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The Shareholder Forum

The Shareholder Forum supports investor interests in corporate enterprise value with services that require independence – and that may benefit from the Forum’s network resources and recognition for advocacy of long term investor interests – to assure a definition of relevant issues and fair access to information that can be relied upon by both corporate and investor decision-makers.

The policies that provide a foundation for the Forum’s marketplace functions have been carefully developed and tested to allow any investor to participate in its communications, either anonymously or visibly, without acting in concert. Established originally to accommodate professional fund managers, this independent moderator function has proved to be consistently effective in managing orderly processes of issue definition for rational analysis by fiduciaries who are responsible for informed decisions.

Initiated in 1999 by the CFA Society of New York (at the time known as the New York Society of Security Analysts) with lead investor and former corporate investment banker Gary Lutin as guest chairman to address the professional interests of its members, and independently supported by Mr. Lutin since 2001, Forum programs have achieved wide recognition for their effective definition of important issues and orderly exchange of the information and views needed to resolve them. The Forum's ability to convene all key decision-making constituencies and influence leaders has been applied to subjects ranging from corporate control contests to the establishment of consensus marketplace standards for fair disclosure, and has been relied upon by virtually every major U.S. fund manager and the many other investors who have participated in programs that addressed their interests.

Currently important applications of the Forum’s independent position include the support of corporate managers who wish to provide the leadership expected of them by responding to activist challenges with orderly reviews of issues relevant to long term investor interests.

Requests for Shareholder Forum consideration of support may be initiated confidentially by any investor or by the subject company, or by the professional advisors to either.  

Special Program


Independent Analysis of Shareholder Interests

in a merger transaction proposed by

Providian Financial Corporation



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Insight Into How Companies Should Be Run

November 9, 2005


ISS Advisor-Consultant Conflicts Raised As Governance Activist Goes Corporate

By Tiffany Kary


            Ira Millstein, known as the “go to” man for companies with sensitive governance dilemmas, has taken aim at a new organization - the very one that assesses the governance of most U.S. companies, Institutional Shareholder Services.

            At ISS’s recent 20th anniversary conference, Millstein, a senior partner at Weil Gotshal & Manges LLP, criticized the proxy advisory for a conflict inherent in its business model - taking pay for advising companies on how to improve their corporate governance, while also proffering objective recommendations to institutional shareholders on how to vote on governance issues. ISS Chief Executive John Connolly, who fielded Millstein’s barbs, said its consulting business is firmly separated from its traditional vote advisory work by a “Chinese wall.” But critics note that this excuse was also once used by the investment banks and auditors before regulators

pried open a nest of conflicts.

            While ISS’s alleged conflict has existed for some time, many say it’s a bigger issue now due to ISS’s recent merger with the U.S.’s second-largest proxy advisor, Investor Responsibility Research Center Inc. (IRRC), and the expansion of its nonadvisory services, including an M&A Insight report and a corporate governance quotient (CGQ) index.

            “Anyone who can’t see a conflict between consulting and standards-setting has a problem with their eyesight,” said Millstein.

            Connolly said, “ISS has no conflict. ISS’s integrity is not for sale,” he added, saying, “‘Consulting’ is a misnomer from where we sit. It’s not a bad practice.”

            The two points of view revolve around an alleged conflict: Since companies pay ISS to tell them how to improve their governance, there’s a concern that when ISS recommends to institutional clients how to vote on directors and shareholder proposals that the agency will side with management in cases where it had consulted with the company - not necessarily because the client had paid it, but because it had given their policy its stamp of approval through consulting


            While ISS said its vote advisors aren’t aware of who the company’s corporate clients are and has said the consulting just makes it a good-governance intermediary between management and shareholders, critics note that because ISS hasn’t been open about what its precise criteria are for different standards on things like executive pay and director independence, there’s a type of “black box” that could allow it to vary its judgment from company to company, and perhaps favor its clients when it makes recommendations.

            “Who is the Wizard of Oz creating these standards behind the iron curtain?” said Millstein, who pounded his fist on the table and repeated, “Show me the Web site,” in reply to all Connolly’s responses, suggesting that an objective list of standards should be available online.  Connolly responded that ISS is becoming more transparent, and already has open “policy jams” to establish its standards and spends time communicating those standards to institutional clients.

            Gary Lutin, an investment banker who runs Lutin & Co. and, noted there’s been some controversy over ISS’s M&A Insight product, noting that ISS is offering to provide their “insights” and “interactive” communications about their thinking in relation to contested situations before making a recommendation.

            “What they are doing with the M&A Insight product is the equivalent of an influential newspaper selling its advertisers an opportunity to guide the editorial process,” he said.

            ISS spokeswoman Cheryl Gustitus said that the product doesn’t give an unfair advantage to anyone. She said though it consists of two parts - notes, which go out sporadically to subscribers as the merger situation evolves, and a final analysis, which goes out to all clients - the notes use only publicly available information.

            The company’s CGQ product, which gives companies an overall governance score, is also being criticized as a black box, as ISS can consult with companies on how to get a better score, and weights some criteria more than others for individual companies, depending on variables such as performance measures.

            Some institutional clients have expressed concern, while others say ISS has put any doubts to rest by its openness about the issue.

            “It’s an issue that’s not going to go away,” said Cynthia Richson, corporate governance officer of the Ohio Public Employees Retirement System (OPERS).  “They do good research [but] it’s short-sighted to act like this conflict of interest issue is not important to its clients.”

            Richson said OPERS chose Glass Lewis & Co. to take over as its proxy advisor in 2006, specifically dismissing ISS as a result of the “actual or perceived conflicts”. The pension fund had previously used a combination of services from IRRC and Glass Lewis.

            Greg Taxin, chief executive of Glass Lewis, said “a number of former ISS clients have decided to use our services instead because of their concern about the conflict of interest question.” Taxin noted that the IRRC merger, as well as an interpretive letter from the Securities and Exchange Commission that suggested the onus is on investment managers and pension funds themselves to make sure that their proxy advisory didn’t have any conflicts, has led to an increased concern about potential ISS conflicts over the past two years.

            But some ISS proxy advisory customers aren’t concerned. Two at the conference, speaking on condition of anonymity, noted that they go over voting policies themselves anyway, and while they consider ISS recommendations, the ultimate decision is with them.

            Margareth Crosnier De Bellaistre, director of investment management and banking for the Episcopal Church, after hearing Millstein’s arguments, said that it does “raise questions that ISS are consultants as well as advisors,” but said she found Connolly’s comments reassuring.

            Edward Knight, executive VP and general counsel of The Nasdaq Stock Market, also speaking at the conference, praised ISS’s openness in having Millstein speak. “It’s evidence of why we have such strong markets in the U.S.,” he said.

            Millstein suggested that ISS’s problem was related to a broader trend at the organization to answer to a profit motive rather than a social one. He suggested ISS would be more credible if it was a not-forprofit, as IRRC was before the two merged.

            Millstein also suggested that investors themselves, not the governance experts, lawyers or other “governistas,” should decide voting policy, and there should be more of a demonstrable link between voting policies and expected stock performance.

            “I see industrialization as boiling something out of the process: judgment,” he said, adding that the new market-oriented approach of ISS reminded him of Charlie Chaplin on the factory floor in “Modern Times,” a movie about industrialization’s perils. CG



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