There is less correlation than anticipated between AGM voting recommendations from proxy advisers and the number of “shareholder revolts”, according to a new report.

The results appear to suggest that proxy advisers may not wield the influence over AGM voting that many claim they do.

Revolts, defined as a vote of 20% or more against a company resolution, happen in half the rare cases where either ISS or Glass Lewis alone recommend voting against directors’ reappointment or remuneration policies. However, if both of the big two advisers make the same recommendation, shareholder revolts increase to 77%.

The results, based on data for 2022, come in a new report from the Financial Reporting Council that examines the influence of proxy advisers over results during AGM voting.

The report says: “Higher levels of correlation might be expected if proxy advisors’ recommendations were the primary influence on voting decisions.”

The results appear to contradict a widely held view that proxy advisers determine the outcome of shareholding voting. The report says that the majority of company representatives interviewed believe some investors have “in effect outsourced many or all of their voting decisions to proxy advisors, with the result that the advisors exercise considerable influence over voting outcomes”.

Recommendations to vote against company resolutions are relatively rare. Last year saw only 1.2% of director appointments attract a negative voting recommendation from either ISS or Glass Lewis. The rate lifts to 14.6% for remuneration resolutions, confirming that executive pay remains a hot topic for proxies and investors.

Mandate overboard

While investors are broadly expected to take the advice of proxies, the research also shows that a number  take a harder line on some topics, such as ‘overboarding’—holding seats on multiple boards. The report says in 40% of cases where there were shareholder revolts against appointments due to overboarding, both ISS and Glass Lewis had recommended a vote in favour of the director.

It does, however, seem that the prospect of triggering proxy advisers to vote a resolution caused some companies to change their proposals “purely in order to avoid receiving a recommendation to vote against from proxy advisors on at least one occasion”. Companies said this happened only over “non-strategic” issues.

The report says: “All company interviewees said that they attempted to anticipate the likely position of some or all proxy advisors and ensure that the board or relevant committee had this information available.

“Many analysed their share register to identify which proxy advisors were most likely to have a potential impact on voting.”

Companies were also influenced by ESG ratings providers. While most said they did not fear an “adverse” ESG rating, they were concerned “investors may place reliance on the headline ratings”. They fear companies being penalised for a rating “that, in their opinion, did not fairly reflect the company’s actions or performance”.

This fear caused companies to conclude that they “needed to ‘play the game’” of providing information to ratings agencies.