In yesterday's WSJ, David Larcker and Allan McCall explain that:
The Securities and Exchange Commission's roundtable on proxy advisory firms last week was long overdue. ...
Another concern [posed by such services], even more basic, is the current regulatory structure—which effectively requires all institutional investors to vote their shares, prove that their votes are not conflicted, and allows them to prove this by relying on proxy advisory firms. Does this system help or hurt shareholders? SEC Commissioners Daniel Gallagher and Michael S. Piwowar attempted to raise this fundamental issue at the roundtable. Unfortunately, there was little interest among the proxy advisers and institutional investors, who dominated the meeting, to pursue the matter.
Equally unfortunate, there was no direct representation of corporate directors on the panel, leaving out the very people the law requires to be responsive to shareholders. A thorough assessment of the impact of proxy advisers (and proxy voting regulation) on all shareholders cannot be obtained without understanding how corporate board members evaluate feedback from proxy voting and turn it into action.
I discuss ISS and Glass Lewis at some length in my Corporate Governance after the Financial Crisis. In it, I argue that ISS has gotten too powerful, has too many conflicts of interest, and is too biased against management. It's time for it to get reined in. Unfortunately, it sounds like the Roundtable let ISS off too easy.