House Financial Services hearing examines influence and conflicts at proxy advisory firms

WASHINGTON — The House Financial Services Committee on Tuesday heard competing views on the role and regulation of proxy advisory firms, with industry groups and academics saying the firms exert outsized influence over shareholder votes and critics warning that heavy-handed new rules could stifle competition.

Lawmakers heard five witnesses over several hours who described the market dominated by Institutional Shareholder Services (ISS) and Glass Lewis and discussed pending litigation over an SEC rule aimed at governing proxy advice. None of the witnesses defended the firms’ practices uncritically, but they diverged sharply on causes and remedies.

The dispute centers on whether proxy advisors operate with problematic conflicts of interest, routinely make errors that affect votes, and enable “robo-voting” by institutional investors, or whether regulating the firms more tightly would erect barriers to competition and punish useful market services.

Charles Crane, Managing Vice President of Policy at the National Association of Manufacturers, told the committee that "proxy advisory firms have had a significant and damaging impact on manufacturers, manufacturing workers, and Main Street investors"…