Risk & Compliance

Users May Put Proxy Firms under Glass

With both Glass Lewis and ISS under new ownership, questions arise among clients.
Roy HarrisMay 29, 2007

As more questions surface about the activities of the Shanghai-based company that bought proxy advisor and investor research firm Glass, Lewis & Co. this year, those who use such advisory firms are expressing concerns about the whole proxy-services business.

Glass Lewis, owned by Xinhua Finance Media, an arm of Xinhua Finance Ltd., had been challenging Institutional Shareholder Services for leadership in the proxy-advisor field. ISS itself was acquired last year by RiskMetrics Group Inc., a New York-based risk-management firm.

The controversy over Glass Lewis continued over the Memorial Day holiday, a week after it first was reported that its highly respected managing director of research, Lynn Turner, and its managing director and research editor, Jonathan Weil, had resigned. Weil cited a need to “protect my reputation” by severing his association with Glass Lewis and Xinhua Finance. Barron’s detailed the key role that the former CFO at Xinhua Finance Media, Shelly Singhal, had played in obtaining financing for Xinhua Finance prior to its start-up of Xinhua Finance Media as what it called a “diverisifed financial and entertainment media company targeting high net worth individuals.”

Barron’s said that Singhal, previously to joining Xinhua, worked at investment banker Cruttenden Roth and performed banking services for two companies alleged to have been involved in fraudulent activities, AremisSoft and Summit Securities. After being instrumental in Xinhua’s build-up of Xingua Finance Media, Singhal then became CFO of the media company last September. He resigned last weekend because of “recent allegations against me in the press,” as he put it, adding that his role as CFO had become “a distraction to management.”

Press reports have noted that the leading proxy-services company, ISS, has been the source of some client concern since its acquisition by RiskMetrics, especially as the parent considers an initial public offering. This has focused positive attention on such non-public firms offering proxy advice as Egan-Jones Ratings Co. and the Proxy Governance Inc. unit of Foliofn Inc. The thinking is that the privately firms might pick some of the leaders’ business. One large institutional shareholder, for example, worried that short-term shareholder needs might influence the voting policies at ISS in the future.

With firms like ISS and Glass Lewis having earned praise for their independence over recent years, questions about the effect of ownership changes are new for customers and others who rely on them for information. San Francisco-based Glass Lewis said last week, after the announced departures of Turner and Weil, that it was putting together a council to make sure quality standards are maintained in the objectivity and independence of its research.

A spokeswoman for ISS responded to CFO.com by email that its clients have expressed no worries about its ownership by RiskMetrics “aside from the concerns associated with…possible operational distractions that generally come along with an acquisition.” The spokeswoman also wrote that a final decision hadn’t been reached about a public offering by RiskMetrics, but that there likewise had been no client concern expressed about that possibility.

In an email response from Glass Lewis, CEO Katherine Rabin said that “Glass Lewis maintains complete operational and editorial independence from Xinhua Finance, which has never interfered with our research perspective, our policies or our unrelenting commitment to integrity and transparency.”