The Influence of Proxy Advisors on Australian Corporate Law Reform

Corporate Law Reform, Volume 7, 20 May 2011

51 Pages Posted: 10 Dec 2012

See all articles by Kym Sheehan

Kym Sheehan

The University of Sydney Law School

Date Written: 2011

Abstract

Much of the commentary on the influence of proxy advisors focuses upon their voting recommendations. The business media focuses on contentious resolutions; the academic literature on proxy advisors to date follows two separate lines of inquiry: whether proxy advisor recommendations influence the outcome of resolutions at company meetings; or whether proxy advisor ‘scores’ of corporate governance factors are linked with strong company performance. While this role is obviously the key activity of proxy advisors, it is not the only way in which they exert influence over corporate governance.

Another important role that proxy advisors play is that of agenda setting through their activities in relation to law reform in the area of corporate governance. This paper presents the findings of an empirical study of the influence of proxy advisors on corporate law reform initiatives in Australia. Drawing upon Julia Black’s concept of regulatory conversations and deploying a modified version of the methodology used by Karin Jonnergård and Ulf Larrsson in their 2007 study of the influence of various parties on the development of the Swedish Corporate Governance Code (Law and Policy 29: 460-492), the paper examines whether proxy advisor voices were listened to in five different law reform settings relating to executive remuneration or shareholder rights over the period 2008-2009.

Selecting one or two issues from each of the five different law reform opportunities, together with a selection of submissions classified by respondent types (proxy advisory firms, shareholder organisations, management organisations, professional corporate advisors, lawyers, accountants, corporate governance advisors and remuneration consultants), I examined whether the proxy advisors’ voices were ‘listened to’ by analysing the responses and the ultimate recommendations made by the law reform body. Tabular findings of these results are included in the paper.

The paper concludes that evidence of proxy advisor influence over corporate governance law reform is mixed. In part this reflects the differing nature of the law reform processes. Some of the initiatives were consulting on draft legislation, where the policy position is clear. In such instances, the proxy advisors were surprisingly influential, even thought their submissions frequently lacked the more technical commentary found in other submissions, particularly those from experts. Other law reform opportunities had more open terms of reference, creating the opportunity for agenda setting. At the time where the terms of reference were open, there is evidence to support the role of proxy advisors as agenda setters. However, when the inquiry had a preferred policy position, the influence of proxy advisors was more muted.

The implications of this research are three-fold. Firstly, it confirms that proxy advisor influence over corporate governance extends beyond their more routine voting recommendation functions towards an agenda setting role. Secondly, it highlights the different ways in which proxy advisors cast themselves as experts. Thirdly, it also highlights the way in which different law reform processes allow for voices to be truly listened to, not merely heard.

This paper was originally presented at the Law and Society 2011 Annual Conference in San Francisco.

Keywords: proxy advisors, corporate law reform, Australian corporate law reform, executive compensation, two strikes rule, say on pay, regulatory conversations

JEL Classification: G30, G38, K22

Suggested Citation

Sheehan, Kym Maree, The Influence of Proxy Advisors on Australian Corporate Law Reform (2011). Corporate Law Reform, Volume 7, 20 May 2011, Available at SSRN: https://ssrn.com/abstract=2187537

Kym Maree Sheehan (Contact Author)

The University of Sydney Law School ( email )

New Law Building, F10
The University of Sydney
Sydney, NSW 2006
Australia
61 2 8627 4660 (Phone)

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