A New Rat – Or Two – Or Maybe Three – In Proxy-Land

Whistleblower Rats Out Leaks Of Confidential Voting Info From ISS To A Perk-Loaded Proxy Solicitor

What a sad and sorry year it’s been in the world of proxy solicitation firms – where a slow business environment and intensive competition at many firms – in a field that seems seriously over-crowded these days – have driven more than a few staffers to do some mighty dumb things – including some things that are highly unethical and probably illegal to boot.

In the latest development, a “whistleblower” from the proxy solicitation industry filed a complaint with the SEC in February, alleging that a competitor at another fi m was obtaining confi information on institutional investor votes from a mid-level employee of ISS – in exchange for meals, tickets to sporting events and other perks: “Shades of the bad old days” as we wrote re other alleged acts of bad acting in this industry in our 2nd Q 2011 issue…And to long-term observers, this has a sadly familiar ring to it…

Immediately thereafter, after asking for anonymity, the whistleblower leaked the complaint to the New York Post, which trumpeted, “There’s a new rat on Wall Street feeding valuable information to boardrooms…” And indeed, one can easily see how a “rat” could pass on very valuable info to a proxy solicitor – and how another solicitor – who was, no doubt, losing business to the guy with the “secret formula” – would want to rat that person out.

ISS launched its own investigation  immediately,  of course, and on March 27th, its  parent  company,  MSCI Inc. filed an 8-K to say that “The employee in question has informed the  company that  he provided  information to a proxy solicitor over a number of years about how a number of ISS clients voted their proxies [and] stated that the proxy solicitor in question provided him with meals and tickets to various events.” The employee “acted alone” the 8-K stated. ISS terminated his  employment  on  March 26th and “continues to cooperate with investigations of both the SEC and the US Department of Justice.”

So one mid-level rat is down…with the name of the rat with the perks – and his fi m, who paid for them – and the name of the “ratter-out” and his fi m (no glory here, for sure) still to come out along the way…Ouch! We have our own “prime suspects” – and a fairly long list of fi ms we think are totally in the clear – but we can hardly wait to know for sure…

This really is a bad thing for the proxy solicitation business, as most solicitors acknowledge…And guess what? More than just a few of last-year’s alleged bad acts are being teed-up for airing in court almost any week now.

So what’s a good corporate citizen to do in the meantime? First, if it were us, we’d ask ourselves if our own solicitor has been touting “secret sauces” (read, “secret sources”) that were promising to give us a big “edge” over others.

Second, we’d grudgingly admit that we might  have been turning a blind eye here…”Secret sources” might seem like a good thing to have in your corner. And to tell the whole truth, we know lots of folks who actually like proxy solicitors who are “point shavers” – who are willing to do whatever it takes to win the day – including a few back-alley deals. But here, we really need to weigh the negative consequences to our company – and to us personally – if our “favorite solicitor” comes up as the perk-laden briber.

Next, we need to remember that many times it is a “mid-level employee” who goes astray here, and not the firm itself – just as it was at ISS…But here, we have a feeling that the  rat  who  solicited  the  info  – and the ratter-out too – will be fairly well-known and fairly senior people, though we hope we’re wrong.

Last, but far from least, we’d ask ourselves if, in our heart of hearts, we feel that “our” guy or gal – and the firm itself – passes our own sniff test for basic integrity, and if not, we at least, would get out ahead of  the pack.

What should we really be looking for in a proxy solicitor if we’re smart? NOT a “proxy chaser” or someone with ‘secret sources’ or ‘secret sauces’ we say: When the chips are really down, you want someone who is smart…and trustworthy…and who can give you good and well-thought-through advice…A statesman, not a  salesman…  and  definitely  NOT  a  rabble-rouser – or worse, a “point shaver” – tempting as it may sometimes seem. There are plenty  of  good  ones out there.