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14 ECFR 1 (2017)

handle is hein.journals/ecomflr14 and id is 1 raw text is: Regulating Proxy Advisors Through Transparency: Pros and Cons of the EU Approach by GAIA BALP* This article outlines potentialpros and cons ofaa future European regulation ofproxy advisory firms, as set forth in the Commission's Proposalfor a Directive amending Directive 2007/36/ EC. After summarizing criticisms concerning the proxy advisory industry, and findings regarding its de facto influence on investors' voting conduct both in the US and in the European context, the article adverts to why the power of proxy advisors appears to be overestimated. Uncertainty on the status quo of the industry's actual impact on key decisions in listed companies, as well as costs associated with a regulation, need to be considered for assessing the suitability of the rules drafted to ensure adequate levels of independence and quality of voting recommendations. While transparency rules may be preferred to stricter legal constraints or requzirements in a first stage, possible shortcomings of the Draft Directive exist that may undermine its effectiveness. Analyzing the amendments to the Proposal adopted by the European Parliament, and the Council's Presidency compromise text, may suggest a preferable approach as regards single rules still making their way through the European legislative process. Table of Contents ECFR 2017, 1-36 I. The proxy advisory industry. Its rise, value and flaws....... . . . . . . . . . 2 1. Criticisms regarding the independence of proxy advisory firms . . . . . . . . . 6 2. Methodological and organisational criticisms of proxy research and analysis 8 II. The EU Approach Towards Regulating Proxy Advisors..... . . . . . . .. 11 III. The Uncertain Reach of the Actual Impact of Proxy Advisors on Voting Decisions............................ . . . . . . . . .. 16 IV. Potential Benefits and Limitations of the Draft Directive's Regulation of Proxy Advisory Firms............................. . . . . .. 19 1. The comply or explain rule.................... . . . . . . . . .. 20 2. Jurisdiction criteria for regulating proxy advisors active in Europe . . . . . . 22 3. The issuers' position vis-a-vis proxy advisors............. . . . . .. 23 4. The nature and scope of information subject to disclosure... . . . . .. 25 Assistant Professor of Business Law, Universita Bocconi, Milan. Email: gaia.balp@ unibocconi.it. A preliminary version of this article has been presented at the 7th annual conference of the Italian Association of Business Law Professors, Universitl Roma Tre, 26 February 2016. I wish to thank Prof. Giuseppe Guizzi, Prof. Marco Maugeri, and the anonymous referees for their helpful comments and suggestions. The usual disclaimer applies.

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