OPINION:
An unprecedented election season is underway — not just the battle for the White House and Congress but also in corporate America. The season for annual meetings, with shareholder voting, is in full swing, and most Americans are unaware of how compromised these elections are.
Shareholders grapple with questions ranging from board members’ election to priorities for setting corporate goals. The implications of these elections are consequential for domestic production, employment, retirement savings and other issues foundational to the U.S. economy.
Before these meetings, many shareholders are issued guidance from third-party companies, such as Glass Lewis or Institutional Shareholder Services, with voting recommendations.
Too many Americans do not notice the corrupt influence of these companies on American free enterprise. ISS, a majority foreign-owned company, and Glass Lewis constitute 97% of the shareholder proxy advisory market. They work in concert, making activist recommendations for corporate votes and never disclosing their other clients. Their recommendations often prioritize short-term political objectives at the expense of sound governance and long-term corporate goals.
We take great measures in this nation to safeguard our political elections. Still, our corporate elections are being compromised, with little attention paid to this unprecedented control over information and influence in how many large blocks of institutional votes are cast.
With the duopoly of Glass Lewis and ISS, corporate America’s elections have an undue foreign influence, little transparency about the proxy companies’ client lists, secret agendas and activist objectives, and a rejection of American founding principles in favor of European political fads.
Even worse, these proxy advisory companies are not required to disclose any potential conflicts of interest. ISS and Glass Lewis engage in de facto pay-to-play consulting; they charge companies for “consulting services” regarding how to appeal to their investors. ISS and Glass Lewis then make their voting recommendations based on the companies’ adherence to many of those same recommendations. Both companies assert that their consulting activities are separate from their recommendations. In the absence of transparency, however, investors cannot know if these companies require a consulting contract in exchange for favorable voting recommendations.
These outside companies, with no fiduciary obligation to the shareholders and without the shared values of American businesses, write up reports and make recommendations based on their own interests or their other clients’ interests, but without any accountability or transparency. This lack of responsibility and oversight is more alarming because a number of large institutional investors, such as pension funds and mutual funds, outsource their voting to follow the lead of these proxy advisory firms due to the sheer volume of corporate proxy votes that occur each year.
Rep. Bill Huizenga, Michigan Republican, has argued the same point, saying that these “proxy advisory firms have hijacked the shareholder process” and “really don’t answer to shareholders or act in a fiduciary manner.”
The activist investors pushing the agendas on which ISS and Glass Lewis offer unsolicited advice are subject to similarly minimal disclosure requirements.
Recent examples of high-profile proxy fights have been in the news, but the influence of ISS and Glass Lewis has received less attention than it deserves.
ISS and Glass Lewis supported opportunistic investor Nelson Peltz against Disney and its successful CEO Bob Iger. Disney ultimately prevailed, but only after spending a reported $60 million on the activist proxy fight. An ongoing battle is taking place at Masimo, one of the nation’s leading medical device companies, where ISS and Glass Lewis are attempting to replace Masimo CEO Joe Kiani with an unproven investor, Quentin Koffey, and his firm, Politan.
These types of proxy fights are expensive and counterproductive to the goals that investors and corporate leaders share. We wouldn’t accept this type of election interference in our political elections. And Americans shouldn’t accept this type of behavior in our corporate elections, either.
President Calvin Coolidge is credited with giving us corporate America’s favorite mission statement: “The business of America is business.” In this year’s corporate elections, the business of America’s shareholders is to ensure that our bedrock free enterprise values prevail. Stockholders should be active in corporate elections but wary of activist agendas being promoted by foreign investment advisers.
While we debate election integrity in our political elections, we shouldn’t lose sight of the need to apply the same high standards to our corporate elections.
• Ken Buck is a former congressman who served on the House Judiciary and Foreign Affairs committees.
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