The Independent Review Chair of the Best Practice Principles for Shareholder Voting Research & Analysis Group (the “BPPG”), Dr. Danielle A.M. Melis MBA today (27 June 2019) provided an update summarizing the BPPG’s Stakeholder Preview Event, held earlier this week. As the final stage of the BPP Review Process, the purpose of the event was to provide a representative group of stakeholders, including regulators, investors, issuers and their representative bodies, with a preview of the new 2019 Best Practice Principles for Shareholder Voting Research & Analysis, ahead of the formal public launch expected for mid July 2019.
The BPP Review refers to the latest updated stewardship codes globally, the requirements of the revised EU Shareholder Rights Directive II (“SRD II”) and the ESMA 2015 Follow-Up Report on the Development of the Best Practice Principles for Providers of shareholder voting research and analysis (“2015 ESMA Follow-Up Report”). It also refers to the input of investors, issuers and other stakeholders received through a public consultation by the BPPG (completed in December 2017) plus 2017 and 2019 Stakeholder Advisory Panel draft reviews and feedback.
Key Takeaways from BPP Review Process Presented at BPPG June Stakeholder Preview Event
2015 ESMA Follow-Up Report recommendations for improved governance and oversight of Principles addressed by:
- New BPP Oversight Committee;
- New reporting arrangements;
- New monitoring arrangements.
SRD II requirements on transparency of proxy advisors addressed by updated Principles and Guidance include:
- Annual public disclosure by each BPP Signatory to the Principles of the Signatory’s relevant code of conduct and of how the BPP Signatory applies and complies with that code of conduct;
- Annual public disclosure relating to the accuracy and reliability of their research activities;
- Identification and disclosure without delay to their clients of any actual or potential conflicts of interests or business relationships that may influence the preparation of their research, advice or voting recommendations and the actions they have undertaken to eliminate, mitigate or manage the actual or potential conflicts of interests.
2017 Public Consultation feedback regarding need for improved governance and oversight of Principles addressed by:
- New BPP Oversight Committee;
- New reporting arrangements;
- New monitoring arrangements.
2017 Public Consultation feedback regarding need for updated Principles and Guidance in key areas addressed by:
- Updates regarding how BPP Signatories alert clients to any material factual errors or revisions to research, analysis or voting recommendations after research publication;
- Updates regarding potential and actual conflict management or avoidance;
- Updates with regard to disclosure of dialogue with issuers, shareholder proponents and other stakeholders.
2017 Public Consultation feedback regarding potential ‘overinfluence’ of proxy advisors addressed by:
- Updates with regard to the Scope of the Principles highlighting the importance of delineating investor and proxy advisor responsibilities.
Participants at 2019 BPPG Stakeholder Preview Event provided extremely positive feedback regarding the introduction of a new formal governance and oversight structure for the BPP and updates to the Principles and Guidance. Stakeholder feedback at the preview event included several questions regarding the BPP Oversight Committee’s terms of reference. The Independent Review Chair confirmed that full terms of reference for the Committee had already been drafted and would be detailed at the time of the public launch of the Principles in July. At this stage she was happy to confirm:
- The BPP Oversight Committee terms of reference do not allow any BPPG proxy advisor members to serve on the BPP Oversight Committee.
- The BPP Oversight Committee terms of reference detail its composition, formal nomination and election procedures, plus the scope and responsibilities of the BPP Oversight Committee, which includes monitoring individual BPP Signatory compliance on an annual basis.
Stakeholder feedback also focused on the Scope of the Principles in terms of potential new signatories. The Independent Review Chair clarified that the Principles have primarily been updated with SRD II compliance in mind for those entities (i.e. the current BPPG signatories) which fall under the definition of “proxy advisor” in SRD II Article 1:
a legal person that analyses, on a professional and commercial basis, the corporate disclosure and, where relevant, other information of listed companies with a view to informing investors’ voting decisions by providing research, advice or voting recommendations that relate to the exercise of voting rights.
Entities that fall partially under the definition of the Principles should nevertheless be able to apply the Principles to the appropriate extent. The 2015 ESMA Follow-Up Report highlighted that the comply-or-explain principle on which the Principles are based allows for tailored implementation based on each BPP Signatory’s characteristics.
As a corollary, however, the BPPG will put in place a ratification process for BPP Signatories which will be governed by the new BPP Oversight Committee.
Background
In October 2018 the BPPG Steering Group appointed Dr. Danielle A.M. Melis MBA, to succeed Chris Hodge as the new Chair of the BPPG. Chris Hodge served in this role until June 2018 and completed the public consultation phase. The main task of the Chair is to oversee the BPPG Steering Group and coordinate and facilitate the finalization the Review process as outlined below.
The purpose of the BPP Review was to:
- Assess the implementation and content of the Principles;
- Ensure that the Principles are achieving the original objectives;
- Identify where there is scope to improve practice and transparency; and
- Ensure the Principles can be applied in all markets for which voting research and analysis is provided, and by all providers of such services.
The original objectives of BPPG in establishing the Principles were to:
- Promote a greater understanding of the role of shareholder voting research providers in the voting decisions made by institutional investors;
- Promote the integrity and efficiency of processes and controls related to the provision of these research services; and
- Foster robust conflicts of interest management.
The assessment of the Principles involved consideration of:
- The structure and content of the Principles;
- The form and frequency of reporting against the Principles;
- The process and criteria for providers to become signatories;
- The oversight arrangements for monitoring and reviewing the Principles.
The BPP Review was informed by (but not limited to):
- The views of investors, companies and other stakeholders received through the Public Consultation by BPPG completed in December 2017;
- Experience of implementing the Principles since they were introduced in 2014;
- The December 2015 report on the development and implementation of the principles by the European Securities and Markets Authority;
- The revised EU Shareholder Rights Directive and regulatory developments in other markets since the Principles were introduced;
- Investor Stewardship Codes.
For more information please contact: committee@bppgrp.info