The Advisors' Blog

– Liz Dunshee

Over the years, we’ve blogged about the extent to which ISS influences voters at institutional investors (here’s an example). Different studies (or anecdotes) show different things – and the debate continues. This recent article from “Proxy Insight” (pg. 6) indicates that some investors that are considered “passive” may be more on auto-pilot than some would think. Here’s an excerpt from that article:

Looking at Proxy Insight’s ISS Vote Comparator table, for most of these investors this is not a right they often feel compelled to exercise. The majority of them vote 99-100 percent in accordance with ISS. Of course, this correlation makes the investors a reliable source for discerning ISS recommendations.

However, we thought it would be interesting to look at what issues would make auto-voters override the voting recommendations of ISS, providing some insight into the proposals that matter most to these investors. To do this we have taken the ten largest investors by assets under management who vote in accordance with ISS, and analyzed those proposal types where they override most frequently. These include say on pay, the re-/election of directors and auditor ratification.

Say on pay is not only one of the most frequently voted issues for auto-voters, but is also usually near the top (see Table 3) when it comes to the disparity between investor voting and ISS recommendations. This is unsurprising, given that say on pay is one of the most contentious proxy voting topics, which is seemingly never out of the news.

However, as Table 1 illustrates, even on contentious issues auto-voters receive a correlation with ISS that ranges in the high 90s. Moreover, the lower correlation on exclusively ISS against recommendations (Against recs (%)) indicates that the auto-voters are more passive than ISS, overriding the proxy adviser in order to vote with management. Other proposals near the top of the list include the approval of stock option plans and restricted stock plans.

Note that the meaning of “passive” depends on one’s perspective. To some, it’s voting with management. But others could say that breaking with ISS for the say-on-pay vote is the definition of “active” – given the time & effort required for an institutional investor to override a default voting policy.