A code of conduct for proxy advisors
Proxy advisors are firms that provide services to mainly institutional investors, advising them on how to exercise their voting rights as shareholders of listed companies. Their influence has increased in recent years and for this reason the securities market authorities are considering the advisability of regulating their activities.
The European Securities and Markets Authority (ESMA), which groups together the supervisory bodies of the securities markets of the different European Union Member States, has recently published its Final Report on possible alternatives for regulating the proxy advisory industry.
The ESMA has found no clear evidence of market failings in relation to the manner in which proxy advisors interact with investors and issuers, and, accordingly, it sees no justification for introducing binding measures. Nevertheless, it has identified several areas, mainly relating to transparency and disclosure, where greater understanding and assurance among the various stakeholders in terms of what they can expect from proxy advisors could be achieved.
With this in mind, the ESMA considers that the most appropriate approach at this point in time is to encourage the industry to develop its own Code of Conduct, for which purpose it outlines a series of principles that may serve as a guide. These principles focus on identifying, disclosing and managing conflicts of interest, and on promoting transparency in the provision of proxy advisory services. Lastly, the ESMA intends to review the development of the Code of Conduct in two years’ time and to reconsider its position if no substantial progress has been made.