Proxy Advisory CORPORATE

GOVERNANCE

Regulation SPRING ‘19

Timeline
1988 2003–2004 2013 2018
“Avon Letter” “No-Action” Letters to SEC Roundtable Withdrawal of “No-
Egan-Jones and ISS Action” Letters
SEC Roundtable

Investment Advisers Act of

1940 Rule 206(4)-6
amendment Concept Release SLB

2003 2010 2014

Relevant Statutes/Rules
•§ 14a-2(b)(3) of Securities Exchange Act of 1934
• Exempts from [majority of other rules] “the furnishing of proxy voting advice by any person (the
“advisor”) to any other person with whom the advisor has a business relationship, if; and…
• (i) the advisor renders financial advice in the ordinary course of his business
• (ii) discloses any significant relationship with registrant…
• (iii) receives no special commission or remuneration for furnishing the proxy voting advice from anyone other than the recipient…

•§ 206(4)-6 of the Investment Advisers Act of 1940

• If you are an investment adviser… it is a fraudulent, deceptive, or manipulative act, practice or course of
business within the meaning of section 206(4) for you to exercise voting authority with respect to client
securities, unless you
• Adopt and implement written policies and procedures that are reasonably designed to ensure that you vote client securities in the
best interest of clients
• Disclose to clients how they may obtain information from you…
• Describe to clients your proxy voting policies and procedures…
 Conflicts of Interest
Proxy Advisory
Firm Issues Transparency/Accuracy

Duopoly
Conflicts of Interest
•ISS
• Approximately 2,000 institutional clients, 44,000 meetings
covered, and 10.2M ballots/year

•ICS
• Supports 1300+ Clients with shareholder engagement,
disclosure, program execution and more

•Genstar Ownership (also OTPP & AIMco)

•Due Diligence Materials
• Conflicts Policy
 Conflicts of
Interest (cont.)
•QualityScore
• Over 200 factors are analyzed, with the
specific factors under analysis varying by
region.
• Each factor is assigned a weight, based on
an understanding of the impact of
governance practices, ISS voting policy,
and prevailing governance standards
within each region.
• Global comparability on core governance
factors enable investors to benchmark
core governance practices and risks for
companies across markets and regions.
• QualityScore + Board Structure,
Compensation/ Remuneration,
Shareholder Rights, and Audit & Risk
Oversight.
Lack of Transparency and Accuracy
•Reporting Conflicts of interest
•Accuracy in reports
•Time given to review reports
Proxy Firm
Duopoly
Proxy Firm
Influence
Possible Changes

H.R. 4015 SENATE BILL “SKIN IN THE FEE

GAME” DISCLOSURE
Conclusion
•Common idea to have proxy firms registered as investment advisers
•EU Code of Conduct