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Information Intermediary or De Facto Standard Setter? Field Evidence on the Indirect and Direct Influence of Proxy Advisors
Author(s) -
HAYNE CHRISTIE,
VANCE MARSHALL
Publication year - 2019
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.12261
Subject(s) - shareholder , accounting , executive compensation , business , voting , accountability , scrutiny , intermediary , proxy (statistics) , incentive , leverage (statistics) , transparency (behavior) , de facto , public relations , corporate governance , marketing , economics , finance , political science , microeconomics , politics , law , machine learning , computer science
We examine whether proxy advisory firms (PAs) serve primarily an information intermediary role by providing research and voting recommendations to shareholders, or directly influence executive compensation by exerting pressure on firms to adopt preferred pay practices. Through a field study, we find that PAs are perceived as both information intermediaries and agenda setters and that these roles provide leverage to enable PAs to exercise significant influence over executive pay practices. Boards feel, and sometimes yield to, pressure to conform to PA “best” practices despite their own preferred compensation philosophies, even in the absence of overt PA scrutiny or negative shareholder votes. We also find that PAs are susceptible to conflicts of interest and generally use a “one‐size‐fits‐all” approach to voting recommendations. Overall, however, PAs are viewed as improving compensation practices by increasing transparency and accountability and fostering dialogue between firms and their shareholders.