DealLawyers.com Blog

June 2, 2015

Activist Investors & Proxy Advisors

This blog entitled “If You’re Waiting for ISS, It Might Be Too Late” written from the activist investor viewpoint is interesting. Here’s an excerpt:

Problems With Waiting for ISS and GL
While support from ISS and GL certainly can’t hurt, it also is by no means assured, even in poor performers. In proxy contests, both firms render opinions based on two criteria:

– Is the company bad enough that the BoD needs change, and changing the BoD will matter?
– Will the shareholder nominees do better than incumbents?

If an investor can’t persuade institutions on these two points before ISS and GL render an opinion, an investor may not persuade ISS and GL, either. Even worse, ISS and GL have less influence than one might think. Most of the largest institutions have independent proxy departments that analyze proxy contests. ISS and GL have input to their decision, but hardly determine how they vote.

Why Is It Even Close?
We prefer activist projects at portfolio companies with big problems, obvious solutions, and a concentrated institutional investor base. Who wouldn’t? There, it becomes straightforward to convince other shareholders of the case for change, and that your BoD nominees make more sense.

Obviously, not every company fits. Many situations can get close. The less it fits, the more a shareholder dependson ISS and GL to help make the case. As you depend more on ISS and GL, you lower the chances of prevailing. Worry about ISS and GL, especially if you can’t avoid a close situation. But, try not to count on them.