Information Intermediary or De Facto Standard Setter? Field Evidence on the Indirect and Direct Influence of Proxy Advisors

In this Director Notes report, the authors describe research findings related to the influence of proxy advisors in US corporate governance. The authors find that boards feel, and sometimes yield to, pressure to conform to compensation practices recommended by proxy advisors despite their own preferred compensation philosophies, even in the absence of overt proxy advisor scrutiny or negative shareholder votes. They also find that proxy advisors are susceptible to conflicts of interest and generally use a one-size-fits-all approach to voting recommendations. Overall, however, such advisors are viewed as improving compensation practices by increasing transparency and accountability and fostering dialogue between firms and their shareholders.