Testimony in House Hearing: “Exposing the Proxy Advisory Cartel: How ISS & Glass Lewis Influence Markets”

Chairman Wagner, Ranking Member Sherman and members of the Subcommittee, thank you for the invitation to testify today. I appreciate the opportunity to share with you my observations on the significant influence of proxy advisory firms in corporate elections and the need to regulate these firms. These observations are based on my 25 years of practicing as a securities and corporate governance lawyer, including as a partner at Gibson, Dunn & Crutcher and as co-chair of the firm’s Securities Regulation and Corporate Governance practice group [1].

Proxy advisory firms play an important role, and have considerable influence, in the U.S. proxy system. That proxy system is relied on by public company shareholders and public companies alike. Shareholders rely on the proxy system to enable them to exercise their corporate voting rights, given that few shareholders actually vote during shareholder meetings. Instead, their views are represented at these meetings via the proxies they submit articulating how they would like their shares voted. Public companies rely on the proxy system to facilitate communications with shareholders and receive shareholder feedback on, and approval of, proposals addressing important governance and corporate matters. Moreover, shareholder approval of many of these matters is necessary to facilitate capital formation and foster long-term shareholder value, including electing directors who play an important role in overseeing implementation of corporate strategy, approving mergers and share issuances to fuel expansion and growth, and approving equity compensation plans that reward employees for positive corporate performance.

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