That “Dastardly” ISS

Even the Canadians now have joined in on the bashing of the world’s best known proxy consultant — ISS — in response to the proxy adviser panning a recent merger proposal of two gold companies (sorry). ISS, or Institutional Shareholder Services as it is formally known, has been taking it on the chin lately for being too powerful, too conflicted, and downright careless in its recommendations on proxy proposals. 

ISS serves a wide range of institutional investors, and companies and the business lobby are trying to convince regulators that something is amiss in ISS’ work and in the “power” it wields over the proxy process.  Most of the criticism is nonsense.  Anyone who has ever retained ISS’ proxy services knows that the policies and recommendations are based on a long history of discussion, refinement, and sound corporate governance. Moreover, like the loads of advice institutional investors get on everything from asset allocation to manager selection, it’s advice, pure and simple. If there is a bone to pick, companies ought to look at their own shareholders, who can blindly follow, without any consideration or review whatsoever, the votes recommended and cast pursuant to ISS policy.

More is expected of fiduciary managers. But proxy voting is a complex, time-consuming, and expensive proposition that many institutions ignored or did haphazardly. In reality, what ISS has done to improve the level of organization, analysis, and effort that goes into the proxy-voting process is nothing less than dramatic.  As a former customer, I can tell you that the policies are highly evolved, well designed, and customized as needed. The entire focus is on board accountability and sound corporate governance.  Issuers may not like those policies, but it is not because they are poorly researched or conflicted.