(Repeats for wider distribution)
By Michael Flaherty
NEW YORK, March 30 Institutional Shareholder
Services Inc, the world's top proxy advisory firm, is making
activist investors work harder than ever to earn its backing in
corporate control battles in a shift being led by the new man in
charge of its recommendations.
Since Cristiano Guerra formally took over in January as the
head of ISS's special situations research team, the firm's
support for activists in proxy fights has fallen to 50 percent
of the cases, compared with 60 percent last year, according to
data from FactSet and Proxy Insight. (Graphic: tmsnrt.rs/2nhYXei)Guerra
became acting head on Sept. 1 of last year.
While it is still early in his tenure, Guerra has indicated
a greater willingness to challenge activist funds pushing for
changes in corporate boards and strategies, according interviews
with advisors, investors, and current and former colleagues.
"I think (Guerra) is fair and has no obvious sympathy for
one side or the other," said Bruce Goldfarb, CEO of proxy
solicitation firm Okapi Partners.
"There will be a more significant burden, more so than in
the past, for activists to explain why ISS should support them."
Bought by private equity firm Vestar Capital Partners in
2014, ISS has a staff of 900 covering each year 40,000 meetings
of publicly traded companies worldwide, offering recommendations
on everything from CEO pay to a board's bylaws. Guerra's team -
which also issues recommendations on mergers and acquisitions -
wields significant influence over the outcome of proxy fights
and contested transactions.
Signs that ISS's stance is evolving from one perceived as
more sympathetic towards activist shareholders comes at a time
when activist targets are thinning out and smaller in size after
a six-year surge in campaigns against corporate boards.
Guerra's most telling decision so far came on March 16, when
ISS recommended shareholders for Cypress Semiconductor Corp
, which was facing a proxy fight, vote for management's
proposal to eliminate cumulative voting. The structure favors
minority shareholders because it gives them more power when
deciding the fate of individual board members. ISS had rarely
recommended to eliminate such a shareholder right in the face of
a contested election.
Guerra played a key role in ISS adopting the position that
by eliminating the cumulative voting bylaw, and adopting other
measures, it would the playing field for all shareholders,
according to people familiar with the matter.
"I don't think ISS would have made that kind of decision
five years ago," said one of Guerra's former colleagues, who
offered to be interviewed only on condition of anonymity.
Guerra, 44, was an executive at an aviation security company
before he joined ISS in 2009. Quiet and deliberate, sources say,
he has kept a low profile since his appointment and declined to
be interviewed. ISS spokesman Subodh Mishra also declined to
comment on the company's behalf for the story.
One of the biggest challenges facing ISS and Guerra's team
is defending its position as the go to source for shareholder
recommendations. Big asset managers, such as BlackRock Inc
and Vanguard Group Inc, are building up their in-house
proxy voting arms. Advisory firms such as Camberview Partners
LLC and Sard Verbinnen & Co are hiring former ISS staffers and
corporate governance experts to expand into proxy advisory work.
The Maryland-based company is under constant pressure to
demonstrate its impartiality given it gets paid by institutional
funds for its research and recommendations. ISS has increased
its reach to companies as well in recent years, which use its
consulting arm for corporate governance advisory services.
The U.S. Chamber of Commerce has criticized ISS for siding
with shareholders at the expense of CEOs and company directors,
and has called for more regulatory oversight, which resulted in
a Congressional bill last year that never made it to a vote.
ISS's special situations research team has yet to be tested
by a major, high-profile proxy contest under Guerra's
leadership. That will come later in this year's proxy season,
when it rules on activist hedge fund Elliott Management LP's
attempt to overthrow board directors and the CEO of Arconic Inc
, the $10 billion specialty metals company.
(Reporting by Michael Flaherty; Editing by Greg Roumeliotis and