Fishy Corporate Proxy Advisors – No Safe Bets

Alright, So I talked about how the institution, system, and framework of Corporate Proxy voting is an entire scam. I’m now going to dive into one of the avenues for ballot harvesting or buying votes.

You see, if you buy a share, you (in theory), get a vote.

So the amount of money you spend to buy a share is proportionally to your voting power.

That is called a ‘radical democracy’. I don’t know why it’s called that, I didn’t make up the word. Someone else did.

Well, on top of buying votes, you can also rub your elbows with people who fudge numbers to vote your way. We call this a conflict of interest, but it’s only a conflict if you’re not in on the interest. That’s how interest works, and if I was corrupt (I am, but not in the same way), I’d be interested too.

Introducing;

Proxy Advisors

Proxy Advisors are companies that provide number crunching, data, analytics, and a bunch of pseudo-numerology and made-up statistics.

These numbers are then used to show clients what the ‘optimal’ vote should be.

You know, like an advisor that tells you voting for Chuck A is better than Betty B, and that you’ll make more money or something.

Now, these Proxy advisor make money from basically consultation.

But what if they made money from selling bad consultation?

By bad, I mean skewed in favor of money that someone else is paying for.

Why would you use Proxy Advisors?

Well, this is mainly for passive investors. Big institutions that own a shit-ton of investments and don’t have the time to really dig into the weeds on all their investments. Simply, these investors are passive and want a more active ‘feeling’ role in corporate governance.

So instead, these Fund managers, Passive funds, Big institutions, and Passive investors actually pay someone else to tell them how to vote. Yea, they hire advisors to show some graphs and give some reasons to tell the passive investors how to cast their vote.

Yea, they literally pay someone to tell them how to vote.

They could be paying me instead, I can easily make up numbers and tell someone how to vote. tsk tsk*

Some examples of Proxy Advisors

By ‘some’ I mean two.

Turns out, there is a duopoly of the Proxy Advisor service market owned in majority by two companies.

That’s Glass Lewis and ISS.

Sure, there are other Proxy Advisor services, but obviously they are small and don’t do well with a competition of 3% of the market not owned by the bonafide duopoly.

That’s not a big issue, but the point is, it’s some how profitable enough and a venture worth owning a large lion’s share of the market.

It makes you think, is there money to be made in Proxy Advisory Directly? Or is it an investment as a sort of insurance to make money from Proxy Advisory Indirectly?

Come on man,
you really think telling people how to vote
would be a market that’s owned by two companies?


In the reports,

Possible Conflicts of Interest

Both by Columbia and GAO, the reports pose that ISS has a potential conflict of interest.

ISS has a sub group called ICS which provides corporate consultation.

ICS provides voting advice for Companies that are invested. Basically consulting Companies on what they should do. Providing proposals.

ISS provides voting advice for Investors, to vote on what proposals the company should take. Voting to essentially allow the company to enact the proposals.

Think, Legislative branch and Executive branch, if that makes sense.

Sounds like a conflict of interest.

In theory, if the Company were to not use ICS or follow the recommendations of ICS, then ISS could vote against the company thereby instituting people that will better likely listen to ICS.

Of course, that just depends on what ICS wants and whose paying ICS. (outside interests and investors)

So there is this sort of implied threat to listen to the consultation being provided.

-Better listen to how we want to run things or else. . .

Of course, this conflict of interest is all theoretical and implied,

Just like the idea of ICS having an implication and implicating themselves with ISS being the fact that the “I” in ICS literally stands for ISS. Kinda of makes one think, huh. ISS stands for ‘Institutional Shareholder Services’, and ICS stands for ‘ICS Corporate Solutions’.

Of course if a company says ‘no’ then nothing happens. But they’re not going to say “no” because of the implication.

Here’s the report’s words;

So the ICS can give some ratings that require the client company to vote one way. If they don’t follow ICS ratings, then the ISS can say that the Company isn’t being optimal in performance and vote against the direction of the Company.

Or they can all piggy back off eachother and everyone gets a share buy back and the board members get richer. You know, typical.

ICS and ISS say they have a firewall that separates ICS and ISS, but it’s not clear what that means and how effective that ‘firewall is’.

“we investigated and structured ourselves to avoid conflict of interests and we find ourselves innocent”-paraphrased version of what someone could say

So what I’m saying is,

Someone pays Proxy Advisors for the turnout of elections to happen one way.

