Institutional Shareholder Services: Definition, History, and Solutions

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Published May 31, 2023

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What Is 🎉Institutional Sh♐areholder Services (ISS)?

Institutional Shareholder Services (ISS) provides proxy voting advice for 澳洲幸运5官方开奖结果体彩网:institutional investors such as brokerage firms, mutual funds, hedge funds, and pension ꦡfunds. Like all shareholders, institutional investors often get to vote on proposals of the companies 𒁏that they invest in. Proposals can range from voting for board members to approving important corporate actions.

Institutional investors—whose large number of shares may give them significant sway—look to proxy advisory services like ISS for data, analytics, and insights to develop their voting strategy.

ISS provides institutional investors guidance on hot-button issues like 澳洲幸运5官方开奖结果体彩网:mergers and acquisitions (M&A), executive pay, and 澳洲幸运5官方开奖结果💫体彩网:environmental, social, and governance൲ (ESG) issues. This often puts ISS at the center of 澳洲幸运5官方开奖结果体彩网:proxy fights between companies and 澳洲幸运5官方开奖结果体彩网:activist investors looking to bring about organizational changes at a company.

In the business world, there is a perception that ISS often votes on the side of activist resolutions, and the firm has been involved in some controversial showdowns between investors and company management teams.

Key Takeaways

Institutional Shareholder Services (ISS) provides data, analytics, and insights to help institutional investors develop strategies for voting on corporate proposals.
ISS focuses on environmental, social, and governance (ESG) issues, helping clients engage with portfolio companies and ensure that their investments remain aligned with sustainability policies and goals.
Clients of ISS come from across the spectrum of institutional investors, from massive asset managers to labor-oriented retirement funds.

ISS has a global presence, with approximately 3,000 employees based at 25 locations around the world in 15 countries. Its roster of over 3,400 clients includes the likes of BlackRock (BLK), which is the world’s largest 澳洲幸运5官方开奖结果体彩网:asset manager, and labor-connected retirement funds like the California State Teachers’ Retirement System.

Critics have questioned the company’s outsized influence, pointing out that the proxy advisory industry is effectively a duopoly, with ISS and rival Glass Lewis controlling 97% of the market.

History of Institutional Shareholder Services (🐭ISS)

Robert Monks, an early proponent of corporate responsibility, founded ISS in 1985 with the support of the Investor Responsibility Research Center. Since then, the company has progressed through a variety of owners: Thomson Financial; a group led by Warburg Pincus; MSCI; and 澳洲幸运5官方开奖结果体彩网:private equity firms Vestar Capital and Genstar Capital. When Deutsche Börse Group acquired a majority stake in ISS in November 2020, the deal that closed in 2021 valued ISS at roughly $2.3 billion.

Throughout its history, ISS has made acquisitions to expand its offerings and business footprint. Some of the company’s notable additions include Scandinavia-based 澳洲幸运5官方开奖结果体彩网:socially responsible 🍃investing (SRI) advisory firm Ethix in 2015, South Pole Group’s climate data division in 2017, corporate performance analytics firm EVA Dimensions in 2018, and the cyber risk security business of FICO in 2020.

Soluti♔ons Provided by Institutional Shareholder Service🌊s (ISS)

In its role as a proxy advisory firm, ISS offers a variety of solutions related to 澳洲幸运5官方开奖结果体彩网:corporate governance and responsible investing. The following are some of the specific areas wheꦦre ISS provides services for its clients.

Governance

The advice that ISS provides on matters related to corporate governance includes comprehensive solutions for institutional investors to develop and carry out proxy voting strategies. This may involve helping clients to identify risks related to ESG factors and to implement their views on corporate governance.

ESG

The firm offers solutions related to responsible investing, helping institutional investors understand and act on risks and opportunities stemming from social and environmental issues. ISS assists clients in monitoring the activities of portfolio companies and screening for investments that align with their policies on corporate responsibility and 澳洲幸运5官方开奖结果体彩网:sustainability. This includes providing data and analysis on climate-related risks.

Market Intelligence (MI)

ISS works with clients such as insurance companies and asset managers to help them drive growth through detailed data analysis. Some of the firm’s market intelligence (MI) solutions include evaluating competitors, determining market size, and uncovering opportunities related to various financial products.

Transaction Cost Analysis

The company’s LiquidMetrix unit helps clients evaluate the costs associated with financial transactions, determining the quality of 澳洲幸运5官方开奖结果体彩网:trade execution and scrutinizing potential market abuses.

Fund Services

Through FWW, a provider of data related to 澳洲幸运5官方开奖结果体彩网:investment funds, ISS offers up-to-date information that can help clients enhance their investment decisions.

Securities Class Action Lawsuits

ISS also advises clients on issues related to 澳洲幸运5官方开奖结果体彩网:class action lawsuits and 澳洲幸运5官方开奖结果体彩网:antitrust cases. This division of the firm offers a global online database known as RecoverMax with comprehensive information on class action activities related to securities, as well as services related to filing claims.

Media

The media division of ISS produces numerous publications and digital assets. These include PLANADVISER, geared toward professionals working in the field of retirement benefits; PLANSPONSOR, which is designed to help employers develop and administer their retirement offerings; and Chief Investment Officer, which seeks to inform key institutional investment decision makers. ISS media products aim to maintain objectivity and editorial integrity.

Economic Value Added

ISS also provides clients with tools for analyzing a company’s value and profit potential using 澳洲幸运5官方开奖结果体彩网:economic value added (EVA) models.

Corporate Solutions

In addition to its services for institutional investors, ISS consults with companies on corporate governance and sustainability issues. The tools and data provided by ISS help corporations ensure that their policies remain aligned with the requirements of their 澳洲幸运5官方开奖结果体彩网:shareholders.

What Are Some Examples of ISS Clients?

ISS has around 3,400 clients worldwide, representing a wide array of institutional investors and corporations. The firm’s clients include large asset managers such as BlackRock and labor-focused retirement funds like the California State Teachers’ Retirement System.

Who Are the Top Competitors of ISS?

The proxy advisory market is dominated by ISS and competitor Glass Lewis. Together, the two firms are said to control 97% of the proxy advisory industry. Critics suggest that this concentration of business and the near-duopoly structure give the firms an excessive influence on corporate policies and decision making.

What Is an Institutional Shareholder?

An institutional shareholder refers to a company or organization that invests in shares of a financial asset on behalf of others. Because institutional investors buy and sell large numbers of stocks, bonds, and other securities, they wield significant power in the financial markets. Institutional shareholders include entities such as mutual funds, hedge funds, and pension funds.

What Is the Difference Between Individual Shareholders and Institutional Shareholders?

Whereas individual shareholders—often known as 澳洲幸运5官方开奖结果体彩网:retail investors—invest their own money on their own behalf, institutional shareholders invest large sums of money on behalf of others. Given the amount of assets and shares under their control, institutional shareholders can have a strong influence when it comes to voting on shareholder proposals. 澳洲幸运5官方开奖结果体彩网:Compared with individual investors, institutional investors are subject to less stringent regulation because of the assumption that they have greater financial knowledge and experience that make them more capable of protecting themselves.

The Bottom Line

Institutional Shareholder Services (ISS) is a proxy advisory firm that guides institutional investors on matters related to corporate governance and sustainability. The company provides its clients with comprehensive solutions for establishing and managing their proxy voting strategies. The focus on environmental, social, and governance (ESG) issues often sees ISS engaging in encounters between activist investors and corporate management.

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