Institutional Shareholder Services

Definition

Institutional Shareholder Services (ISS) is a leading provider of corporate governance and responsible investment solutions, offering services that help institutional investors make informed voting and investment decisions. ISS plays a critical role in shaping corporate governance practices by providing analysis and recommendations on shareholder proposals, executive compensation, and other governance matters. This influence extends to encouraging engagement between shareholders and management to promote best practices in corporate governance.

5 Must Know Facts For Your Next Test

1. ISS provides detailed reports that analyze corporate governance proposals, allowing institutional investors to make informed voting decisions.
2. Institutional investors often rely on ISS's recommendations for proxy votes, especially in relation to executive compensation and shareholder proposals.
3. ISS has a significant impact on the outcomes of votes at annual meetings, as its recommendations can sway the opinions of many institutional investors.
4. In response to shareholder proposals, ISS engages with both investors and companies to facilitate better communication and understanding of governance issues.
5. The influence of ISS has raised discussions around potential conflicts of interest, as it also provides consulting services to companies on improving governance practices.

Review Questions

• How does ISS impact shareholder engagement in corporate governance?
  • ISS impacts shareholder engagement by providing critical analyses and recommendations that guide institutional investors in their voting decisions. By highlighting important issues and encouraging dialogue between shareholders and management, ISS fosters a more informed approach to governance. This engagement helps ensure that investor concerns are addressed, leading to better alignment between management practices and shareholder interests.
• What role does ISS play in the evaluation of say-on-pay proposals, and how does it affect shareholder voting behavior?
  • ISS plays a crucial role in evaluating say-on-pay proposals by analyzing executive compensation practices and providing recommendations based on their assessments. Their reports often outline whether a company's pay structure aligns with performance and shareholder interests. As many institutional investors trust ISS's insights, its recommendations significantly influence how these investors vote on executive compensation packages during annual meetings.
• Evaluate the implications of ISS's dual role as a proxy advisory firm and a consultant for companies regarding corporate governance.
  • The dual role of ISS as both a proxy advisory firm and a consultant for companies raises important implications for corporate governance. While its advisory services aim to empower shareholders with information for better voting decisions, its consulting services may lead to perceived conflicts of interest. This situation necessitates a balance where ISS maintains its objectivity in providing unbiased advice to shareholders while also assisting companies in enhancing their governance practices. The effectiveness of this dual role ultimately influences stakeholder trust in the governance process.

Related terms

Proxy Advisory Firms: Firms that provide recommendations to institutional investors on how to vote on shareholder proposals and other corporate governance issues at annual meetings.

Corporate Governance:

The system by which companies are directed and controlled, encompassing the rules, practices, and processes that govern a company’s operations.

Say-on-Pay: A corporate governance provision that allows shareholders to vote on the compensation packages of executives, typically on an advisory basis.