Companies Push Back on Proxy Advisers

Public companies often ask their shareholders to vote on things. Sometimes these votes are symbolic, but the symbolism is nonetheless important. Shareholders are asked vote on approving executive compensation, for instance, in what is called a “say on pay” vote; if they vote no, the executives still get the money, but it is generally considered embarrassing and bad for the executives. Other times the votes are binding and high-stakes. An activist shareholder might run a proxy fight to replace the board of directors, or the company might propose a merger and ask shareholders to approve it. If the shareholders vote for the activist’s slate, the directors are out; if they vote against the merger, it doesn’t happen.

The traditional way for big institutional investors to decide how to vote was mostly that they’d do whatever the management of the company told them to do. The company would send a proxy statement saying “we recommend that you vote ‘Yes’ on our pay package” or whatever, and the shareholders would do it. This had some obvious justification: The managers knew the company better than the shareholders did, and deciding how to vote on every proposal would be a lot of work for a busy investor. Also investors want to be friendly with the managers of their portfolio companies: They want to be able to meet with the managers, ask questions, get a sense of corporate strategy and outlook. Also they might be competing for the managers as customers: Investment firms want to manage corporate cash piles and pensions and 401(ks), so they don’t want to alienate the managers.