May 26, 2011
Ernst & Young Buys Assets of Proxy Governance
by Robert Kropp
The purchase of the proxy advisory firm's assets will add to Ernst & Young's newly established
Corporate Governance Group.
Ernst & Young, a professional services firm and
one of the Big Four auditors, announced this week that it had purchased the assets of Proxy Governance (PGI), a proxy
advisory firm. The acquisition closed on February 1st.
According to a press release, the addition of PGI's corporate governance
team, research application, and database of corporate governance information will help Ernst &
Young's newly established Corporate Governance Group advise corporate clients on "the governance
and shareholder engagement needs facing boards and senior executives."
Ernst & Young's
press release stated that the acquisition comes at a time when "the corporate governance
environment in the US and globally is in flux, with several significant new requirements in effect
and others pending."
As the Center
On Executive Compensation reported in February, institutional ownership of the 1,000 largest
corporations grew from 47% in 1987 to 76% in 2007. Institutional investors frequently rely on the
proxy voting recommendations of proxy advisory firms such as PGI.
In December, 2010, Glass Lewis announced that it had entered
into an agreement with PGI to provide proxy voting and advisory services to PGI's clients. PGI,
which was formed in 2004, subsequently announced that it would not be providing proxy voting or
advisory services after the end of 2010. A message on PGI's website states, "PGI's operations have
formally come to an end."
"PGI’s mission has been to bring much needed competition and
innovation to corporate governance and proxy voting services," the statement continued.
Concerns over potential conflicts of interest at proxy advisory firms that also serve as
consultants to corporations have led the Securities and Exchange Commission (SEC) to propose a
regulatory framework for proxy advisory firms. The Mill
stein Center for Corporate Governance and Performance has recommended that proxy advisory firms
avoid conflict of interest by adopting "a code of professional ethics for the governance industry
modeled on similar codes for other industries."
However, other stakeholders have gone
further with their recommendations. The Shareholder Communications Coalition recommended that the
SEC require proxy advisory services to register as investment advisors. It also recommended that
the SEC "require conflicts of interest disclosure for proxy advisory firms."