Voting patterns in the US and the EU: a trend towards uniformity?

The voting record examined shows uniformity in the case of the US funds, while in the case of the EU funds such uniformity is much less evident. The main two explanations for uniformity in the US seem to be in the first place (see chapter ** above) that in the US the legislative framework gives more space to institutional investor to coordinate their voting policies and practices than in at least some EU Member States. The second possible explanation is related to the much wider recourse to voting advisors by US funds than in the EU. As observed by Gordon

Gilson (2006). 146

(2008),147 _{the importance of shareholder proposals in US corporate life is such as to} have elicited the development of a new market for governance service intermediaries. 14 of the funds surveyed by NAPF (2007) subscribe to voting reference agencies. The agencies most often subscribed to were RREV/ISS, which uses the NAPF's corporate governance policy (nine funds) and PIRC (five funds). Other reference agencies were Manifest and Glass Lewis. Of the 14 funds which subscribe to voting reference agencies, eight had at some stage chosen not to follow the agency's recommendation. Rothberg and Lilien (2006, p. 163) find that in the majority of the voting record by institutional investors they examine vote followed the advice received from voting advisors, in the first place ISS (now Proxinvest). This raises the question whether and to what extent the voting activism of the mutual fund industry (and possibly of other institutional investors) is influenced by a small group of voting advisors. In this respect, concern has been expressed recently by the influence of such intermediaries on inevstors’ voting policies and on the possible existence of conflicts of interest. In the US Proxy Voting Group (2006) raised attention to the multiple roles of such groups in advising both companies and investors, as well as exercising votes on shareholders’ behalf.

Examining the methodology disclosed by some of the main voting advisors, RiskMetrics (formerly ISS)148 _{offers analysis and voting recommendations based on} its benchmark policies and best practices in corporate governance. RiskMetrics requests periodical feedback from its clients on the benchmark policies and best practices to be considered. for a supplementary fee, RiskMetrics also provides client-specific custom analyses and recommendations based on policy guidelines provided or developed in collaboration with individual clients. The voting advice provided by Glass, Lewis & Co.149 _{to its clients focuses, among others, on such}

governance issues as mergers and acquisitions, equity-based compensation, the composition of the board of directors, director remuneration, and auditor issues. Manifest150_{offers three levels of service, from a best-practice governance and voting} policy to a personalized voting advisory service based on particular concerns funds may have and to a comparison with other funds’ voting policies. Proxinvest151 performs an analysis of the company and the resolutions submitted to a vote of the shareholders through an analytical grid in which more than 150 legal and financial criteria can be combined and applied to each proposed resolution. At the request of certain investors, Proxinvest also supplies raw data or assigned ratings in the corporate governance area for listed European companies. Egan Jones152 _provides its clients with voting recommendations based on two sets of voting guidelines so clients can choose whether shares should be voted with respect to Taft-Hartley concerns or whether overall shareholder value considerations should take precedence. Clients are also given the opportunity to review and override specific

P. 6. 148

I SS merged in 2001 with its competitor Proxy Monitor. I t has also acquired the research group I RRC and, outside the US, it took over Proxy Australia and, in Europe, the corporate governance division of Deminor (in 2005). I n the United Kingdom I SS has joined the forces with the Napf (National Association of Pension Funds) in 2003. Also as a result of this extensive acquisition campaign, I SS has become the dominant operator in its field. I n 2007 I SS was acquired by the RiskMetrics Group: http: / / www.riskmetrics.com/ issgovernance.html For more information See also Verdam (2006).

149 _{http:/ / www.glasslewis.com/ downloads/ overviews/ proxypaper.pdf Glass Lewis' clients include money} managers, mutual funds, hedge funds, public pension funds, labor union funds, SRI managers and religious pension funds.

150_{http:/ / www.manifest.co.uk/ services/ governance_watch.htm} 151

http:/ / www.proxinvest.com/ index.php/ fr/ page/ index.html 152

proxy vote recommendations. PROXY Governance153 _{takes into account several} factors, such as an individual company’s financial performance relative to its industry, its business environment, the strength of its management and corporate strategy, and the quality of its corporate governance. Proxy Governance also allows its clients to have proxies voted based on their own policies, through an automated voting platform.

The conclusion that seems to emerge in this respect is that the voting of institutional investors is a collective process worked out by the voting advice providers under the collective guidance of institutional investors that subscribe to their services and interact with their voting advisors, although such interaction differs according to the characteristics of the services offered by each proxy advisor. The recourse to voting advice providers is probably an important precondition to allow institutional investors to cast their votes at all the shareholder meetings of their portfolio shares.