Analysis: Shareholder adviser ISS tightens screws on directors

Mon Feb 4, 2013 3:35pm EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Ross Kerber

(Reuters) - As thousands of U.S. companies prepare for their annual meetings over the coming months, the influential shareholder adviser ISS has signaled it is going to put directors on a shorter leash.

ISS, the largest adviser on shareholder balloting by institutional investors, has adopted a new policy that from 2014 will make it more likely to recommend shareholders oppose individual directors in board elections if a company ignores non-binding votes for governance changes in the previous year.

Before, ISS gave directors at least two years to respond to shareholder support, based on a majority of votes cast, for reforms such as holding annual elections for all directors or abandoning "poison pill" takeover defenses.

And its recommendations hold a lot of sway with institutional shareholders. A study of thousands of corporate elections published by the Journal of Finance in 2009 found that a negative recommendation from ISS reduced support for directors by 19 percent.

While the new ISS policy is not in force this year, some governance experts believe it will begin to have an influence on boards and prompt them to more readily respond to shareholder votes for reform.

In the past, companies dealing with the results of shareholder resolutions they don't like have found ways to head off open revolts against directors by making only partial changes to satisfy a few big shareholders.

Others, such as Vornado Realty Trust (VNO.N: Quote), have set aside votes altogether. It has not acted, at least through last May on resolutions calling for its directors to be elected by majorities of votes cast, even though the resolutions received a majority of votes cast in each of the past six years.

A Vornado spokesman declined to comment. It is possible that Vornado may have changed its policy with little public notice to date.   Continued...