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June 20, 2006
Correlating Proxy Advisory Firm Recommendations with Voting Results
    by Bill Baue

A look at the link between recommendations by Institutional Shareholder Services, Glass Lewis, and PROXYGovernance and voting results at Citigroup, Chevron, ExxonMobil, and Wal-Mart.

After posted its two-part article in April comparing proxy recommendations by the three major proxy advisory firms at Citigroup (ticker: C) and Chevron (CVX), USNews & World Report business reporter Kim Clark called to say she had never seen such a comparison. If information on this relationship is indeed rare in the media, then what about the next step in the relationship--namely, between recommendations and actual vote outcomes? There must be some degree of correlation, because most institutional investors--pension funds, mutual funds, endowments, and the like--base their proxy votes on recommendations by the major advisory firms--Institutional Shareholder Services (ISS), Glass Lewis, PROXYGovernance. However, mapping the correlations is extremely complicated.

"We do not track vote outcomes versus recommendations--clients own 100 percent of the voting decision and it's impossible to determine what factors trigger those decisions," said Jim Letsky, senior analyst with ISS. "ISS clients subscribe to a variety of policies, therefore recommendations across policies can, and often do, differ."

"Additionally, we manage 300 custom client policies, and recommendations are made according to the client's guidelines," Mr. Letsky told "Finally, since many investors use multiple proxy advisors, it's impossible to know how they weighed each of our respective recommendations."

Bob McCormick, vice president of proxy research and operations at Glass Lewis, cites similar reasons why his company follows the same course, as well as adding additional reasons.

"We have not attempted to track any correlation between our recommendations and voting outcomes simply because we do not think it is relevant," Mr. McCormick told "Our clients, like those of other voting agents, may vote the same as Glass Lewis recommends for very different reasons than Glass Lewis and therefore we do not feel that determining the potential correlation would be very illuminating or helpful because the numbers may be skewed due to these coincidental voting similarities."

Comparing recommendations across the three advisory firms to the voting results at four companies--Citigroup, Chevron, ExxonMobil (XOM), and Wal-Mart (WMT)--illustrates some correlations and confounds others.

"We see a high 'correlation' between our recommendations and the vote outcomes as, at each company, the social proposal that we supported got the highest support level of the social policy questions on the ballot at that company," said Scott Fenn, managing director of policy at PROXYGovernance. "However, we are not so naive to believe that our recommendation is what is 'causing' these high votes and correlations."

"Rather, we believe that our analytic methods and approach to these issues are in step with what investors truly care about--the tangible impact of some, but not all, social issues on shareholder value," Mr. Fenn told

Indeed, PROXYGovernance recommended voting for the sexual orientation non-discrimination resolution (along with ISS but not Glass Lewis) at ExxonMobil, where it received 34.6 percent support--the second highest result of the 13 shareholder resolutions filed there.


Likewise, PROXYGovernance recommended in favor of the resolution asking Chevron to adopt a human rights policy (along with ISS but not Glass Lewis, again) that received 25 percent support, the second-highest of six shareholder resolutions filed there.


However, stepping back to include the governance resolutions undermines such a correlation. For example, PROXYGovernance recommended voting against a resolution requesting performance-based equity pay at Citigroup (where ISS and Glass Lewis recommended for it) that received 49.7 percent support!


One confounding factor is the difference in results on the same resolution at different companies. For example, all three proxy advisory firms recommended voting for the majority vote director elections resolution (including ISS's standard and SRI platforms) at ExxonMobil and at Wal-Mart. However, the measure received 52.2 percent support at ExxonMobil (leading the company to consider adopting it) while it received only 22.4 percent support at Wal-Mart.


"Bear in mind that the Walton family owns 40 percent of the stock, which explains the relatively low support level," said Shirley Westcott, managing director of policy at PROXYGovernance. At ExxonMobil, in contrast, insiders hold zero percent of floating shares.

This example illustrates the multiplicity of factors bearing in on the relationship between proxy advisory recommendations and vote outcomes. Clearly, the attempt to correlate recommendations to voting outcomes is a Herculean (if not Sisyphean) task--whether it is irrelevant or unilluminating, however, is another matter altogether.


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