CFA Institute report on proxy access deeply flawed, R Street policy short finds
WASHINGTON (March 28, 2016) – As the 2016 corporate proxy season gets underway, shareholders should be skeptical of high-profile claims that proxy access conveys value, according to a new policy short released today by the R Street Institute.
R Street Associate Fellow Bernard Sharfman notes that of the roughly 200 companies expected to face shareholder-submitted proxy-access proposals in 2016, 36 such requests have been made by the New York City Comptroller’s Office. The comptroller is one of a number of activist shareholders who cites a study by the CFA Institute that purports to show that mandatory proxy access increases shareholder value by anywhere from $3.5 billion to $140.3 billion.
However, a closer look reveals shortcomings that should disqualify the CFA report from being used as support, either for proxy-access proposals, or board decisions about whether to implement or even rescind proxy-access bylaws.
Sharfman cites several errors, contradictions and practices of questionable methodology in the CFA report, ultimately producing numbers that aren’t representative of the actual shareholder value. For example, the study excluded two papers that appeared in esteemed journals finding that the added shareholder value is actually negative.
While the CFA report’s authors stated the reason for the exclusions was “methodological shortcomings,” they included another study that used much of the same methodology. In another example, they misused the results of a study in a way that produced an absurdly inflated estimate of the market value of mandatory proxy access.
“When there simply aren’t that many studies from which to choose, deciding which to include or exclude makes all the difference in calculating shareholder value,” said Sharfman. “All in all, once one looks below the surface, the CFA Institute report does not do what proxy access advocates wish it would.”
