Publicly traded companies are generally required by state law to hold annual meetings to conduct business that requires shareholder approval. U.S. public companies hold their annual meetings to consider key management and shareholder proposals that may have an effect on a company’s operations and value, such as executive compensation and director elections, or other more routine issues that may not affect value, such as changing a corporate name or approving an auditor. They also occasionally hold special meetings during the year to consider key issues such as proposed mergers and acquisitions. Shareholders are provided advance notice of annual and special shareholder meetings through a written proxy statement, which typically includes a proxy ballot (also called a proxy card) that allows shareholders to appoint a proxy to vote on the shareholder’s behalf if the shareholder decides not to attend the meeting. Proxy voting can be conducted online, by mail, or by telephone. Shareholders may instruct the proxy how to vote the shares or grant the proxy discretion to make the voting decision. Because of their large stockholdings, institutional investors (such as investment advisers, insurance companies, mutual funds, and pension plans) cast the majority of proxy votes. In general, proxy voting in shareholder meetings involves several key participants such as shareholders (including institutional investors), corporate issuers, proxy agents, and proxy advisory firms (see table 1). Institutional investors frequently hire proxy advisory firms to provide analysis and proxy voting recommendations and facilitate voting, record keeping, reporting, and disclosure requirements. For instance, the mechanics of tracking proxy cut-off times, managing and analyzing proxy materials, and casting votes can require significant resources. Many institutional investors use a proxy advisory firm to help perform some or all of these services. While proxy advisory firms perform services year- round, most of the services center on the proxy season. Some publicly- traded companies also may use a proxy solicitor to identify, locate, and communicate with shareholders to secure votes on certain issues. Currently, the proxy advisory industry in the United States consists of five firms: Institutional Shareholder Services (ISS), Glass Lewis & Co. (Glass Lewis), Egan-Jones Proxy Services (Egan-Jones), Marco Consulting Group (Marco Consulting), and ProxyVote Plus. ISS, founded in 1985, provides research and analysis of proxy issues, custom policy implementation, vote recommendations, vote execution, governance data, and related products and services. ISS also provides advisory/consulting services, analytical tools, and other products and services to corporate issuers through ISS Corporate Solutions, Inc. (a wholly owned subsidiary). ISS is owned by Vestar Capital Partners, a private equity firm, and company management. As of September 2016, ISS had more than 900 employees in 18 offices in 12 countries, and covered approximately 39,000 meetings in 115 countries. ISS had about 1,600 institutional investor clients and executed more than 8.5 million ballots annually on behalf of those clients. Glass Lewis, established in 2003, provides proxy research and analysis, custom policy implementation, vote recommendation, vote execution, and reporting and regulatory disclosure services to institutional investors. Glass Lewis is an independent portfolio company of the Ontario Teachers’ Pension Plan Board and Alberta Investment Management Corporation. As of September 2016, Glass Lewis had more than 350 employees and offices in San Francisco, New York, Ireland, Australia, and Germany that provide services to more than 1,200 institutional investors that collectively manage more than $20 trillion. Egan-Jones Proxy Services was established in 2002 as a division of Egan-Jones Ratings Company. Egan-Jones provides proxy services, such as notification of meetings, research and recommendations on selected voting issues, voting guidelines, execution of votes, and vote disclosure. As of September 2016, Egan-Jones Ratings Company had approximately 450 clients of all types firm-wide including funds, institutions, corporate issuers, and public entities. Of these, Egan- Jones’ proxy research or voting clients mostly consisted of mid- to large-sized mutual funds. Egan-Jones covers approximately 40,000 companies. Many of its largest institutional clients use Egan-Jones research to augment their own research. Egan-Jones is based in Haverford, Pennsylvania. Marco Consulting Group, an Illinois-based firm, was established in 1988 to provide investment analysis and advice, and proxy voting services to a large number of Taft-Hartley and public benefit plans. As of September 2016, Marco Consulting served 300 clients with assets of $145 billion. Marco Consulting uses ISS as the provider for its proxy voting platform and reporting. Marco Consulting also subscribes to research services from ISS. It has offices in Chicago, Boston, and Denver. ProxyVote Plus, also based in Illinois, is an employee-owned firm established in 2002 to provide proxy voting services to Taft-Hartley fund clients. ProxyVote Plus conducts internal research and analysis of voting issues and executes votes based on its guidelines. ProxyVote Plus reviews and analyzes proxy statements and other corporate filings, and reports annually to its clients on proxy votes cast on their behalf. As