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UK Corporate Update 

New guidance for proxy advisors to improve issuer-investor relations 

19 March 2014

New best practice principles for providers of shareholder voting research and analysis services have been published. Also known as proxy advisors, they review meeting notices, reports and accounts and other publications by listed companies and then report to shareholders on whether the companies comply with best practice. They play an important role in the dialogue between issuers and their investors. The new principles should promote higher standards, greater consistency and increased transparency for both investors, who rely on their research when making voting decisions, and issuers, who may now find it easier to engage with such advisors.

The principles

The principles have been prepared on behalf of a group of corporate governance research providers, the Best Practice Principles Group, following a recommendation by the European Securities and Markets Authority. They include the following recommendations.

  • Proxy advisors should publicly disclose their research methodology and, if applicable, house voting policies (such as the PIRC shareholder guidelines). The disclosure of house voting policies should include the extent to which local standards, guidelines and market practices are taken into account and the extent to which issuer explanations on deviations from comply-or-explain corporate governance codes are taken into account.
  • Proxy advisors should publicly disclose their policies for communication with issuers, shareholder proponents, other stakeholders, media and the public. The policy for dialogue with issuers, shareholders, other stakeholders and their advisors should include the circumstances under which such communication could occur; how proxy advisors verify the information used in their analysis; and whether issuers are provided with a mechanism to review research reports or data used to develop research reports prior to publication.
  • Shareholder voting research and analysis should be relevant, accurate and reviewed by appropriate personnel prior to publication.
  • Proxy advisors should ensure adequate verification (which may include issuer fact-checking).
  • The disclosure of research methodology should include the general approach that leads to the generation of research, the information sources used, the extent to which local conditions and customs are taken into account, the extent to which custom or house voting policies or guidelines may be applied and the systems and controls deployed to reasonably ensure the reliability of the use of information in the research process, and the limitations thereof.
  • Proxy advisors should publicly disclose a policy that details their procedures for addressing potential or actual conflicts of interest that may arise in connection with the provision of services.

Who is subject to the principles?

The principles operate on a comply-or-explain basis. Signatories to the principles should publish a link to a statement of compliance with the principles on the BPPG website and review it at least annually.

The BPPG will perform on-going monitoring of the implementation of the principles and will review the principles and guidance no later than two years following their launch. ESMA will perform a separate review of the implementation of the principles and their monitoring by the BPPG at the beginning of 2016.

Members of the BPPG, and the first signatories to the principles, are Glass, Lewis & Co, Institutional Shareholder Services Inc, IVOX GmbH, Manifest Information Services Ltd, PIRC Ltd and Proxinvest.

The Best Practice Principles for Shareholder Voting Research 2014 are available here.

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