The role of proxy advisers in the exercise of shareholder rights has been critically examined by various parties for some time, not least because their influence on investors and thus on the voting results at annual general meetings (AGMs) has increased quite substantially. This also became obvious during the past AGM season, as numerous European companies saw their proposals rejected due to negative voting recommendations. For example, the largest proxy adviser, ISS, recommended that investors approve only a third of German compensation systems in 2017.

Two factors have influenced the increasing profile of proxy advisers. On the one hand, an increasing number of countries require institutional investors to exercise their voting rights. On the other, smaller and medium-sized financial intermediaries in particular do not have the resources and thus the expertise to analyse the voting resolutions of all of their holdings. Proxy advisers fill this gap by issuing voting recommendations on voting proposals. Investors mainly rely on the two largest proxy advisers, ISS and Glass Lewis. ISS alone is believed to have a market share of 70 percent. Together, both providers cover a market share of approximately 90 percent – and their share is even larger in the US.

Apr-Jun 2018 Issue