ESMA calls for conduct code for governance watchdogs

LONDON Tue Feb 19, 2013 9:04am GMT

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LONDON (Reuters) - Advisers on how institutional investors vote on corporate matters should devise a code of conduct, a European regulator urged, as conflict of interest fears threaten to undermine a push for higher corporate governance standards.

After extensive analysis and consultation with market participants, The European Securities and Markets Authority (ESMA) said the proxy adviser industry did not need regulation, but a voluntary mission statement could give greater reassurance on the independence of advisers and the quality of their advice.

Proxy advisers make recommendations to institutional investors on how to vote their shares on boardroom appointments, executive pay and takeovers.

Tensions between them and the firms they monitor have ramped up since the financial crisis, as the advisers step up efforts to expose weak corporate culture and deter strategy they believe goes against the best interests of minority shareholders.

As the influence of proxy voters grows, so has debate on whether they are as independent and transparent as they claim.

The recommended code will focus on identifying and managing potential conflicts of interest among proxy voters and increasing disclosure of voting policies and methodologies.

Work on drafting the code is expected to begin in the next few weeks, ESMA said.

Several leading proxy advisers are supportive of beginning work on a Code, the regulator said, including Glass Lewis, Institutional Shareholder Service (ISS), IVOX, Manifest, Nordic Investor Services, PIRC and Proxinvest.

(Reporting by Sinead Cruise; Editing by Hans-Juergen Peters)