Proxy Advisors advise a bunch of institutions, large funds, and passive investors to vote one way.

Proxy Advisors collect cash from their bought out interests, and the people they advise.

That’s basically the issue.


ESG and bunk ratings,

So there is this industry term that’s made up, it’s called ESG and it gauges companies based on Environmental, Social, and (Corporate) Governance impacts.

ESG ratings play a role into data analytics and Proxy Advisors recommendations and vote.

What you may not know is that ESG is a bunk rating and used as a casus to vote or lean directions of corporate response.

Things don’t have to make the world a better place, but the ratings can point to a shit future for the company, and that can be used as an underlying reason to vote a certain way.

The big takeaway is that ESG is bunk and is a part of the bunk inputs going into the underwriting to vote a certain way, meaning Proxy advisors can just make up anything and decide how they want to vote. Which they could do that before, it’s just better when you assign fictitious values that sounds socially justice-like, that way you sound like an asshole if you disagree of ignore ESG.

ESG is a scam, duh.

And ESG and racial diversity are among the things Proxy Advisors like ISS evaluate voting decisions, (as a reminder, the G in ESG is corporate governance. So having this be weighed in by outside third party proxy advisors, means ESG is fucked)

ESG and racial diversity is used to determine if the board members are a good fit.

You know, that sounds pretty fucking bad, and racist. First off, you should vote board members by skill, competence, and loyalty to shareholders. Secondly, voting someone on or off based on the color of their skin is racist. Thirdly voting people based on Climate impacts sounds Orwellian, and is driven by politics and opinions rather than objective bottom lines.

Profit matters, and I guarantee someone is profiting from the inability for a company to profit. So sabotage is indeed a thing, my guy.

Also, ESG is inevitably biased because these bean counters don’t understand the deep intricacies of how literally all energy methods are fucked (besides objectively Nuclear). So petrol and oil companies will be rated differently compared to Solar Tech companies. This is obviously a bad thing because it makes the ‘free market’ less free-er than it already is by incentivizing certain models and products.

Society is slowly building a gun aimed at it’s head, it’s fucking great.

Anyways,

Here’s evidence that I found after ranting about ESG ratings,

The whole TLDR on ESG, is that it’s one of many bunk ratings that are used to dictate the future of a company. It’s like a Credit score, it’s a scam.

I mean, who gives a shit and how does this make proxy voting decisions?

-seriously, bunk ratings
Sauce

I did a bit more digging,

So ESG is created and Governed by a company called MSCI, who is owned by Morgan Stanley.

I went sleuthing on Linkedin, and found a lot of connections with current Executives of ISS with MSCI,

You know, there just might be a deeper story here with a conflict of interest. Maybe MSCI and ISS have something in common.

An MD,

an MD of ISS

Exec director,

an ISS Executive Director

The CEO of ISS,

Quite the jump from MD to CEO, WHILE overlapping the work history between 2011 and 2014. Kind of makes you think? How bad ass do you have to be to be a CEO of one company and an MD of another? That’s a huge work load.

Maybe a typo, who knows?

And I’d like to apologize, I’m not trying to pick on ISS specifically, this is just the funny thing I found with specifically them. It’s just a convenient little circle connecting dots with MSCI’s ESG ratings in which MSCI is owned by Morgan Stanley and is used to possibly indirectly influence companies behest Morgan Stanley.

MS -> MSCI -> ESG -> ISS -> Company control (basically).

Of course that’s just an implication. . .

I mean, it’s not like MS has an army of Business Analysts that heavily rate companies and their performance based. on. . ESG. . . wait a minute. . .

‘Because of the implication’


Anyways,

Here is another report that has some good information and tidbits, here’s a few words that help paint the picture, of conflicts of interest and bias,

Also take a look at the rest of Page 20 and 21 for more juice, the Alimentation Couche Tard V. Casey’s and Equinox V. Lundin.

A lot of the SEC reports and similar reference a great work made by Tao Li, there is some interesting results in this report;

I didn’t have the desire nor care to dig through the article as a primary source, plus it was 30 bucks. It seems to be the holy document because all the other reports cite this report by Tao Li. Just fyi.

Some interesting results;

TLDR, there is evidence to suggest that Proxy Advisors either don’t know shit and are a bad investment, or they have ulterior motives and a conflict of interest. Like, that’s the two likely options.