of September 2016, ProxyVote Plus had more than 200 clients throughout the United States and Canada. Of the five firms, ISS and Glass Lewis are the largest and most often used by institutional investors. To compete, proxy advisory firms must offer comprehensive coverage of corporate proxies and use sophisticated systems to provide research and proxy vote execution services. As we reported in 2007, ISS’s long-standing history—since 1985—of working with institutional investors, as well as its reputation for providing comprehensive proxy voting research and recommendations, makes it the most dominant proxy advisory firm. We found that ISS’s dominance makes it difficult for competitors to attract clients and compete in the market. We also reported that institutional investors may be reluctant to subscribe to a potentially inexperienced or less-established proxy advisory firm that may not provide thorough coverage of all of their institutional holdings. According to market participants and other stakeholders with whom we spoke, these conditions continue to exist, and, among other things, the initial investment required to develop and implement the necessary technology is a significant expense for firms. Under the Securities Exchange Act of 1934 (Exchange Act), SEC regulates the proxy solicitation process for publicly traded equity securities. SEC also regulates the activities of proxy advisory firms that are registered with SEC as investment advisers under the Investment Advisers Act of 1940 (Advisers Act). Under SEC rules, when soliciting proxies, certain information must be disclosed in writing to shareholders in a document referred to as a proxy statement. These proxy statements must include important facts about the issues on which shareholders are asked to vote. A party soliciting proxies must file such proxy statement with SEC unless it is exempt under the proxy rules. Under the Advisers Act and related SEC rules, registered investment advisers are subject to a number of regulatory requirements that provide important protections to the firm’s clients. For example, an investment adviser must disclose information about its business practices and potential conflicts of interest to clients and prospective clients. Additionally, registered investment advisers are required to adopt and implement written policies and procedures reasonably designed to prevent violation of the Advisers Act. Finally, regardless of whether a proxy advisory firm is registered as an investment adviser, all firms that meet the statutory definition of investment adviser, and are unable to rely on an exclusion from the definition, are subject to the antifraud provisions of the Advisers Act. This act prohibits investment advisers from engaging in any act, practice, or course of business that is fraudulent, deceptive, or manipulative. Table 2 describes whether and how proxy advisory firms are registered with SEC. ISS, Marco Consulting, and ProxyVote Plus are registered as investment advisers and, according to their SEC registration filings, identified their work as pension consultants as the basis for registering as advisers. Egan-Jones Ratings Company (Egan-Jones’s parent company) is registered as a Nationally Recognized Statistical Rating Organization and must meet certain regulatory requirements related to its credit ratings activity, but these requirements do not apply to its proxy advisory services. Glass Lewis is not registered with SEC. SEC also has issued several rules and policy documents that provide guidance on proxy voting by investment advisers and investment companies. For example, SEC issued a final rule in February 2003 that addresses an investment adviser’s fiduciary responsibilities to clients when the adviser has the authority to vote their proxies, including adopting policies and procedures to ensure proxies are voted in the best interest of clients. The rule also requires that an adviser must (i) disclose to clients how they can obtain information from the adviser on how their securities were voted and (ii) describe the adviser’s proxy voting policies and procedures to clients, and upon request, provide clients with a copy of those policies and procedures. SEC issued another final rule in February 2003 that requires investment companies such as mutual funds to disclose how they vote proxies relating to portfolio securities they hold, and file with SEC and make available to shareholders information about specific proxy votes cast. In May 2004 and September 2004, SEC staff issued guidance that, among other things, clarified how an investment adviser could resolve conflicts of interest in voting clients’ proxies and ensure that proxy advisory firms could adequately analyze proxy issues and make recommendations in the best interests of the adviser’s clients. We focus on SEC oversight since 2007 later in this report. SEC monitors compliance with the federal securities laws and regulations through risk-based examinations of registered investment advisers. Based on examination findings, SEC may send letters to investment advisers, including proxy advisory firms registered as investment advisers, requesting that they correct identified deficiencies. SEC may take enforcement actions for more serious violations. Proxy voting issues and proxy advisory firms may not be examined on a regularly scheduled basis because SEC uses a risk-based approach to identify examination priorities each year.