholders. The financial futures of Americans should be designed and aligned as they best see fit, not regulated by groups with no oversight.
This is welcome news as it opens the door to additional voices and players in the proxy voting arena, offers voting options that people have been asking for, and helps to break up the duopoly that currently exists.
