Who’s the Boss?

Shareholder activists want more say in how American companies are run.

Shakedown Street?

Although The Securities and Exchange Commission’s proposed shareholder access rule has plenty of supporters among institutional investors, opponents believe the rule would increase the already considerable clout of shareholder advisory firms, particularly Institutional Shareholder Services (ISS).

Patrick McGurn, senior vice president and special counsel at Rockville, Maryland-based ISS, rejects the charge, claiming executives at the firm would be cautious about recommending a withhold vote that could lead to a board shakeup. Besides, he adds, “companies have the keys to changing our recommendations.”

One way, apparently, is to hire ISS. Indeed, the firm’s business model (and that of a few other firms, such as corporate-governance rating agency GovernanceMetrics International) has come under fire for supposed conflicts of interest. Critics claim ISS is working both sides of the governance street, advising institutional clients on how to vote on management proposals while coaching corporate issuers on how to get their proposals passed. What’s more, the ISS’s flagship product, a governance-rating system known as CGQ (Corporate Governance Quotient), seems akin to a marketing tool–one that helps the firm sell other services. At a panel discussion conducted by the SEC in March, AutoZone Inc. CEO Stephen Odland raised the issue: “It’s interesting [that] when you get a [governance] rating, you have to buy [the firm's] services to understand its ratings and correct some of the assumptions made in them.”

At the very least, it appears that purchasing ISS’s Web-based governance products can help a company’s directors and officers deduce what kind of recommendation ISS will give on a particular management proposal. To some, that smacks of a shakedown, albeit a legal one. Bill Calder, a spokesman at Intel Corp., says that in the past, his company has “paid for certain services from ISS because it was important to understand how it’s analyzing our data for large institutional shareholders.”

But supporters say ISS plays a vital role in reining in abuses. And McGurn argues that any criticism should be aimed at executives who blithely ignore shareholders. “If companies are going to accuse us of accepting money for improving a company’s corporate governance,” he adds, “I’ll take that every time.” —J.G.

A Little Divine Intervention

As anyone who has ever Attended catholic school will attest, getting on the wrong side of a nun can be a tactical mistake of monumental proportions. Imagine, then, how some corporate executives must feel knowing they’re on the wrong side of entire orders of nuns.

That’s exactly the position executives at some companies find themselves in, thanks to their policies on HIV/AIDS. Merck, Pfizer, and Abbott Labs, among others, have all been targeted by the Interfaith Center for Corporate Responsibility, a group of 275 faith-based institutional investors with over $100 billion in assets. The ICCR argues that most businesses have ignored the impact of AIDS on sales in key markets like China and India. “The infrastructure of society is breaking down,” says Sister Vicki Bergkamp, a nun who belongs to ICCR member The Adorers of the Blood of Christ, an order of Catholic women that helps children of AIDS victims in Tanzania. “No company should make money when this happens.”


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