"Proxy advisory firms did not set out to become power brokers. They emerged to solve practical problems of scale and coordination. As institutional investors came to own shares in thousands of companies, proxy voting expanded dramatically, covering everything from director elections and executive compensation to mergers and an array of shareholder proposals. Voting responsibly across that universe required time, expertise, and infrastructure that many firms did not have."
"Proxy advisors filled that gap by aggregating data, analyzing disclosures, and offering voting recommendations. Over time, a small number of firms came to dominate the market. Their influence grew not because investors were required to follow them, but because alignment was efficient, defensible, and auditable. Just as important, proxy advisors addressed a coordination problem that had left shareholders effectively voiceless. Their intellectual roots lie with activists such as Robert Monks, who believed dispersed ownership had allowed corporate power to become insulated from challenge."
A large financial institution replaced external proxy advisory firms with an internal AI system to guide shareholder voting. Proxy advisors arose to solve practical problems of scale and coordination as institutional investors acquired shares across thousands of companies, making voting complex. They aggregated data, analyzed disclosures, and issued recommendations, and a few firms dominated because alignment was efficient, defensible, and auditable. Proxy advisors also addressed shareholder coordination and traced intellectual roots to activists like Robert Monks. Over time, mechanized recommendations often substituted for direct judgment. Governance is increasingly interpreted by machines, and many corporate boards remain unprepared for that shift.
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