A great piece by Jim Copland in today's WSJ begins:
In the boardrooms of America's largest corporations, a company with scarcely over $100 million in annual revenue and $10 million in profits commands directors' full attention: the proxy advisory firm Institutional Shareholder Services. ISS advises pension funds, mutual funds and hedge funds on how to vote on corporate ballot items.
The company is the dominant proxy adviser, reporting 1,700 clients that manage an estimated $26 trillion in assets. But its role in corporate governance is largely a creation of federal regulations—and its positions on countless ballot items follow the lead of special-interest investors like labor-union pension funds and "socially responsible" investing vehicles, not those of the average diversified investor.
A must read. And I couldn't agree more with his conclusion:
The significant influence of ISS on corporate proxy voting—along with the large, systemic gap between its preferences and those observed in shareholders' actual votes—raises questions about whether shareholder voting is working effectively to improve share value. Rather than pass legislation like Dodd-Frank—which amplifies ISS influence by mandating "say on pay" shareholder votes on executive compensation—Congress should instead be re-examining how much good these proxy ballots do for shareholders and capital formation.
