Proxy advisers under scrutiny

There is concern about the amount of influence proxy advisers have over Australian financial institutions when voting in the meetings of the public companies they invest in, but institutions are still better off with that advice than without it, according to AMP Capital Investors.

A significant number of Australian institutions subscribe to the services of either or both of the two main proxy advisers, ISS (Riskmetrics) and CGI-Glass Lewis, according to AMP Capital Investors’ 2010 Corporate Governance Report.

For many shareholders, proxy voting is the only way to communicate with the public companies in which they invest, according to AMP Capital Investors director of sustainable funds, Michael Anderson (pictured).

For shareholders who don’t have the resources to do their own in-depth analysis, proxy advisers can help inform investors on issues such as board composition, executive pay and company-changing transactions, Anderson said.

Proxy advisers are sometimes criticised for the quality of their research and the extent of their influence, which comes about because the votes of such a large quantity of funds under management are influenced by two companies, the report stated.

But AMP Capital believes the standard of proxy research in Australia to be high, and says that conflicts of interest are rare because Australian advisers do not generally provide corporate advice to the companies they report on.

Institutional shareholders have a fiduciary duty to clients to protect their clients’ interests through identifying governance risks and lodging considered votes at company meetings, the report stated.

Proxy advisers support this activity by providing research and voting recommendations that identify potential issues of concern, meaning investors are better off with proxy advisers provided the research is used thoughtfully, the report concluded.