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Proxy advisers must clean up act, European Commission official warns

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A high-ranking European Commission official has warned proxy advisers that they must do more to ensure their influence on the voting behaviour of investors is “objective and reliable”.

Speaking at the International Corporate Governance Network’s annual conference in Amsterdam, Jeroen Hooijer, head of corporate governance at the EU’s Internal Markets and Services Directorate-General, said the methodologies behind advisers’ recommendations “don’t always sufficiently take local markets and regulations into account”.

“They provide services to issuers that may affect their independence and ability to provide an objective and reliable advice,” he added.

Hooijer said proxy advisers must guarantee their recommendations are accurate, and disclose the source of their advice to both their clients and listed companies.

They must also be transparent on potential conflicts of interest, he said.

However, Hooijer added that Brussels currently had no intention of issuing new regulation or setting detailed standards for the industry, and that the Commission expected the profession to “sort itself out” through self-regulation.

Addressing resistance to the proposed Shareholder Rights Directive, he stressed that the Commission’s underlying objective was to improve dialogue between shareholders and companies.

He reminded the audience that EU member states had so far failed to heed Commission recommendations on remuneration, and that binding rules, as well as shareholders’ rights for remuneration policy, were therefore necessary.

Hooijer said Brussels would look into how the identification of shareholders could be improved, and that the overriding objective of the proposed rules for related party transactions was to protect minority shareholders.

“We need to find the right buttons to overcome technical issues,” he said.

In the European Commission’s draft directive, transactions of more than 5% of shares must be approved by all shareholders.

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