Institutional Shareholder Services should end its conflict of interest on consulting to corporate clients while at the same time recommending how institutional shareholders should vote on corporate governance policies, said Ira M. Millstein, partner at law firm Weil, Gotshal & Manges, at the ISS Conference in Washington.
"Anyone who can't see there are conflicts between consulting and standard-setting has terrible eyesight. Conflicts cause you to bias your judgment in favor of profit-making, not in favor of your basic service," he said Wednesday.
Mr. Millstein also called for ISS to operate as a non-profit organization owned by its institutional investor clients, which would raise its credibility with corporations.
"Standard-setting ought to revolve around only things that impact performance. I don't think performance should be stock market performance" but return on income, return on equity, cash flow or economic value added, he suggested.
In response, ISS CEO John Connolly said, "Consulting is a misnomer. If I believe that model is flawed, we would exit that part of the business." Consulting accounts for only 15% of ISS revenues, he said, adding that "95% of ISS clients renew their services and are not deterred by perceived conflicts. ... Everything we have done we have done in the interest of institutional investors. ISS has no conflicts."