PROXY ADVICE 101
The Importance of Proxy Voting
Proxy voting is a means by which shareholders exercise their rights as the owners of a corporation to vote on management and shareholder proposals of the companies in their investment portfolios. Institutional investors regularly vote billions of shares on thousands of ballot items at annual shareholder meetings during the spring U.S. “proxy season,” consistent with their role as fiduciaries on behalf of tens of millions of Americans with equity investments through their 401K, IRA, or other retirement and savings accounts.
ISS Benchmark Policy
ISS’ benchmark policy is market-specific & reflects extensive client and market feedback on common proxy voting issues. The policy focuses on voting principles designed to maximize long-term shareholder value.
ISS conducts a formal, yearly review process to update the benchmark voting policy, which also helps inform updates to ISS’ specialty voting policies.
Clients’ Custom Policies
Custom voting policies belong to ISS’ institutional investor clients and reflect their unique investment philosophies, client mandates, and regulatory obligations. ISS administers custom voting policies on the clients’ behalf.
*~90% of voted shares processed by ISS globally on behalf of clients are linked to clients’ custom voting policies.
ISS Specialty Policies
ISS’ specialty voting policies comprise seven “thematic” choices that reflect a range of investor viewpoints and philosophies, including a policy focused on Taft-Hartley pension plans and a policy that generally follows a board’s recommendation on environmental and social shareholder proposals.
THE ROLE OF PROXY ADVISORY FIRMS
Proxy advisory firms are service providers to institutional investors that aggregate, synthesize, and analyze publicly available information of their clients’ portfolio companies and provide proxy vote recommendations based on the clients’ selected proxy voting policies. Proxy advisers do not choose the ballots or agenda items on which they render advice; they provide services only to the investors who have hired them and analyze only the companies designated by clients. They also provide informational and operational efficiency and scale that help investors carry out their stewardship and proxy voting activities in a responsible and cost-effective manner – in short, proxy advisory services allow investors to vote as they see fit.
Investors are not required to use proxy advisory firms, but many do and some use more than one proxy adviser. ISS and three other proxy advisers are registered under the Investment Advisers Act and are subject to regulation by the SEC.
Importantly, proxy advisers do not take a one-size-fits-all approach.
The majority offer investors a choice of voting policies while implementing the voting guidelines that their investor clients provide. They also provide sophisticated client platforms and tools that embed investor choice in every aspect of the vote execution process.
Proxy advisers play an advisory role in the proxy voting process. The voting decision for each resolution at a company meeting is the responsibility of the company’s shareholders or their designated voting agents, such as investment managers or pension plan trustees. Proxy advisory services are one input to a mix of information that some investors may use to carry out their stewardship and proxy voting obligations.
ISS is a Neutral Service Provider
As an RIA with a fiduciary duty under the Advisers Act, ISS’ sole objective is to help its clients make their own informed proxy voting decisions. ISS is indifferent to the outcome of a proxy vote, whether clients follow a vote recommendation or not, or whether they choose to vote at all. In fact, ISS can, and often does, make opposing recommendations to different clients on the same ballot issue depending on the policy the client has chosen.
As a proxy advisory firm, ISS’ job is to provide subscribing institutional investor clients with independent, timely, and expert research and vote recommendations based on the proxy voting policies the clients have selected and, in many cases, customized based on their determination of the best interests of the beneficiaries they serve.
ISS also plays a critical role in helping investment managers with the procurement of ballots and awareness of market mechanics involved in proxy voting. Many investment managers need to interact with numerous custodians around the globe to vote their shares. ISS collects and organizes this data in our ProxyExchange application, allowing investors to manage their voting with ease.
Overview of ISS’ proprietary proxy voting policy offerings and the client custom policies it administers. All ISS voting policies, and any accompanying FAQ documents, are publicly accessible on the ISS Policy Gateway website.
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For more information about Institutional Shareholder Services (ISS), please visit the ISS website at https://www.issgovernance.com/about/about-iss/.