September 12, 2017 / 9:04 PM / a year ago

UPDATE 1-Proxy adviser ISS outlines view of CEO removals from boards

(Adds details from ISS report, Skadden Arps view)

By Michael Flaherty

NEW YORK, Sept 12 (Reuters) - Institutional Shareholder Services, the influential proxy adviser, said it closely weighs the consequences of a top company leader’s being voted off the board by shareholders, and explained its view of activist investors targeting chief executive officers.

ISS released a paper on Tuesday in response to two major proxy fights - Procter & Gamble Co and Automatic Data Processing Inc - and the rising trend of activist shareholders directly attacking CEOs for removal from company boards.

The report also follows an Aug. 25 post on the Harvard Corporate Governance blog, written by Skadden Arps Partner Richard Grossman that called on ISS to raise its recommendation standard when a frustrated shareholder proposes to remove a company CEO from its board.

ISS on Tuesday said that even when a CEO is not directly targeted for removal, ISS closely weighs the unintended consequences of any potential key person change resulting from a contest.

“The removal of a CEO from a board represents a vote of no-confidence that carries further-reaching consequences than the removal of most other directors.

ISS added, however, that such targeting may be appropriate in cases of demonstrably poor execution, operational issues or undue management influences over the board.

Grossman, of Skadden Arps, cited a steady increase since 2011 of activist campaigns that targeted company CEOs for replacement on the board, including nine in 2017 alone as of May.

Reporting by Michael Flaherty; Editing by Leslie Adler and Marguerita Choy

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