Finance Webinar（2020-25)

Topic: The Proxy Advisory Industry: Influencing and Being Influenced

Speaker: Chong Shu, Marshall School of Business, University of Southern California

Time: Friday, 25 December,10:00-11:30 AM Beijing Time

Location: Microsoft Teams Online Conference Room

Abstract:

Mutual funds rely on recommendations from proxy advisors when voting in corporate elections. Proxy advisors’ influence has been a source of controversy, but it is difficult to study because information linking funds to their advisors is not publicly available. A key innovation of this paper is to show how fund-advisor links can be inferred from previously unnoticed features of a fund’s SEC filings. Using this method to infer links, I establish several novel facts about the proxy advisory industry. During 2007-2017, the market share of the two largest proxy advisory firms has declined slightly from 96.5 percent to 91 percent, with Institutional Shareholder Services (ISS) controlling 63 percent of the market and Glass Lewis 28 percent in the most recent year. A large fraction of ISS customers appear to have robo-voted – followed ISS’s recommendations in over 99.9 percent of contentious proposals – rising from 5 percent in 2007 to 23 percent in 2017, while almost none of Glass Lewis’ customers have robo-voted. Negative recommendations from ISS or Glass Lewis reduce their customers’ votes by over 20 percent in director elections and say-on-pay proposals. Finally, proxy advisors cater to investors’ preferences, adjusting their recommendations to align with fund preferences independent of whether those adjustments lead to recommendations that maximize firm value.

Introduction:

Chong Shu isa Ph.D. candidate in finance at USC Marshall School of Business. His research interest includes corporate finance, corporate governance, and financial intermediation (both theoretical and empirical). His current research projects involve (i) financial networks and systemic stability, and (ii) the competitive landscape of the proxy advisory industry, proxy advisors' influence, how their advice is determined.

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