ECGS welcomes the ESMA Final Report on The Proxy Advisor Industry

Expert Corporate Governance Service Ltd. (ECGS), a joint-venture of
European proxy advisors, welcomes the ESMA Final Report on The Proxy
Advisor Industry published on February 19th. The report confirmed there is no
“market failure” related to proxy advisors’ interaction with investors and issuers
in the European Union (EU) that would require regulatory intervention.

ECGS takes note that ESMA recommends that the proxy advising industry
should develop an EU Code of Conduct (Code) that focuses on “identifying,
disclosing and managing conflicts of interest,” and “fostering transparency to
ensure the accuracy and reliability of the advice”.
ECGS as a global service is comprised of several local partners acting as
experts in their local countries. ECGS welcomes the ESMA principles
highlighting the importance of engagement with issuers and the consideration
of local market practices.

ECGS considers that all services related to governance or voting
recommendations (proxy analysis reports, proxy alerts, customized vote,
responsible ownership service for institutional investors or asset managers
who exercise voting rights and engagement actions), including proxy
solicitation services, should be subject to similar rules of conduct. The
recommended Code should apply to all professional providers whatever their
main business or capital structure (private firms, professional bodies or
associations, asset managers, funds...).

Considering that all these services are targeted to end-investors, ECGS
believes such a Code should make a clear distinction between the Buy Side
service providers (paid by investors), and Sell Side providers (paid by issuers).
Such a Code should prevent this basic conflict of interest and prohibit any mix
of income sources. The ECGS partnership has adopted this rule
because ECGS believes that disclosure of conflicts of interests and conflict
management are not sufficient to manage potential conflicts of interest.

Relying on proxy advisors selling governance advisory data or services
to corporate clients could be damaging to Investors.
Finally, a major issue, not yet considered by ESMA, is the lack of
efficiency and traceability of the voting process due to the long
intermediary chain, particularly in the case of cross border voting.
ECGS will be represented in the working group and is glad to
further contribute while adopting the highest standards.

Paris , February 21 th. 2013