European Audit Committee Leadership Network, May 2016
On 7–8 April 2016, members of the European Audit Committee Leadership Network (EACLN) met in London for their 25th stand-alone meeting. In one session, they were joined by Gary Retelny, president and CEO of Institutional Shareholder Services (ISS), to discuss the proxy advisory industry.
This ViewPoints synthesizes the key points discussed in the meeting. It also includes background information and perspectives that members shared before the meeting.
EACLN members discussed the following topics with Mr Retelny:
ISS and the proxy advisory industry
Investors and other stakeholders rely on ISS and other proxy advisory firms to help fulfill their corporate governance obligations. The core of ISS’s business has traditionally been advisory services to institutional investors: the company provides research, proxy voting guidelines and proxy voting services. However, ISS has broadened its portfolio to provide a range of global services to different constituents. Audit committee chairs and Mr Retelny discussed these services, ISS’s plans for growth, and ways to ensure that investors and proxy advisers make decisions based on accurate information.
Proxy advisory firm oversight and practices
Responding to pressure from the European Securities and Markets Authority (ESMA), the leading proxy advisory firms, ISS among them, adopted a set of best-practice principles that address three broad areas: service quality, communications with stakeholders and conflicts of interest. ISS has shared its high-level processes for researching governance issues and making voting recommendations, along with methods to ensure high quality. ISS also seeks input from companies and other market participants on its broad policy decisions and its analysis of individual companies. Because it does work for both investors and companies, ISS has a set of practices to avoid conflicts of interest.
Specific policies and voting recommendations (page 8)
A number of key corporate governance issues have caught the attention of institutional investors and have therefore become a priority for ISS. In particular, Mr Retelny emphasized that board composition and director tenure are front of mind for investors today. EACLN members were interested in ISS’s positions and voting recommendations on these issues.