The issue of proxy advisors is one of the most controversial issues in the financial markets industry. There are three sides to a business relationship where a proxy advisory firm is involved — investors, companies and the proxy advisory firm. Each party plays a distinct role in the relationship and the relationships between them create a complex web.

What Is a Proxy Advisory Firm and What Do They Do?

Institutional investors manage financial products like pension funds and sovereign wealth funds, so they typically hold thousands of shares of stock in listed companies. This gives them the right to vote their shares at general meetings.

With so many companies involved in the process, it’s impossible for institutional investors to be as knowledgeable as they’d like to be at the time of the annual general meetings where they’re allowed – and expected – to vote. The solution is to outsource that right and responsibility to a proxy advisory firm that has already done all the necessary research and analysis. The two main proxy advisory firms are Institutional Shareholder Services (ISS) and Glass Lewis.

The proxy advisor’s role is to review the proposals for each company’s annual general meeting and to prepare recommendations on how investors should vote on each item. Proxy advisory firms prepare reports and sell them to various clients who own shares listed in their report.

Large shareholders rely heavily on the reports that proxy advisory firms provide. Because proxy advisors provide information to so many investors, it places them in a position where they indirectly control a large percentage of the shareholder vote.

Proxy Advisory Firms Welcome Opportunities to Communicate with Companies

Often, companies hold the impression that representatives from proxy advisory firms aren’t interested in meeting with them or hearing what they have to say. The reality is that most proxy advisors are happy to meet with companies because it gives them a welcome break from the tedious work of dealing with numbers, statistics and formulas all day.

If you put yourself into the shoes of a proxy advisor, you can believe that you’d spend your days reading annual reports and proxy statements. All day long, either you’re looking for data, dealing with it in some capacity or putting data into the system.

Getting to go out to visit a company gives proxy advisors a chance to get better acquainted and to learn more about the company. The same is true even when it’s a telephone chat. The analyst’s contact information is right on the proxy paper that they draft. Despite any rumors to the contrary, they’re usually happy to get a call or an email request to set up a time to talk.

Proxy solicitors sometimes set up such meetings, but you don’t really need an intermediary.

How to Engage with Proxy Advisors

There is any number of ways that companies can approach a meeting with a proxy advisor. They can set up a big presentation and invite important people. That might not be the best way to get the relationship off on the right foot.

It’s often better to start the relationship on a softer note. The initial tone of the meeting will likely set the stage for the rest of the interactions. Just call and set up a time to have a conversation in person or on the phone.

As in any relationship, the first time it’s best to put most of the focus on them. Ask them about the things they care about. Initiate a conversation about their policies or about trends in the marketplace. Do they have any comments or opinions on executive compensation plans? Find out if there’s anything that you can do to make their job easier. Proxy advisors just want to know that companies understand their situation and their perspectives. These are the types of questions that will be the beginning of a long and trusting relationship.

Who Make the Best Company Representatives for Meetings with Proxy Advisors?

One thing that’s very important to consider when setting up a meeting with proxy advisors is who should represent the company. There’s no hard-and-fast rule here, but it’s important to pick one or two people who will be able to keep things productive.

The first thought might be that executives and non-executive directors make the best choices. But consider the difference in power between a high-powered executive and a financial analyst. It might even be a financial analyst who’s barely out of college. In this situation, the analyst may be too intimidated to connect, and there could be too much of a power differential for the meeting to be productive. With executives coming from a strategic standpoint and analysts coming from an investment standpoint, it may be difficult to get a meaningful conversation going.

Similarly, if a company decides that someone from the legal team should participate, lawyers may not know enough about the issues that bring investment advisers and proxy advisors together.

Meetings may tend to go better if the first meeting is with the company’s executive compensation team. They’ll be better equipped to answer the analyst’s questions and provide valuable feedback.

Tips on Timing

Proxy advisors have a busy season, which is usually from December to May. Schedule your meeting during the off-season. Autumn is perhaps the best time for a meeting. This is the time of year that they’re working on voting policies and collecting data for rating purposes. A telephone meeting can provide a welcome mental break during a mentally taxing workday.

An annual call to your proxy advisor will usually yield great results. A meeting will allow you to share ideas about changes in the company and ask for feedback before you implement them. You’ll also get the latest scoop on the latest trends in governance. When you invest in Diligent’s board management software, you can share what you know about modern governance trends by sharing information from Diligent Insights.

You may be a bit hesitant to set up that first meeting if you haven’t done it in the past. Remember that your request for a meeting will most likely be received positively. The icing on the cake is that if trouble surfaces down the line, you will have made an ally.