Modernizing the Proxy Process for Public Companies
The current U.S. proxy system, which was developed in the 1980s, is complicated and multi-faceted, involving several layers of intermediaries who are not the economic owners of the shares. This system makes efficient communication with shareholders and verification of accurate shareholder vote counts difficult. In addition, the system does not take advantage of technological advancements, such as Internet voting and blockchain technology, that could make direct communications more feasible and potentially revolutionize the entire proxy process. Further, to increase retail shareholder participation, the U.S. proxy process should be modernized to encourage active and ongoing communications with retail investors.
Effective communication with shareholders is a critical element of the operation of today’s public company, indicated by the increase in S&P 500 companies reporting shareholder engagement since the 2010 concept release – up from 6 percent in 2010 to 72 percent in 2017. The importance of constructive shareholder engagement drives the need for a shareholder proposal process that is robust, productive and oriented toward long-term value creation for all shareholders. While Rule 14a-8 remains an important avenue of shareholder communication, the process is outdated and in need of modernization.
Proxy Advisory Firms
Based on changes to regulations and investor composition, proxy advisory firms have come to wield enormous influence over shareholder voting at public companies. Academic studies suggest that management action against a recommendation from a proxy advisory firm is associated with a reduction in the favorable vote count by 10 percent to 30 percent. Despite the heavily concentrated market in which they operate and the significant influence they have, proxy advisory firms are currently subject to little oversight or accountability. Business Roundtable supports reforms that will improve the transparency and accountability of the proxy advisory process.