An Exploration of the Role of Proxy Advisors in Proxy Voting

Proxy advisors advise institutional investors on how to vote as shareholder in the companies of which shares are held in their investment portfolio. Proxy advisors have a great deal of influence. Their voting recommendations have an impact on the decisions of companies. This paper focuses on the phenomenon of proxy advisors in more detail, and on Institutional Shareholder Services (ISS) in particular. The paper looks at their influence, various aspects of their working methods and their transparency, as well as discusses questions about the conflicts of interest that present themselves in this connection. Furthermore it discusses the applicable legislation and regulations as well as the question whether the level playing field of proxy advisors and their influence are a desirable situation. Questions that need to be addressed are not only about the concentration of 'voting power' and conflicts of interest. They also concern the desirability of the shift of the influence of institutional investors to proxy advisors as a kind of 'external agencies' which are distanced from both their clients and the companies they advise on, and the way in which they arrive at their advice