Yes to more Transparency on Consultancy Mandates of Proxy Advisors

 SIX Swiss Exchange has launched a consultation on a new provision of its Corporate Governance Directive. The consultation deals with the obligation of listed companies to publish the names of the proxy advisors to whom they have entrusted services other than proxy voting advice. In such a case, the fees paid to these proxy advisors must also be disclosed. Ethos (Swiss partner of ECGS) supports this new provision which aims at reigning in conflicts of interest of certain proxy advisors.

Ethos welcomes the proposal of SIX Swiss Exchange to enhance the transparency on mandates of proxy advisors other than voting advice. This additional information is crucial in allowing investors to take into consideration and assess potential conflicts of interest of proxy advisors in the course of their analyses and issuance of proxy voting advice.

Nonetheless, Ethos considers that it is insufficient to publish only the name of the proxy advisors and the amount of their fees as proposed by SIX Swiss Exchange in this consultation. For Ethos it is important that this information be completed with the publication of the type of mandates (for example, consultancy services regarding the remuneration system). In fact, investors must know which types of services were rendered by the proxy advisors in order to identify a potential conflict of interest. In this way, it is possible to know for which agenda items such a conflict of interest might possibly hinder the objectivity in judgement of the proxy advisor when formulating proxy voting advice.

Ethos goes a step further by taking the position that certain types of mandates are incompatible with the function of proxy advisor and should simply be prohibited. In fact, proxy advisors wield a large influence over shareholders by way of their proxy voting recommendations. This requires an irreproachable independence as regards the analysed companies. For example, a proxy advisor is faced with a major conflict of interest if he carries out a mandate regarding board composition or the remuneration policy, as he is also making proxy voting recommendations on these exact same subjects. By analogy, it is unthinkable that an auditor audits the financial statements that he himself has established.