20 Jul 2023 Scott Shepard: The Profoundly Partisan Ways of Proxy Advisory Firms
A lot of the responsibility for pushing corporations hard to the left in recent years lies with an until-recently little-known pair of proxy-advisory companies, Institutional Shareholder Services (ISS) and Glass Lewis. The profound partisan bias (as well as the profound conflicts) of these companies has been noted before in these pages, but has recently been highlighted by people rather more important than me, including the editors of the Wall Street Journal and the sensible members of the House Financial Services Committee’s subcommittee on Oversight and Investigations.
Once an obscure niche, shareholder proxy votes have become a major issue in recent years exactly because they have been used by the left to force companies away from their fiduciary duties and into taking the hard-left position on a whole series of issues, including equity-based discrimination, political-schedule decarbonization and bizarre and partisan social positions, as with Target having given away many millions in shareholder assets of organizations that train teachers to keep parents in the dark about gender confusion and other related issues that those organizations and teachers have themselves helped to foster.
ISS and Glass Lewis have played a vital role in this process. They are a duopoly, controlling 97 percent of the proxy advisory market. They are vastly conflicted in giving advice about how shareholders in American companies should vote, in that they are owned by European and Canadian firms, respectively, so that their owners have a vested interest in saddling American companies through private proxy action with the same sort of value-destroying regulations that the EU and the increasingly absurd and authoritarian Canadian government have instituted.
ISS is further conflicted because it both makes proxy recommendations and then sells consulting services helping companies to conform with the proposals they push. As the WSJ editors cleverly described it, “[t]his [is] like Harvard flogging services to parents on how to get junior into Harvard.”
And then, of course, there is the pure and overwhelming political partisanship of both firms.
Gary Retelny, the President and CEO of ISS, claimed recently that “[o]ur proxy advice is apolitical [and] impartial.”
This is just nonsense.
In support of his claim, Retelny notes that “ISS’ benchmark policy supported just 52 percent of all shareholder proposals characterized as ‘environmental’ or ‘social’ while supporting more than 96 percent of management resolutions.”
This, though, isn’t exculpation from the claim of partisanship. It’s a demonstration of it. It reveals that ISS’ benchmark policy takes the left side of social and environmental proposals about 60 percent of the time. This is because about 10 percent of all shareholder proposals come from center/right organizations, and ISS has never, ever supported one of those. So his supposed demonstration of non-partisanship really demonstrates that the score is
· ISS support of leftwing social and environmental shareholder proposals: 60 percent.
· ISS support of center/right social and environmental shareholder proposals: 0 percent.
In fact, ISS refuses even to communicate with supporters of such proposals. A financial industry firm that works with ISS has been trying to get it to commit to a meeting with center/right shareholder-proposal proponents for many, many months, wholly without success.
In further “evidence” of non-partisanship, Retelny asserts that ISS offers voting-recommendation options “that range from one largely aligned with board recommendations to another for faith-based investors.” The thing is, though, that, as BlackRock of all organizations has demonstrated, its impliedly center/right religious specialty option is pretty much liberation theology leftism, “generally support[ing]” the leftwing ESG proposals that ISS’ baseline supports.
Once again, then, what Retelny’s evidence really shows is that both ISS’ baseline and specialty policies support great scads of leftwing ESG proposals, while it has no policies at all that support any center/right shareholder proposals.
The rest of Retelny’s arguments similarly undermine his claim of non-partisanship. He admits that ISS supports clients who believe that “environmental and social factors can be financially material to their investment decisions.” He fails to admit – though it’s entirely true – that the company provides no support for clients who want other risks to be taken into account, including the risk of breaking the law by discriminating against the “non-diverse;” investing heavily in unreliable “renewable” energy without fully considering the economic, technological and geopolitical implications; or in fact any non-leftwing potential financial risk factors at all.
Would you genuinely like to be non-partisan, Mr. Retelny? Evaluate all proposals by the same, publicly announced, objective standards. Meet with all shareholder proponents on the same bases, and treat them the same way. Treat all relevant risks as financial risks, not just the ones that support leftwing positions. Offer a full suite of specialty options, including ones that allow clients to support center/right shareholder proposals while opposing those of the left just as you offer a suite of options for supporting most or all leftwing proposals while (naturally) opposing everything from the center/right.
That won’t solve your profound conflict problems, or your duopoly problem. But it would make your claim to non-partisanship less of a jaw-dropping lie.