A little-understood company based in Rockville, Md., plays a key role in the high-stakes battles between activist hedge fund managers and the corporations they seek to change: Institutional Shareholders Service. Last year, ten proxy battles — heated contests over board seats that can change a company’s future –involved companies with market capitalizations greater than $1 billion tangling with powerful activists. These high-profile battles put a spotlight on the power ISS has over both corporate America and the activist shareholders out to change it,
That ISS has become the kingmaker in proxy contests between billionaire hedge fund activists and their corporate prey is even more astonishing given that ISS itself is worth less than $1 billion and started out as a back-office support system, helping shareholders cast their ballots on what are typically mundane matters of corporate governance. Says one former ISS executive who now works at a hedge fund: “ISS sort of stumbled into this powerful role.”
My Institutional Investor profile of ISS reveals its inner workings—and what both corporations and billionaire hedge fund activists think about the power it has over their lives.