Keith Paul Bishop writes:
ISS fails to mention contrary studies that reach the opposite conclusion. For example, one study examined newly public firms and found that busy boards actually have a positive effect. See Laura Field, Michelle Lowry & Anahit Mkrtchyan, Are Busy Boards Detrimental? J. of Fin. Econ., 2013, 109, 63-82. Accordingly, these authors warn “Broad-brush recommendations to reduce directorships should not be pursued”. The authors of another study concluded:
We fail to find the negative relation predicted by the Busyness Hypothesis between the number of board memberships held by a director and subsequent firm performance. Our other tests of the Busyness Hypothesis are consistent with these results. Market participants do not react negatively to the appointment of a multiple director. Further, we find no evidence that multiple directors shirk their responsibilities to serve on board committees and no statistically significant evidence of a relation between multiple directorships and the likelihood that the firm will be named in a securities fraud lawsuit.
Pritchard, Adam C., “Too Busy to Mind the Business? Monitoring by Directors with Multiple Board Appointments.” S. P. Ferris and M.
Jagannathan, co-authors. J. Finance 58, no. 3 (2003): 1087-111.
My point isn’t to choose either side in this debate, but rather to point out that there is a serious ongoing disagreement about the impact of busy directors on firm value. Investment advisers should take note of ISS’ one-sided presentation. The SEC staff has taken the position that “an investment adviser that receives voting recommendations from a proxy advisory firm should ascertain that the proxy advisory firm has the capacity and competency to adequately analyze proxy issues, which includes the ability to make voting recommendations based on materially accurate information.” Proxy Voting: Proxy Voting Responsibilities of Investment Advisers and Availability of Exemptions from the Proxy Rules for Proxy Advisory Firms, Staff Legal Bulletin No. 20 (IM/CF) (June 30, 2014). When ISS chooses to overlook or ignore academic research that contradicts its recommendations, can it reasonably be said that it has the ability to make recommendations based on “materially accurate information”?