Regulating Proxy Advisors Through Transparency: Pros and Cons of the EU Approach

Balp Gaia
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Balp Gaia: Assistant Professor of Business Law, Università Bocconi, Milan. Email: gaia.balp@unibocconi.it. A preliminary version of this article has been presented at the 7th annual conference of the Italian Association of Business Law Professors, Università Roma Tre, 26 February 2016. I wish to thank Prof. Giuseppe Guizzi, Prof. Marco Maugeri, and the anonymous referees for their helpful comments and suggestions. The usual disclaimer applies.Italy

European Company and Financial Law Review, 2017, vol. 14, issue 1, 1-36

Abstract: This article outlines potential pros and cons of a future European regulation of proxy advisory firms, as set forth in the Commission’s Proposal for a Directive amending Directive 2007/36/EC. After summarizing criticisms concerning the proxy advisory industry, and findings regarding its de facto influence on investors’ voting conduct both in the US and in the European context, the article adverts to why the power of proxy advisors appears to be overestimated. Uncertainty on the status quo of the industry’s actual impact on key decisions in listed companies, as well as costs associated with a regulation, need to be considered for assessing the suitability of the rules drafted to ensure adequate levels of independence and quality of voting recommendations. While transparency rules may be preferred to stricter legal constraints or requirements in a first stage, possible shortcomings of the Draft Directive exist that may undermine its effectiveness. Analyzing the amendments to the Proposal adopted by the European Parliament, and the Council’s Presidency compromise text, may suggest a preferable approach as regards single rules still making their way through the European legislative process.

Date: 2017
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DOI: 10.1515/ecfr-2017-0001

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