ISS, Other Proxy Advisers Pressed to Disclose Conflicts

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[Abridged and highlighted from a June 3, 2014 Wall Street Journal Article. The full article, which is behind a paywall can be seen here:]

The Securities and Exchange Commission is readying new guidelines for firms that advise shareholders on corporate ballots. Critics argue proxy advisers aren’t responsive enough to companies’ concerns and have too much sway over corporate governance issues, including who sits on corporate boards and how directors oversee their companies and pay top executives.

Guidance could come soon to press proxy advisers to better disclose potential conflicts of interest and may also seek to reduce investor reliance on their advice when voting in company elections, people familiar with the proposals said.

Both ISS and Glass Lewis have been at the center of fierce debates such as at J.P. Morgan Chase & Co., a proposal to oust the majority of TargetCorp.’s  board because of its handling of a customer data breach and two directors at Wal-Mart Stores Inc.  investors to vote against two directors over for their handling of disclosures concerning a foreign bribery probe.

The guidance would most directly impact ISS, the biggest U.S. proxy adviser in a small field. ISS has long been criticized by corporations, Republican lawmakers and others for selling corporate-governance consulting services to some of the same companies for which it offers voting recommendations.

Proxy advisers have also been criticized for selling their research to activist investors, many of whom propose proxy measures subject to recommendations from the advisers. Glass Lewis, the second-largest proxy adviser, is owned by the Ontario Teachers’ Pension Plan Board, a Canadian fund that sometimes takes activist positions.

“These are incremental but important changes,” said Brian Breheny, a partner at Skadden, Arps, Slate, Meagher & Flom LLP and former SEC staffer who worked on a 2010 “concept release” on proxy issues that set the stage for the forthcoming guidance.

Proxy advisers don’t always win. Glass Lewis, for example, recommended voting against management on say-on-pay measures about 13% to 17% of the time between 2011 and 2013, but management won 98% or more of such votes, said Glass Lewis Chief Executive Katherine Rabin.

Research by Jill Fisch, a law professor and co-director of the University of Pennsylvania’s Institute for Law and Economics, suggests that ISS actually shifts about 6% to 10% of votes on uncontested directors, in part because the biggest investment managers don’t vote in lock step with the adviser, and smaller investors have less of an influence on vote outcomes.

SEC Chairman Mary Jo White has said little publicly about proxy issues but has made the issue a priority and hosted a round table on the topic in December.

At a March event hosted by the U.S. Chamber, Ms. White said she was “particularly” interested in ways to boost disclosure on possible conflicts discussed at the round table.

Write to Andrew Ackerman at, Joann S. Lublin and Theo Francis at


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