April 3, 2017

Proxy Advisors: ISS a Tougher Sell for Activists

This Reuters article notes that it is becoming more difficult for activists to get an endorsement from ISS in proxy contests.  Why?  Part of the answer may be that there’s a new sheriff in town:

Since Cristiano Guerra formally took over in January as the head of ISS’s special situations research team, the firm’s support for activists in proxy fights has fallen to 50 percent of the cases, compared with 60 percent last year, according to data from FactSet and Proxy Insight. Guerra became acting head on Sept. 1 of last year.

While it is still early in his tenure, Guerra has indicated a greater willingness to challenge activist funds pushing for changes in corporate boards and strategies, according interviews with advisors, investors, and current and former colleagues.

The article cites at least one somewhat surprising recent ISS recommendation – it gave “thumbs up” to a management proposal to eliminate cumulative voting at Cypress Semiconductor that was made during a proxy contest with the company’s founder.

Proxy advisors generally are taking heat for their alleged lack of transparency & conflicts of interest. ISS itself faces threats to its position as the leading arbiter of proxy voting as major asset managers build up their own capabilities & its former employees join competing shops. It’s hard to say whether any of these pressures are leading to a more management-friendly approach, but it will be interesting to see how the proxy advisory business and its most influential player respond to the changing environment.

John Jenkins