ESMA review of proxy advisers’ best practice principles


The European Securities and Markets Authority has published a call for evidence on the impact of best practice principles for providers of shareholder voting research and analysis.


In recent years regulators within the UK and the EU have been concerned that the use of proxy advisers may interfere with the stewardship of companies by investors. To address this issue, the Principles were published in March 2014 by a group of corporate governance research providers, including, within the UK, PIRC and Manifest and also the US firms of Glass, Lewis & Co and ISS.

ESMA review

The ESMA review aims to gather information on how stakeholders perceive voting processes to have evolved since the Principles were published and also to assess how new trends or changes in proxy advisers' approaches have developed. Changes will be assessed with regard to how far the Principles address the issues identified by ESMA in its Final Report on the role of the proxy advisory industry, published in 2013. ESMA will also consider the extent to which compliance statements published by signatories to the Principles comply with ESMA's report and the actual practice of signatories since implementation of the Principles.

There are a number of questions, some of which are of general relevance, and others which are aimed specifically at separate groups, including proxy advisers, investors and issuers. Questions for issuers include whether the Principles have improved proxy advisors' procedures for managing and disclosing conflicts of interest and whether they have helped to clarify the way in which proxy advisors work and how they obtain information. Issuers are also asked for information about whether the Principles have enhanced the awareness of proxy advisors with regard to the local markets and legal and regulatory conditions to which companies are subject.

Our review of the AGM season so far in 2015 indicates that a number of companies remain dissatisfied with the extent to which certain proxy advisers engage with companies about negative voting recommendations. Companies are also unhappy about certain proxy advisers submitting "against" votes on behalf of investors where investors who wish to support or abstain from a vote have difficulty in overriding the vote cast.

Next steps

Responses to the consultation should be submitted by 27 July 2015. ESMA intends to publish the final results of this review at the end of this year. A copy of the Call for Evidence is available here.