How ISS and Glass Lewis

Serve Companies

When we posted our critique of NACD a couple of weeks ago, we wrote about Glass Lewis:

[NACD sponsorship] extends to Amazon Web Services and Google, a D&O insurer, and even Glass Lewis. This broad and deep community of advisors and vendors makes a significant living from companies (ok, maybe not Glass Lewis, whose membership puzzles us). 

A friend let us know that sponsorship actually makes great sense, as Glass Lewis in fact provides a range of services to companies. Everyone knows ISS does that, and it appears we might be one of the last to realize Glass Lewis does, too. That made us wonder exactly what they do for companies, and what differs between them.

We've long supported both of them enthusiastically. They provide a valuable service to investors overwhelmed by the mounting demands of voting at AGMs. We've defended them vigorously (here, here, here, and here) against regulatory incursion, and otherwise sung their praises widely.

Thus, our curiosity comes from interest in rather than concerns about what they do for companies. Their services for companies can raise those concerns, and our look into that here mostly assuaged them.

Information and Advice

ISS and GL provide two kinds of services to companies:

• data and analyses similar to that which they provide to investor clients
• advice about how to interpret those analyses and especially how to improve corp gov and related areas, or at least how to improve the scores that these analyses generate.

ISS houses its company business in a separate entity, ISS-Corporate. GL has separate products and services for companies, although it's not clear how, exactly, they deliver these services (more below).

Each provides roughly four types of data and services for companies:

• corp gov (ISS, GL)
• exec comp (ISS, GL)
• cyber risk
• sustainability.

These of course represent the main areas in which each recommends votes to investors. Their data and models create scores or ratings in each area, which form the basis for each firm's advice about how shareholders vote proxies. They charge companies subscription fees for various packages of reports and access to underlying data.

Where do they obtain the data for these analyses? From the same data that underlies recommendations to investors, of course. They just package it for companies. Pretty resourceful...

Both also consult to companies about these analyses. These services seem to fall into three areas:

• Scores a company would receive for an upcoming AGM and how to interpret these
• How shareholders think about and react to (vote) these scores
• How a company can improve its scores.

ISS provides both corp gov and exec comp advisory services, while GL does so for exec comp. Neither explain how they charge for these services, specifically whether they structure separate fee-based consulting projects or they include consulting as part of the subscription to the reports and data.

ISS tailors these services to company advisors, such as comp consultants or law firms. GL doesn't seem to have a similar dedicated offering. ISS also offers an EVA (economic value added) consulting service, after it acquired EVA Dimensions from Bennett Stewart, one of the co-founders of Stern, Stewart, which developed the EVA system of financial metrics. It seems more like a stand-alone advisory unit within ISS serving both companies and investors.

Walls and Moats

These services mostly respond to the question, "how can we have access to what you tell investors?" This naturally leads to possible conflicts about how companies can influence what they tell investors. Both firms appear to have structures, policies, and procedures to deal with this.

The mind races to think of the conflicts, like gaining privileged access to analyses or especially influencing recommendations. A company could offer to buy everything ISS or GL sells, just for the chance to talk to the researchers or even worse.

ISS and GL have a number of safeguards against these conflicts. ISS segregates the entire service line in a distinct entity, with its own offices, leadership, and employees. We can't determine from the GL website how it segregates its company services. In 2021 it did create a new entity, Glass Lewis Corporate, to house the exec comp advisors.

Both have detailed codes of conduct. ISS publishes a formal document that applies to both ISS and ISS-Corporate, while GL publishes a long list of FAQs and policies that refer to various standards. ISS also registers with the SEC as an investment advisor.

ISS and GL have a nifty business for companies, delivering versions of what they already sell to investors. Companies say they avail themselves of these services so they can sincerely improve corp gov, although we suspect they do so to get ahead of investors and make AGMs easier. Whatever the reason, ISS and GL run them without conflicts. If it improves corp gov in at least small ways and makes life a little better for shareholders, we can't object.