My only disagreement with yesterday’s Wall Street Journal’s editorial blasting proxy advisors is that the paper doesn’t go far enough in denouncing what an abysmal racket the proxy advisory business is in the first place. And it is a racket. The whole rationale for proxy advisors, recall, is that money managers can at times have conflicts of interest in deciding how to vote corporate proxies. On the one hand, they are duty-bound to vote on behalf of their investors’ interest; on the other, managers may have other business relationships with the company in question they don’t want to risk disrupting. Independent advisors like Glass Lewis and ISS, the thinking goes, provide “independent” recommendations that help ensure managers vote the right way.
Baloney. First off, as the Journal points out, advisors have their own conflicts of interest to consider, which can often be much more glaring than anything the typical mutual fund manager has to worry about. (ISS sells governance consulting services to some public companies, for instance.)
But more to the point, the simple fact is that commercial life is full of conflicts of interest-most of which, truth be told, are much more critical than what might arise in the process of proxy voting. Trust me on this. I’ve voted hundreds of proxies on behalf of my investors over the years and, in the vast majority of cases, there’s simply no conflict of interest I’ve had to worry about. (Compare that with the various interests-between investors and customers, say-a company has to balance when it goes through the basic process of pricing a product. Where are the independent pricing advisors there?) In the end, I do what I think is best for my investors. I suspect that’s what most money managers do.
Which gets me to the real point about why the proxy advisory scam is such an abomination. When an investor hires a money manager, what he’s hiring above all is the manager’s integrity and independence of judgment. That, at bottom, is the source of superior investment returns. If you don’t trust a manager to look after your interest in proxy voting, then by all means don’t give him your money in the first place. Maintaining the integrity of corporate democracy would be the least of your worries.
Besides, any notion that there is a right and a wrong answer to most of the questions put before shareholders is ludicrous. On most issues, reasonable people can disagree, notwithstanding what proxy advisors might have to say. Investors should pick managers they believe are honest and capable-and then trust them to do the right thing.
What do you think? Let me know!