(Bloomberg News) The U.S. Securities and Exchange Commission should study whether proxy advisory firms need more regulation, a New York Stock Exchange panel on corporate governance said.


The SEC said July 14 it was seeking input on whether to consider rule revisions to promote greater transparency at the firms, which advise shareholders on how to vote on public company proxy questions such as the nomination of dissident directors to a company's board.


A 32-page report released yesterday also recommends "market-based governance solutions whenever possible" and says corporate boards may benefit from having more than one non-independent director. The panel also said proxy firms should have to disclose their policies and methodologies, all material conflicts of interest, and company responses to their analyses.


"Proxy advisory firms are not regulated today, yet they are playing a very important role for many institutions in making voting decisions," Larry W. Sonsini, the panel's chairman, said in an interview. "The question is whether or not there ought to be some regulation, whether or not there needs to be disclosures of potential conflicts of interests, or perhaps more transparency as to what their voting guidelines are. That's something we think the SEC ought to take a look at."


Sonsini is chairman of Wilson Sonsini Goodrich & Rosati, a Palo Alto, Calif.-based law firm known for representing technology companies. He is a director of Echelon Corp., and a former director of companies including Brocade Communications Systems Inc. and Novell Inc.


A spokesman for Institutional Shareholder Services Inc., a subsidiary of MSCI Inc. that says it is the leading provider of corporate governance advice, said the firm would respond to the SEC's so-called concept release within a couple of weeks.


"We plan on letting that speak for us on this case," Gary Hewitt, the spokesman, said.


The NYSE, whose parent NYSE Euronext is the biggest operator of U.S. stock exchanges, convened the panel last year to undertake a comprehensive review of corporate governance principles, the report said. The recommendation on proxy advisory firms was one of 10 principles in the report.


The principle addressing the composition of corporate boards said that while independent directors should constitute a majority in accordance with NYSE standards for listed companies, "a properly functioning board can include more than one non- independent director."