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

Author

Listed:
  • Copland, James

    (Manhattan Institute)

  • Larcker, David F.

    (Stanford University)

  • Tayan, Brian

    (Stanford University)

Abstract

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?

Suggested Citation

  • Copland, James & Larcker, David F. & Tayan, Brian, 2018. "The Big Thumb on the Scale: An Overview of the Proxy Advisory Industry," Research Papers 3679, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3679
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    Cited by:

    1. Othar Kordsachia & Maximilian Focke & Patrick Velte, 2022. "Do sustainable institutional investors contribute to firms’ environmental performance? Empirical evidence from Europe," Review of Managerial Science, Springer, vol. 16(5), pages 1409-1436, July.
    2. Farizo, Joseph D., 2022. "(Black)Rock the vote: Index funds and opposition to management," Journal of Corporate Finance, Elsevier, vol. 76(C).
    3. Shu, Chong, 2024. "The proxy advisory industry: Influencing and being influenced," Journal of Financial Economics, Elsevier, vol. 154(C).
    4. Schneider, Julian, 2023. "Förderung der Transparenz oder Kosten für die Aktionäre? Beurteilung der Regulierung von Proxy Advisors anhand der U.S.-Marktreaktion [Promoting Transparency or Harming Shareholders? U.S. Market Re," Junior Management Science (JUMS), Junior Management Science e. V., vol. 8(1), pages 148-162.

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