The European Commission this week published a summary of the responses to its Green Paper on Corporate Governance in Financial Institutions.

The paper revealed some not so surprising results when it comes to views about the role of institutional investors: many want to see mandatory disclosure of voting policies and records; there’s a widespread desire for a European stewardship code; firm support for greater transparency on shareholders registers; despite the Shareholders Rights Directive, there’s still consistent reference to reducing costs, removing legal obstacles and regulatory barriers to active engagement; and calls for the regulation of proxy voting agencies.

What a fantastic wish-list of change that is undoubtedly needed. It’s reminiscent of the Santa letters that children across the world are already turning their excited minds to at this time of year. And, like the Santa letters, it’s a wish list that is as dreamy as it is predictable.

What we seem to have missed in all of this is that the removal of barriers and obstacles is academic unless the route then taken is subsequently modified to take advantage of the new freedoms gained. Likewise, enhancing transparency and disclosure doesn’t mean making more data available, it means making meaningful data more accessible.

Regulating proxy agencies is a laudable and welcome aim in terms of how voting advice is arrived at and given. But in terms of information flows, regulating cross-border voting processes would first require gaining an understanding of how the lack of open competition in the provision of proxy voting has been imposed on investors to the extent that nearly every voting instruction ends up going through one single provider at some point in the chain. That one provider is then in control of charging everyone else for the process and the security of all the data that passes through them.

To the extent that there are barriers that need removing, they are less to do with regulatory or legal barriers and more to do with arbitrary but entrenched market barriers. Once these are in the open, we can then talk about resolving them.

If you are asked over the next few weeks to run a final eye over a Santa letter, bear one last thought in mind. In all the excitement about asking for this, that and the other, is the reason why we’re doing all this in the first place actually lost and forgotten? Let’s not lose focus on what we need – efficient and competitive markets for proxy distribution – and we may just find that many of the other things we wish for may just come true too.

Further Reading

Commission Summary of responses to the Green Paper on Corporate Governance in Financial Institutions

Last Updated: 26 November 2010
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