Institutional Shareholder Services employee suspended in kickback probe

ISS says it is taking the matter “extremely seriously”

MSCI says it has suspended an employee of its Institutional Shareholder Services proxy-voting arm amid allegations of kickbacks for client voting data.

MSCI said in a brief statement that ISS had been contacted on Friday February 10 by a reporter for the New York Post, who said a whistle-blower had made a complaint to the Securities and Exchange Commission.

“According to the reporter, the complaint alleges that an ISS employee had provided client voting data to proxy solicitors in return for cash and other gifts,” MSCI said, in a filing with the SEC.

“Although we have not been contacted by the SEC or seen a complaint, ISS is treating this matter extremely seriously.”

The firm, which assumed ownership of ISS as part of its $1.55bn acquisition of RiskMetrics in 2010, said it has launched an internal investigation and put the unnamed employee on “administrative leave”.

MSCI went on: “The confidentiality of client informationis essential to our business, and is emphasized in the ISS Regulatory Code of Ethics and the training of our employees.”

The development comes as proxy firms are facing increasing scrutiny from the corporates they cover.

Just last month, the Shareholder Communications Coalition, a high-powered business lobby group, wrote to SEC Chairman Mary Schapiro calling on the SEC to clamp down “as soon as possible” on proxy advisory firms – saying they are “unregulated and unsupervised”.

The group cited “conflicts of interest, lack of transparency on methodology and use of incorrect information for formulating opinions.”

The pressure prompted governance pioneer and ISS founder Bob Monks to issue a robust defence of proxy advisors.

At the time of the RiskMetrics acquisition, MSCI Chief Executive Henry Fernandez had said ISS was “non-core” to the combined entity.