Yesterday I wrote about the genesis of third-party proxy advisory firms as a result of SEC insistence that investment management firms fulfill their fiduciary duty to vote in the best interest of their shareholders at the annual meetings of portfolio holdings.

The media don’t really understand the function proxy advisory firms serve:  they’re low-cost insurance/evidence that the manager takes his proxy voting duties seriously.  As the de facto authority in this arena, the proxy advisor is the first line of defense if the SEC, the portfolio holding in question or clients have any questions.  Hiring the adviser also eliminates proxy voting as an administrative task for the investment manager, as well as as a source of internal friction among portfolio managers.

Jamie Dimon of JP Morgan should understand this as wel–but apparently doesn’tl.  Calling investment management firms lazy and irresponsible does him no good.   It seems to me his outburst will only serve to heighten the proxy advisers’ sense of mission in speaking out against high executive pay.

I do have one quarrel with the proxy advisers, though.  In an effort to grow, they’ve branched out into selling services to the corporations whose proxies they analyze.  To my mind, this is analogous to the pension consultants who also manage money or the accountants who have–to their regret–provided consulting services to audit clients.  In other words, it’s a conflict of interest.  They shouldn’t be doing this.

To see why, we only have to look at the sorry case of the accountants, whose consulting arms pressured their auditing colleagues to overlook problems with client firm’s accounts for fear of–or after threats of–losing lucrative consulting business if the auditors were too strict.

Even the possibility that this could take place with proxy advisers undermines their authority as pure ly objective sources.