How Powerful is ISS? Less—and in Different Ways—than Most People Think

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Institutional Shareholder Services (ISS) is commonly regarded as the most powerful of all proxy advisors. Virtually every major institutional investor subscribes to its proxy research services. Its voting recommendations, according to some estimates, swing 20% to 30% of the shareholder votes. Delaware's Chancellor Leo Strine colorfully explains that Powerful CEOs come on bended knee to Rockville, MD, where ISS resides because the CEOs recognize that some institutional investors will simply follow ISS's advice rather than do any thinking of their own. In a series of empirical studies, the authors have investigated the influence of ISS. Their conclusion is that the power of ISS has been greatly overstated. They estimate that an ISS recommendation shifts 6% to 10% of the shareholder vote. Their research further suggests that even this influence is to a large extent due to the substantive information provided by ISS and to the fact that ISS recommendations reflect the pre-existing voting preferences of its subscriber base, rather than to investors blindly following ISS.

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Corporate Governance Advisor

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