By: Cydney Posner

New York Times columnist, Gretchen Morgensen, having just lambasted "independent" compensation consultants for conflicts of interest (see my email of 4/10/06), now turns her attention, in the column pasted below, to those self-appointed arbiters of corporate governance, proxy advisors. What's particularly amusing is that the issue is joined over proxy advice with respect to the Board of Pfizer, which is usually held up as a corporate governance model. Also interesting is that she takes aim, not at ISS, whose independence has been questioned in the past because of the consulting services it provides to companies about which it also provides proxy advice, but rather at a proxy advisor that claims not to provide consulting services or services to short sellers.

The column raises issues about the independence of the advice given by Proxy Governance, Inc. in urging a vote in favor of all directors of Pfizer. Founded by former SEC Commissioner, Steven M. H. Wallman, Proxy Governance describes itself as a "new breed of advisory service," providing conflict-free advice looking toward building long-term shareholder value. The column points out that a 2004 memo by the CEO of Pfizer urged corporations to buy and promote Proxy Governance's services at the firm's inception: " 'We have all seen the increasingly hostile recommendations from existing proxy advisory firms,' he wrote, 'who continue to promote narrow interests at the expense of long-term shareholder value.' Identifying a 'pressing need for a serious alternative,' Mr. McKinnell continued, 'we are pleased to report on the creation of Proxy Governance Inc.' " Morgensen charges that the memo, among other things, raises "questions about whether the advisory firm's Pfizer recommendation reflects an unbiased point of view or a relationship with the company and its top executive." In contrast, Pfizer pay practices led both ISS and Glass Lewis to recommend withhold votes for certain Pfizer Compensation Committee members. Proxy Governance contends that its advice is based not on adherence to a best-practices principle applied to all companies, but instead on how individual firms performed; as a result, in its view, Pfizer should be given credit for making significant changes to its pay practices.

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