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When a company issues bad or less-than-good news on a Friday or the eve of a major holiday, say just before July 4th, investors and the media generally squawk like the proverbial stuck pig.  And there is some justification for that squawking.  After all, good news and bad news should be treated in a similar manner, and IMHO it’s too cute by half when a company tries to sneak something past the public at an odd time in the hopes that it won’t be noticed.

However, it appears that Institutional Shareholder Services does not regard itself as subject to the same concerns.  Specifically, on November 2, the eve of what was arguably one of the most newsworthy if not significant elections in recent history, ISS snuck out an announcement that, effective January 2, 2021, it would no longer provide draft proxy voting reports to the S&P 500.  Apparently, ISS – which has long been criticized for limiting the distribution of draft voting reports to the S&P 500 – has decided that the way to eliminate that criticism is not to send out draft reports at all.

Instead, ISS will send out proxy voting reports to its clients — i.e., investors — earlier and will send reports to all issuers at the same time at no cost.  Thus (according to ISS), companies will have the time to provide feedback, and we’re assured that its “formal ‘Alert’ process” will enable companies to correct any errors and investors to change their votes.  Anyone who’s gone head-to-head with ISS knows how well that process works; corrective alerts can get lost in the shuffle, votes don’t get changed, etc.  And this new policy will almost surely lead to a big increase in the number of alerts.

The announcement contains several justifications for the decision, including the following:

  • The purpose of the review process was to “help check the factual accuracy” of its reports, but ISS has invested heavily in this area, with the result that its data has “a high degree of factual accuracy.”
  • The process has led to “lobbying” by companies against ISS’s recommendations. In other words, it is not being used for the purpose that ISS intended.

ISS always claims to have good justifications for its decisions – such as its decision a while back barring companies from sharing their voting reports with their counsel and other advisors – but those reasons have a hollow ring.

I want to be fair to ISS; I’m not one of those people who think that ISS should be tarred and feathered or run out of town on a rail; I understand its business model, and that even if ISS went away, something else would fill the resulting vacuum.  On a very quick pass, it also appears that the policy is consistent with new SEC rules governing proxy advisory firms that were adopted earlier this year.  However, those rules contained other procedural safeguards that may not be in place due to litigation that – you guessed it – ISS has brought against the SEC seeking to overturn the rules.

And even putting all those things to one side, I think ISS deserves criticism for sneaking out its announcement on the eve of one of the biggest news days in a long time.  Sure looks to me like hiding in not-so-plain sight.