ISS Comment Letter to the SEC on the Proxy Process

ISS has filed its comment letter for the Proxy Roundtable with the SEC. Some highlights:

They respond to those who claim that proxy advisors are not regulated and those who claim they control the proxy voting decisions of their clients: “As a registered investment adviser, we have a fiduciary obligation to our clients to provide advice that is in their best interest. In the free market, our clients hire us because we provide services they value and deem to be cost-effective. We listen to our clients and make our vote recommendations based on the governance policies they have selected – whether benchmark or customized. Unfortunately, many of our critics confuse causation and correlation on these vote recommendations, inferring that our clients blindly follow our advice. In fact, our clients are sophisticated institutional investors who are free to follow our recommendations or not. Often, the information that we provide to our clients is one of many different inputs they use to make their voting decisions. They often vote in accordance with our recommendations because those recommendations are tailored to their own views on corporate governance, not because they follow our advice without thought or intention.”

ISS also conclusively rebuts the claim that institutional investors are required by SEC rules to vote proxies and would not do so without such a requirement: “Likewise, the Commission’s rulemaking on proxy voting by mutual funds does not obligate funds to vote every available proxy relating to portfolio securities, but merely requires funds to disclose the policies and procedures they use to determine how to vote proxies and to file annual reports disclosing how their votes were cast.”

The comment also points out that “Main Street investors” overwhelmingly choose to invest through professionally managed funds, and to pretend there is some conflict of interest between them is not supported by the facts.

The CEO-funded fake front group Main Street Investors and its affiliate the American Council on Capital Formation have claimed that ISS does not give issuers enough time to respond to their recommendations and makes numerous mistakes. ISS responds: “Despite this extremely tight timeframe, ISS has voluntarily incorporated a limited issuer review step into the analytical process. In the U.S., constituents of the Standard and Poor’s 500 Index generally receive an opportunity to review a draft analysis for factual accuracy prior to the delivery of the report to clients, and ISS considers other requests for review and comments on a case-by-case basis. Given the limited time between the hard start of receiving the proxy statement and the hard stop of delivering the report to clients sufficiently in advance of the meeting, along with the concentration of a large percentage of meetings during so called “proxy season,” there simply is not time to afford all of the approximately 39,000 issuers ISS covers globally the opportunity to review draft reports. However, ISS offers all issuers a free copy of the published analysis for their own shareholder meetings upon request. This affords issuers the opportunity to bring any factual error in the report to ISS’ attention. In many cases, however, what issuers consider to be “errors” are in fact differences in philosophy, interpretation or, simply, outright disagreements with ISS’ voting policies.”

The full text: ISS’ Roundtable Comment Letter (FINAL)

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