How much voting power do Proxy Advisors have?

A fuck ton. Here’s a rando tweet;

They help make decisions and votes for ETFs and Institutions.

In one instance, they helped make the votes for a quarter of Exxon Mobil;

here’s another report on Exxon Mobil;

This investment firm literally won 3 board seats and created an ETF named VOTE that will actively vote proxies to advance their agenda. They literally said that was there agenda. Connect. The. Dots.

The Proxy Advisory Firms have power to influence Black Rock and large institutions;

The Exxon Mobil proxy fight (discussed above) also appealed to many including Black Rock.

Seems Engine No.1, ISS, and Glass Lewis
were all on the same side
Maybe that was the calculatedly ‘just’ answer,
Or maybe it’s something more

And, I’m not sure if you heard about the Doomsday Market Theory that posits ETFs and Algorithms will run the entire market, but uh, ETFs and Algorithms are running the entire market.

So as there are more ETFs, there is a likely larger chance to have more lazy and passive investors delegating their votes.

Here’s a good article that sums up a bunch of that Doomsday Market theory;

Here’s also a thing to note,

ETF holders do not have voting rights because they do not own shares with the company.

By virtue of that statement, Proxy Advisors benefit from not having a fiduciary duty to ETF investors, because ETF investors aren’t technically shareholders to the underlying. You start to see how the many deviations of separation end up making this a convoluted clusterfuck? All for some lazy ETF passive investors sheep.

Honestly, ETFs are also scams, but that’s another talk for another day.

Also Robo-Voting is a thing,

In some cases called ‘robo-voting’, the Proxy Advisors just votes for you,

And the SEC wants the Advisors to register as Investment Advisors so they have to reveal their underwriting to explain how the vote helps investors.

But the Proxy Advisors may refuse to register as Investment Advisors, because they do different things even though they directly vote on the behalf and behest of the client.

Which wouldn’t matter anyways, because the fiduciary duty doesn’t apply to shareholders. lmao.

ISS signs up for Investment Advisor
Glass Lewis says no because -reasons-
And both don’t have a fiduciary duty to shareholders

It’s funny, because the reason Glass Lewis said was ‘provides little or no protection to investors’. Which means there is a potentiality for it to provide some protection to investors. So between offering more protection and offering zero protection, besides just holding yourself directly accountable, Glass Lewis is sacrificing it’s investors and shareholders. That’s how those words are read, the implication.

All while ISS is basically egging people to jump in the water because the water is fine. Basically.

And because of robo-voting, like, these Proxy Advisory firms are voting directly. Seems like it’s definitely 100% fiduciarily related if Proxy Advisors are casting the votes. . . Just saying.

In Closing,

As a small blurb, the SEC is doing mental gymnastics and bouncing back and forth between regulating and protecting Proxy Advisors. So, whatever.

Remember, statistics is just numerology infused with a bunch of pseudo-logic and isn’t based or predicated on real factual information. It’s like a shitty veneer picture frame to trick you and make you think you didn’t waste away at a dead end job. One of the World’s most common blunders.

So, you know, don’t trust data analytics, because the metrics are only as good as what is being measured. You use a shitty ruler, you get shitty measurements.

So, you know, do your own math and get smart or just stop relying on shitty metrics. Wing it or something.

The whole Proxy advisor thing, it’s just fishy. There’s no real way to prove that they’re corrupt or bought out without receipts or messages. So everyone kind of knows but doesn’t say. It’s like hearing moaning coming from your Parent’s room while your dad’s out of town, you can’t prove it but you got a hunch. Your mom might be getting railed or watching porn, who knows.

Point is, all the evidence is suggested and implied. The implication, is that Proxy Advisors are possibly corrupt or have a huge conflict of interest. Especially with the duopoly going on, it seems they hold a lot of power.

Something is fishy, and it’s not the tacos.

*Not Valid Financial, Legal, Life, or Any Advice


Some other sources and read;

Proxy Advisory Firms, Governance, Failure, and Regulation

Investigating the Impact of Proxy Advisor Conflicts Of Interest on Shareholder Value

A really good report with some more information than others.

A solution report; A Glass Steagall type answer

Honestly, there are a lot of reports alleging to this highly implied conflict of interest. It kind of makes you think. . . Don’t it?

That Report by Tao Li is the Holy Grail for all of these tertiary reports. Just for your information and in case you forget.

Author: Elsie Hughes