Gustavo Ballvé on June 7th, 2013
Corporate Governance, Food for thought, Home, Portfolio Management, Risk management

I’ve just read a Stanford paper on the decision-making process of Proxy Advisory firms (PDF) such as ISS and Glass Lewis. I will write more in-depth about this in the future, but I wanted to highlight the paper and a few Buysiders.com posts on the subject. In summary, this paper highlights the dangers of “outsourcing research” – be it in Corporate Governance, people, financials, business models, competition, whatever – and the temptation of trying to systematize/quantify an investigation that is, by nature, subjective and case by case. The paper itself falls into to some of these traps and fails to mention that one of the drivers for investors to hire/consult with proxy advisory firms is “institutional imperative” and/or “CYA“…

Besides reading the other Stanford Closer Look Series papers on the issue, I list previous Buysiders.com posts below:

– It’s not the first time that Stanford professors write skeptically about proxy advisory firms (Sept 2012)

CG Norway-style, or “can you really be focused on CG when you hold 7,000 equity stakes in your portfolio?” (Feb 2013)

– Beware of checklists and trying to create algorithms for something “fluffy” by nature (Dec 2011 and March 2010)

– Of course, not all checklists are dumb by a long shot (Jan 2011)

– In the absence of fail-proof “systems” for CG, remember that “it’s the people, stupid!” (Aug 2011).

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