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December 02, 2005
PROXY Governance Diversifies Proxy Advisory Choice
by William Baue
The new proxy advisory firm expands options for fiduciaries.
SocialFunds.com --
Fall 2004--some nine months before the proxy advisory industry shrank when Institutional
Shareholder Services (ISS) swallowed its
competitor the Investor Responsibility Research Center (IRRC)--saw the birth of PROXY Governance, a
subsidiary of financial technology firm FOLIOfn. With the contraction of diversity in
the field, the addition of this new proxy advisory firm expands choice for fiduciaries seeking
recommendations for voting on shareholder resolutions on environmental, social, and governance
(ESG) issues, as well as other proxy issues.
 "We aim first to be very transparent and open
to dialogue, both with corporations and also with shareholder proponents," Jim Melican, president
of PROXY Governance. "We recognize that no group of people sitting in Tyson's Corner,
Virginia can be completely knowledgeable about the tremendous number of issues that come up every
proxy season."
"Because of the strict limitations inherent in the SEC's proxy rules and
the circumscribed content of a proxy statement, we know when we look at a shareholder proposal
we're really only seeing the tip of the iceberg--often a great deal of dialogue has occurred behind
the scenes, sometimes over several years," Mr. Melican told SocialFunds.com.
The best way
to understand the history of such dialogue, much of which is conducted by socially responsible
investment (SRI) shareholder advocates, is through dialogue with both resolution-filers and
the companies on the receiving end of resolutions.
"We're willing to dialogue, but we
don't make a commitment," says Mr. Melican, who met earlier this year with SRI firms and shareowner
activists including the Calvert Group,
the Interfaith Center on Corporate Responsibility (ICCR), and Ceres. It is unclear, however, if PROXY Governance has any
SRI clients, as the firm does not disclose its clients as a matter of policy. "We listen, and if
necessary review with our Policy Council before we make a final decision," explains Mr. Melican.
The Policy Council
was conceived and assembled by PROXY Governance founder and former SEC Commissioner Steve Wallman.
"At the SEC, he was
continually lobbied by competing interests that in many instances may have shared objectives but
painted themselves into opposite corners, so he deliberately filled the Policy Council with very
experienced people who could represent a wide variety of viewpoints," says Mr. Melican.
The Council runs the gamut from Scott Fenn, the former CEO of IRRC "who has been exposed to SRI
proposals for almost 20 years," according to Mr. Melican, to Dennis Beresford "who headed the Financial Accounting Standards Board during the
controversy over stock option expensing." At the opposite end of the spectrum is James Glassman, a
resident fellow of the American Enterprise Institute (AEI--which often critiques SRI) and co-founding host of Tech Central Station (a website that often
critiques option expensing.)
The primary goal of the Council, which oversees proxy
recommendations and decides on appeals, is to guard against conflicts of interest. While trying to
avoid undue influence, PROXY Governance also created a mechanism for responding to concerns
on both sides: 48 hours before issuing proxy voting recommendations, the advisory firm distributes
a draft of its report to corporate and investor clients, inviting both to comment.
"Even
when we don't change our recommendation because of their comments, we do print them as part of the
report to give as much information and competing viewpoints as possible," Mr. Melican points out.
On the technical side, the creation of the PROXY Governance electronic voting platform
benefited from the technological know-how of parent company FOLIOfn.
"With the
technical support of FOLIOfn, we were able to build a proxy voting system from the ground
up, without being hampered by a legacy system," says Mr. Melican.
PROXY
Governance's proxy recommendation service employs a company-specific approach, assessing the
issues not across the board but rather as they impact each individual company. For example, PROXY
Governance will not necessarily make the same recommendation on "boilerplate" resolutions on
the same issue filed at multiple companies without addressing firm-specific circumstances, but
rather will assess how the issue impacts each company.
Another key feature of its proxy
voting platform is the ability to individualize voting based on different guidelines.
"Clients can pre-populate a voting platform with their own guidelines or general guidelines,
for example adhering to the AFL-CIO
recommendations or to a set of SRI recommendations," says Mr. Melican.
PROXY
Governance hired Michael Price-Jones, who wrote his doctoral dissertation on the topic, to
examine SRI proxy voting guidelines to create a composite template for PROXY Governance.
©
SRI World Group, Inc. All Rights Reserved.
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