New Ideas on Proxy Voting Reform

Here’s a new take on proxy voting reform from an unexpected quarter – FCLT Global, a non-profit that brings together large companies and investors to support value across the “investment value chain.”

The problem: Issuers, investors and proxy advisors are stuck in a “blame game” amid a costly and inefficient proxy system.

• Companies view proxy voting as a legal obligation, rather than a meaningful engagement tool. 
• Investors see it as a “box-ticking exercise” and delegate to proxy advisers who lack the resources for sufficient analysis.

FCLT’s solution: Pre-disclosure of voting intentions, unbundling proxy advisory services and restricting the proxy voting calendar to make it less crowded.

• Pre-disclosure: Since the current lack of transparency on voting intentions of investors is a major complaint, provide more consistent and open pre-declarations of voting intentions. 
• Unbundling: Paying “a la carte” for only the proxy advisory services that an investor uses provides a clearer market signal on the value of advisors’ recommendations and encourages healthy competition on quality.
• Calendar crunch: The current proxy season is too crowded to allow for meaningful engagement. Enter an “Investor Engagement Day,” where issues are discussed and debated, and separate autumn and spring processes for considering proposals. 
  1. The report proposes that in the spring, the process would remain largely the same, but with only mandatory or binding issues in the proxy. A separate autumn process would address any outstanding advisory issues. 

Recommended regulatory action: FCLT suggests regulators should strengthen proposal requirements and clarify whether investors in fact have the obligation to vote their shares on every issue. According to FCLT research, many investors rarely vote their shares in many markets, and while most value the option to vote, they do not consistently value the vote itself.