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Unpublished Paper
Whatever Happened to the Prudent Man? The Case for Limiting the Influence of Proxy Advisors through Fiduciary Duty Law
ExpressO (2012)
  • Jodi Slaght, Marquette University
Abstract

Proxy advisors are third-party consultants that charge investment advisers for advice about specific companies, and provide “for” or “against” recommendations on shareholder voting issues. Currently, proxy advisors are not regulated by the SEC or any other government agency. At least one commentator has noted that the influence of proxy advisors is so substantial that it “cannot be overstated.” Additionally, proxy advisors are not required to disclose the methodologies used to render their recommendations.

The influence and lack of accountability of proxy advisors has become a cause for concern. In response, the SEC issued a concept release in 2010 addressing possible regulation of proxy advisors. Several institutions, academics, and investors have responded to the SEC’s request for comment, generally advocating either (1) that proxy advisors register with the SEC under the Investment Advisers Act of 1940, or (2) that the SEC promulgate rules to regulate proxy advisors that are similar to the current rules regulating credit ratings agencies. This article takes a critical look at these proposals and argues that neither approach would provide the needed oversight. A better solution would be to modify existing SEC commentary so as to strengthen the fiduciary duties of investment advisers, clarifying that they cannot avoid liability for carelessness and conflicts of interest merely by reflexively adopting the advice of proxy advisors.

Keywords
  • proxy advisors,
  • SEC
Disciplines
Publication Date
March 23, 2012
Citation Information
Jodi Slaght. "Whatever Happened to the Prudent Man? The Case for Limiting the Influence of Proxy Advisors through Fiduciary Duty Law" ExpressO (2012)
Available at: http://works.bepress.com/jodi_slaght/1/