Do Shareholders Agree with ISS? Evidence from ISS Vote Recommendations

Abstract:     
Of all the proposals that are voted upon in annual shareholder meetings, proposals aimed at protecting or eliminating shareholder rights are the ones that do not conform to the recommendations made by Institutional Shareholder Services. That is, proposals that eliminate rights pass despite ISS "AGAINST" recommendations and proposals that protect rights fail despite ISS "FOR" recommendations. Maug and Rydqvist (2009) document this discrepancy. In this paper, using 830 proposals that alter shareholder rights between 1994 and 2003, we hypothesize and find that the concentrated ownership within the firm and the design of statutory pass rate leads to the above discrepancy. We also find that the CEOs who favor the proposals that eliminate rights when ISS recommends "AGAINST" have a lower dismissal likelihood (both internal and external driven). Although, this result may suggest that these CEOs are entrenched, we find that post one year operating returns is approximately 3% higher than other firms in the sample. Our results broadly suggest that this discrepancy does not support "managerial entrenchment hypothesis".

Number of Pages in PDF File: 44

Keywords: Corporate Governance, Shareholder Voting, Institutional Shareholder Services, Antitakeover Provisions

JEL Classification: G30

working papers series