1. The role and duties of the proxy advisor
RiskMetrics Group
The role and duties of the proxy advisor
CGS Seminar, Seoul
5 December 2008

2. The role and duties of a proxy advisor
Who we are
A quick history
Our role: Worldwide, in the Asia-Pacific and in Korea
The duties of a proxy advisor: Advisors, not activists
Some common myths
Observations about 2008 Korean season

3. RiskMetrics Group: Who we are
We help investors better understand and manage risk across a broad spectrum
RiskMetrics Group offers risk management, corporate governance and financial research & analysis services
ISS Governance Services –provides corporate governance and proxy voting services
Financial Research & Analysis –provider of forensic accounting, legal, M&A, environmental and social research
RiskMetrics –provider of quantitative risk management and portfolio analytics

4. A quick history
Proxy advisors arose to fill an institutional investor need
In some markets (US – ERISA) this was driven by regulation and in others by investor demand (often by pension fund clients of funds managers)
Demand partly due to:
Concentrated voting seasons in most markets
Perceived lack of expertise among funds managers
Desire for independent advice

5. Our role: Worldwide
We are an intermediary between companies and institutional shareholders
We work for and on behalf of institutional shareholders
Our role has two components: Information and advice
Information has two parts: On agenda items and also on general governance issues

6. Our role: Asia-Pacific
Information provision: Especially on general governance matters
Part of our role, especially in Asia-Pacific, is to provide information to issuers on investor expectations
Part of our role is to be an advocate of change on behalf of shareholders: Accountability and disclosure key areas of focus eg.
Director accountability to shareholders: Hyundai Motors and Samsung
Disclosure and accountability: Related party transactions in India

7. Our role: Korea
Provide advice to Korean and international institutional investors: On Korean corporate law generally, shareholder rights and on agenda items
Take into account Korean governance landscape in the advice we give to clients eg. Role of chaebols and inter-group transactions
Be an advocate for change of benefit to shareholders

8. Our role: Korea As a change advocate …
Korea should be proud of its takeover laws (no poison pills – unlike the US) and the voting limitations for audit committee members
But some things could be better:
14 days notice for annual meetings
Publication of annual reports prior to AGM
Bundled resolutions
Disclosure in English
Corporate governance ‘culture’
Disclosure of pay for directors (but pay levels not as big a problem as many other markets)

9. Our duties: Advisors, not advocates
Accurate and timely information to clients
Be transparent to companies: On approach, policies, recommendations
Be open to dialogue with companies and other stakeholders
BUT our first duty is to our clients, not to companies

10. Our duties: Advisors not advocates
Some of our clients may be ‘activists’ but we are not paid to be activists
Difference between advocating change and activism
- Activists: Target companies and management for gain or publicity
- Proxy advisor: Advise investors, dialogue with companies
- Activists: Try and convince other investors to back them
- Proxy advisor: Advise investors but investors make ultimate decision
Proxy advisors are NOT shareholders

11. Some common myths
“Funds managers have to follow our recommendations” – FALSE
FACTS:
No client is bound to follow our recommendations
Some institutional investors require funds managers managing money on their behalf to explain why they deviate from advice of proxy firm
Many of our clients use proxy advisors as a triage service or advisory input – like they would use a broker

12. Some common myths
“Proxy advisors apply a rigid and hidden set of rules” – FALSE
FACTS:
Policies are based on discussions with clients and local market criteria
Policies are publicly available
Proxy advisors should be open to dialogue with companies

13. Some common myths
“Proxy advisors apply one set of rules to all markets” – FALSE
FACTS:
Our policies are based on client preferences – but it is our role and duty to advise offshore clients on local market characteristics
Our policies are based around set of principles but applied differently in different markets
As an example: Pay particular attention to director independence and director elections in Korea

14. Some common myths
“Proxy advisors don’t listen to company explanations” – FALSE
FACTS:
We will try and contact the company ahead of any material ‘Against’ recommendation and put their side of the story in our report to clients – regardless of the recommendation
But we would be failing our clients if we always agreed with management

15. Some common myths
“Proxy advisors recommend against everything” – FALSE
FACTS:
A proxy advisor would not be doing their job if they recommended ‘Against’ everything
Against recommendations not made lightly

16. Observations about 2008 Korean season
Demand from institutional investors for Korean research increased: We as a house doubled the number of Korean companies covered for clients (5000 up to 1000, about 100 ‘core’)
This demand was often frustrated: One-fifth of our clients could not vote in time during the 2008 season (14 day rule, concentrated meetings)
Director accountability issues a key concern (this is a worldwide trend)

17. Conclusion
Role: Mediate between institutional investors and companies and provide information and advice
Duties: First duty is to shareholders but owe duty of fairness to companies

18. Martin Lawrence OR
Martin Chung