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Shareholder Voting To Proxy Advisory Firms

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Discuss About The Shareholder Voting To Proxy Advisory Firms?




The main problem that has been encountered in the given case study is the detrimental effect of the recommendation of the proxy advisors on the company. The proxy advisors are the consultants which helps the shareholders of the company in casting their votes and mainly the institutional investors. In the past so many years the recommendation made by the proxy advisor firms have been duly accepted by the institutional investors and the shareholders due to which most of the time the recommendation has turned out wrong and through the same flow major flaws have been encountered by the financial industry (Ertimur, 2013).

Due to the above problem, following alternatives have been identified for the purpose of the given case study:

Check list – First alternative that comes under this situation is that there shall be the clear cut checklist for the proxy advisory firms and that too shall be made available for the institutional investors also. In the given case study, cases have been cited where the proxy advisory firms have given the recommendation and in actual the opposite of the same have been listed. It entails that the firms have not been checking as per the requirements of the investors and other shareholders. The checklist shall not only take into consideration the financial aspects of the company but also shall take into the non financial aspects. Like along with the statement of the profit and loss, the corporate governance practices shall also be checked in detail.

The main advantage of having the checklist is that neither the proxy advisor firms nor the investors will have the situation of being cheated. It is because the checklist will cover all the heads of the research that the firms are required to check and on the other hand will cover all the matters which the investors wants in its good aspect to be checked (Larcker, 2015). 

Laws and Statutes – Second alternative that is more applicable in the given case study is the enactment of laws and statutes. In the current scenario there has been no such enactments which governs the acts of these proxy advisory firms in case there recommendation goes wrong or none of the regulations have prescribed the matters for the reporting by these advisory firms. In the year of 2013, the securities and exchange commission has added the clause whereby the proxy advisory firms are required to disclose the procedures and the policies adopted by the company as to how the advisory firms have adopted the same to achieve at the recommendation to be provided to the investors and along with this they are bound to disclose the documents of the companies as required by the investor to show them as to how they have management the calculations. Simultaneously, the investors are required to maintain the records of the same. The amendments have been made in the Sarbanes Oxley Act and the Dodd Frank which have helped the investors and the proxy advisor to check the internal control system installed by the company along with the corporate governance practices being followed by the company.    

The main advantage of this alternative is that both the investor and the advisory firms will have thorough knowledge and the deep analysis of the results and the disadvantage will be that the analysis will be rigid and restricted to the defined rules and regulations and will not be able for easily moulding as per the changes in the environment. 

Considered as One factor - The third major alternative that has been defined is that the investors shall considers the recommendation of the proxy advisory firms as one of the factor for casting the vote. It shall not be considered as the decisive factor rather it shall be considered as only one of the factor which shall be taken into consideration while casting the vote. The major advantage is that the votes will not be ruled by the advice of the proxy firms. Second advantage is that the investors including the shareholders will undertake the deep and separate analysis and will take the informed decision. The third advantage is that there will be less chances of cheating by the proxy advisory firms. Cheating has been done in the sense that the firms have started recommending on the basis of the needs of the company.

Fiduciary Position – The last alternative is that the proxy advisory firms shall be in fiduciary position. It shall consider the interests of the company as well as the investors.    



From the above four alternative, it is recommended to have the following sequence in choosing the alternative.

At first, there shall be changes in the current laws and statutes in order to bind the acts of the advisory firms legally. Secondly, there shall be defined checklist and lastly the fiduciary position of the proxy advisory firms shall be stated in actual and shall be legalized.

The recommendation has been made on sequential basis. The premise of the said decision is that in the current scenario where many cheatings and deceits are being done, the single alternative will not be the solution rather the joint and meaningful alternatives will be the solution (Levin, 2014).

The recommendation have not been made only for the investors but also for the companies and the proxy advisory firms so as to avoid the situation where the recommendation was made by the firms will come out as null and void.   

Implementation Plan

Implementation plan describes as to how the particular recommendation will be implemented in the field. The implementation will start from the identification of the problem and the main problem is the poor quality of the advice given by the proxy firms. After identification of the problem, the timeline will be identified as to within which the implementation will be done. Whether the decision is for short term or for long term, the implementation will be done in the following manner:

  1. Proxy advisory firms shall make the mandatorily application of the provisions of the defined laws and regulations.
  2. The procedures and the policies adopted by the firms shall align with rules and regulations and with the requirements of the shareholders and the other investors of the company.
  3. The budgets stating the standards shall be prepared whereby the quality standards shall be mentioned and the reference shall be made to the internal control system and the procedures as envisaged by the Sarbanes Oxley Act and Dodd Frank.
  4. The employees of the company shall be engaged in the successful implementation of the alternative and the work of advisory firms shall be checked as to whether the analysis have been made in depth or not and that too is in the interest of the shareholders as well as the investors.
  5. After full implementation of the alternative, the results are reviewed on the regular basis and thus thereby monitoring and controlling the information being transmitted to the investors and the institutional investors.

Thus, in this manner, the implementation of the plan shall be done.      

Risk and Mitigation

One of the major challenges that the company will face will be the resistance from the employees to work in accordance with the laws and regulations. This kind of risk if remains intact then will be very harmful for the company as the same will never help the company to implement the plan rather will go on perpetrating with zero results (Malenko, 2016).

Second major challenge that the company will face during the implementation is that the proxy firms will find it difficult to acts as the fiduciary while supplying the information to the shareholders and other investors. It is because the firms will be required to consider both the aspects from the perspective of the clients and the company and will find it difficult to reach at the point of intersection at which the shareholders will be convinced to invest in the particular company.

Third major challenge is the inherent risk which is prevalent in the current system of the company.

All the three can be mitigated by motivating the employees of the company along with the conduct of the training and motivational programs. Inherent risk will be mitigated by introducing the best corporate governance practices as envisaged by the new laws and enactments and by installing the system of having the sound internal control system with best practices.



Ertimur, Y., (2013), “Shareholder votes and proxy advisors: Evidence from say on pay”. Journal of Accounting Research, 51(5), 951-996.

Larcker, D. F., (2015), “Outsourcing shareholder voting to proxy advisory firms” The Journal of Law and Economics, 58(1), 173-204.

Levin M, (2014), “Proxy Advisors”, available at  accessed on 02/03/2018.

Malenko, N, (2016), “The role of proxy advisory firms: Evidence from a regression -discontinuity design” The Review of Financial Studies, 29(12), 3394-3427.

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