In modern stock market origins, the number of minority shareholders has been at a distinct disadvantage relative to the power of boards of directors. Unable to attend meetings or analyze multiple proposals, his vote did not matter. It was in this context … Proxy advisors emerged, which are firms that advise institutional investors on how to vote at meetings. For many years they have performed a useful function: democratizing access to information. But today his role is under greater scrutiny.
Delegated and recommended voting has become a highly concentrated, opaque and poorly regulated industry. As Nasdaq director John Zika recently warned in the Wall Street Journal, “The current process has diluted true investor engagement, drained the company’s resources, and served as a drag rather than a bridge to shareholder commitment.”
The main problem is the disproportionate influence of a handful of global companies, such as ISS and Glass Lewis, which advise on thousands of votes without having to justify their recommendations or correct their errors. Their reports, often prepared with little interaction with companies, are almost automatically adopted by many fund managers, for reasons of operational efficiency. This results in key decisions – remuneration, appointments or climate policies – remaining in the hands of advisers who have their own agendas, disconnected from the real interests of shareholders.
Given this imbalance, the US Congress has proposed legislation that would require proxy advisors to register with the SEC, disclose conflicts of interest, and allow companies the right to rectification. But outside the American context, the discussion has also gained strength in Europe, where the approach has been different until now. Instead of imposing strict regulation, we chose self-regulation and transparency principles, as stated in the document Directive (EU) 2017/828, transposed into Spanish legislation by Law 5/2021. This regulation obliges voting consultants to declare their policy of participation and transparency, although it leaves a wide margin to act without sanctions or external verification.
In Spain, proxy advisors have historically had less influence due to the greater weight of stable shareholders. However, its presence is increasing due to the increasing internationalization of capital. Founded in 2017, Corporance Asesores de Voto is the first Spanish proxy council. It is linked to the British company Minerva, and is trying to present a local vision against the global duopoly.
Various reports, such as the report prepared by a team of experts at the request of the National Council of the Securities Market, have pointed out shortcomings in the work of these actors: standards poorly adapted to the national legal framework, lack of dialogue with companies and the possibility of conflicts of interest when providing services at the same time to issuers and investors. Added to this is the limited ability to respond on the part of listed companies, which are often forced to accept unfavorable reports without any real possibility of responding.
European self-regulation, based on a set of best practice principles, attempts to mitigate these risks through principles of transparency and accountability, but its application is neither uniform nor binding. Compared to the United States, where the SEC has opened numerous investigations, Europe continues to rely on the good faith of companies.
In Spain, the transfer of the Directive has introduced some useful tools: shareholder identification rights, the promotion of long-term participation, and measures to improve transparency in related party transactions. But the role of acting advisors remains ambiguous. Law 5/2021 recognizes it, but does not strictly regulate it. As of today, no specific licensing or external oversight mechanisms are required from these entities.
Added to this scenario is another growing problem: small shareholder activism. In the United States, many board proposals come from shareholders with few stakes, But great media capacity. In 2024, only 25% of these initiatives received significant support, but they consumed board time and resources. In Europe, this phenomenon has also taken hold, especially with regard to environmental, social and governance issues, which often divide rather than unite.
The solution is not to exclude proxy advisers, whose function can still be useful in a fragmented market, but to set clear, transparent and proportionate rules. It is urgent to promote competition, demand verifiable quality standards, enhance dialogue with issuers and, above all, align advice with the interests of owners.
Good corporate governance cannot rely on automation or vague mandates. If Europe aspires to maintain efficient capital markets, it must move from token self-regulation to demanding supervision. Because when brokers replace the real owners, what is at stake is not just the vote, but the legitimacy of the listed company.