A guest editorial recently published online by Pensions & Investments by J.W. Verret ("Retail investors support SEC efforts") purports to show strong retail investor support for the SEC's proposed regulations to crack down on proxy advisory firms. As John Coates, Harvard University professor of law and economics, and I point out in our comment letter to the SEC, there are good reasons to be skeptical of this argument.
Citing research he conducted for the Spectrem Group, Mr. Verret argues that individual investors are apprehensive about "how proxy advisers were operating in U.S. financial markets." But the survey instrument on which the study, and his editorial, are based is in fact a tool of persuasion — or a "push poll," in the jargon of political science — designed to influence, not reveal, investor sentiments.
First, the survey was administered to investors who admit to knowing little or nothing about the topic. Specifically, 40% of those surveyed indicated they know nothing at all about the topic, and another 29% said they were only slightly knowledgeable. Just 12% said they were very informed.
Second, the survey itself is filled with leading and loaded questions — precisely the kinds of questions that research on survey methodology suggests will generate biased and misleading results. Put simply, these questions are clearly designed to create the sense of "apprehension" the survey purports to reveal.
Nor does the survey follow standard methodology for recording responses, such as a Likert scale (e.g., strongly agree, somewhat agree, neither agree nor disagree, somewhat disagree, strongly disagree) when asking whether investors "agree" that something is a problem or "support" the SEC's proposals. Anyone who does not completely disagree gets classified as supporting the "reform" in question.
With the SEC's proxy adviser proposal having come under attack by pension funds and other leading asset managers, corporate interests are fighting back by pouring resources into a campaign designed to create the illusion that the SEC proposal is a response to investor, rather than corporate, demands. Nothing could be further from the truth. The fact that they must rely on a transparently biased and unscientific push poll to give the issue a patina of investor protection credibility should tell you everything you need to know about the weakness of their case.
Barbara Roper is director of investor protection at the Consumer Federation of America, based in Pueblo, Colo.
