New Study Examines Proxy Advisor Recommendations on Auditor Ratification

Each year, the vast majority of larger public companies voluntarily ask shareholders to ratify the audit committee's selection of the company's auditor, and such proposals routinely pass with high rates of shareholder approval. Whether these votes reflect satisfaction with a company's auditor or shortcomings in relevant information is the subject of a recent study entitled "Auditor Ratification: Can't Get No (Dis)Satisfaction" by Professor Lauren Cunningham of the University of Tennessee business school. The study starts from the proposition that a major input for institutional investors in making voting decisions are the recommendations of proxy advisory firms. Less than 3 percent of auditor recommendations receive an Against recommendation from leading proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis, and the study asks why the number of negative recommendations is not higher.