Cracking Down on Collective Bargaining - Institutional Investor Style

After Dodd-Frank's corporate governance reforms, it appears that the opposition to governing corporations in the interests of anything else except short term profits and executive insiders isn't content to merely challenge the SEC's proxy access rules before SCOTUS.

Now, a movement to reign in proxy advisory firms. 

Institutional investors like pension funds hire these companies to monitor corporate performance and to provide advisory services on upcoming shareholder votes.  As most institutional investors are heavily diversified (often required by law to be so), they need this sort of service to do their jobs properly.  Think of it as enabling collective action.

Certainly, reforms that require these advisory firms to be transparent and to refrain from entering into conflict-of-interest transactions (when they're hired by a firm who invests on its own behalf, as well as by the firm's own investors) make sense.   After all, it makes sense for Moody's and S&P, who get paid by the very same firms whose securities they are rating.

The thing is: oversight failure over Moody's & S&P leads to unacceptable systemic risk.  People bought AAA rated securities toilet assets on Moody's good recommendation.

Riskmetrics, ISS et al don't tell investors to buy trash.  They don't tell investors how to invest their funds.  Rather, they tell investors where executive compensation is out of whack, when getting rid of a staggered board would make sense.  Their services, in other words, are to help investors after they've bought securities.

So it would make sense, given their different purposes, that they would be subject to different regulations. 

Don't let the hubbub coming out confuse you.  Advisory services aren't the same villain as the credit ratings agencies.  And so they should be punished as if they are.