The Big Thumb on the Scale: An Overview of The Proxy Advisory Industry

The Big Thumb on the Scale: An Overview of The Proxy Advisory Industry

By
James R. Copland, David F. Larcker, Brian Tayan
Stanford Closer Look Series. May
2018

Proxy advisory firms have significant influence over the voting decisions of institutional investors and the governance choices of publicly traded companies. However, it is not clear that the recommendations of these firms are correct and generally lead to better outcomes for companies and their shareholders. This Closer Look provides a comprehensive review of the proxy advisory industry and the influence of these firms on voting behavior, corporate choices, and outcomes, and it outlines potential reforms for the industry.

We ask:

  • How accurate are the voting recommendations of proxy advisory firms?
  • How influential are they over voting practices and corporate choices?
  • Should steps be taken to reduce their influence or improve the reliability of their recommendations?
  • Would greater transparency, back-testing, and regulation improve the market for their services?