Recently, a couple hundred publicly listed companies signed a petition asking the American SEC to limit the activities of shareholder services firms — also called “proxy advisors” — like Institutional Shareholder Services and Glass Lewis.
They cited the these firms’ influences, ulterior motives, and potential conflicts of interest could disqualify them from claiming to represent the interests of individual shareholders.
Of course, this would mean that their influences and conflicts of interest would have to face far less scrutiny, which I suspect is their ulterior motive.
Here’s the deal: individual shareholders face limits to what they can learn and act upon when it comes to company oversight. They’re owners, after all, but the machinations of company operations are hidden behind accounting rules and terminology that can seem written by a Nazi Enigma code engine.
Also, as individuals, their voting authority is thereby circumscribed, so none but the largest shareholders can hope to effect change in company oversight. He who has the most shares has the loudest voice, so pension funds and other institutional interests — or outright zillionaire owners — get heard first and most.
They may or may not have the same concerns, or morals, as said individual owners.
Enter shareholder services firms.
Proxy advisors have the time, expertise, and resources to research governance issues and tee-up recommended changes, and then allow individuals to join them…bu adding their minuscule ownership shares with those of other like-minded investors, they can build a voting block large enough to garner company attention, if not fealty.
The argument against these efforts is meritless.
Shareholder services firms publish their agendas and due diligence on issues. More importantly, they couldn’t compel investor participation if they tried.
So, if Company X insists on employing only aged white men on its board of directors, a services firm might suggest it’s not conducive to successful or inclusive long-term decision making. Those pension funds might care only about next quarter’s profits, and company management might think that directors who look just like them are simply peachy.
And the problem is with proxy advisors? It’s worse than that, actually.
There’s a general trend underway that is moving companies to have less transparency with the outside world, starting with tech businesses funded by private equity so they have no obviation to reveal to the world much of, well, anything about their operations or ability to make money. They can rely instead on glowing stories in tech media that portray them as “disruptive category killers,” so when they choose to go public there’s a long line of hapless individual investors ready to throw their money against those unsubstantiated dreams.
Then there are publicly listed tech firms that decide quite arbitrarily to report some numbers and ignore others, like Apple did when it recently decided to stop revealing how many iPhones it sells. Worse, some companies invent metrics, like Facebook’s new use of “family metrics” and Twitter reporting “monetisable daily active users” instead of simply stating how many active users it has.
Even old school retailers are jumping on the obfuscation train, deciding to stop disclosing month-over-month comparable store sales because they can’t reveal the actual run-rate or health of the business since the world has changed because of digital blah blah so…well, there yah go, less transparency.
The truth is that there’s no public outcry for less visibility into the operation of companies, especially those in the tech space. Rather, we all want to know more, and the idea that all of these businesses are running away from disclosure is troubling.
I suspect the only advocates for less transparency are those business operators with something to hide.
[This essay originally appeared as a podcast at The Brand Populist]