Vestar purchase of ISS revives questions over proxy advisory influence

Institutional Shareholder Services has been a focus of SEC discussions about the influence over shareholder voting that proxy advisory firms have

Vestar Capital Partners — a private equity firm — has purchased Institutional Shareholder Services from MSCI. ISS is a proxy advisory firm, providing analysis and research for institutional investors such as mutual funds and endowments as they vote on shareholder decisions. MSCI provides stock market indexes and portfolio management tools — although its purchase of ISS in 2010 has been seen as less-than-beneficial for both firms. The deal for Vestar clocks in at $364 million, but it does not come without further scrutiny from regulatory bodies.

The Washington Post writes that the debate around how proxy advisory firms such as ISS influence the decisions of shareholders has been a new focus for the Securities and Exchange Commission, as the Commission held discussions in December 2013 around how impartial the influence of the firms might actually be, and whether or not their recommendations influence institutional investors too heavily in certain directions. 

At the SEC’s meeting about the subject last December, Commissioner Michael S. Piwowar said: “I see many similarities between the current situation with proxy advisory firms and the pre-crisis situation with credit rating agencies, including an unhealthy over-reliance on their recommendations by investors…By requiring advisers to vote on every single matter – irrespective of whether such vote would impact the performance of investment portfolios – our previous actions may have unintentionally turned shareholding voting into a regulatory compliance issue, rather than one focused on the benefits for investors.”

Indeed, ISS and another proxy advisory firm named Glass Lewis were the two firms in focus during the SEC’s debate. As the influence of proxy firms grows, so will the SEC’s continued examination of their influence on shareholder votes. 

Despite the debate about the influence of such entities on shareholder voting, ISS’s purchase by Vestar is seen as a sensible one by other analysts. The Post quotes Peter Wahlstrom, analyst at Morningstar: “The ISS business under the MSCI umbrella didn’t seem to make a lot of sense. It was not strategic…It’s a good business; it’s just not one that grows a lot and it doesn’t have particularly high margins.”

 

Further reading:

Proximate conflicts?

Preventing the perils of proxy season

Preparing for proxy season: The changing face of directors and the challenges they face

Contributing Author

author image

Juliana Kenny

Juliana Kenny is a contributor to InsideCounsel.com, covering a range of topics including patent litigation, conflict mineral laws, executive compensation, and antitrust regulation. Juliana earned B.A.s...

Bio and more articles

Join the Conversation

Advertisement. Closing in 15 seconds.