World’s top proxy adviser up for sale

ISS, the world’s leading proxy advisory firm, is up for sale. The board of directors of MSCI, the stock index provider that owns the firm, has authorized ‘the exploration of strategic alternatives regarding ISS,’ MSCI says in a press release. It adds that the move ‘represents the start of a process that may eventually lead to a full separation of ISS from MSCI.’

MSCI, which bought ISS in 2010 for almost $1.6 bn, says the advisory firm has boosted its sales force, strengthened its management team, bolstered its platform technology and launched a series of new products, enhancing its value. MSCI adds that ISS is now seeing record-high client retention rates and demand for its services is growing.

‘The senior ISS management team is very supportive of MSCI’s decision and confident about the future prospects of the business,’ says Gary Retelny, president of ISS, in the press release. ‘I expect the current ISS management team to remain in place and fully dedicated to the business.’

ISS and main competitor Glass Lewis control around 97 percent of the proxy advisory market, according to a US Congressional study. The study also notes that between 25 percent and 50 percent of the shares of most mid-cap or large US companies are held by investors who use the services of ISS or Glass Lewis.

The announcement of a possible sale comes amid growing controversy over the role and power of proxy advisory firms. In October NASDAQ OMX wrote a letter to the SEC saying proxy advisory firms exert ‘outsized influence from the shadows’ that can even discourage companies from going public.

NASDAQ requested the SEC demand greater transparency and full disclosure from ISS, Glass Lewis and others, particularly as to how they arrive at recommendations for shareholder votes. The exchange operator said the power of the proxy advisory firms has grown over the last decade to such an extent that public companies feel obliged to follow their recommendations even when it’s detrimental to the company.