Tesla CEO believes shareholder advisory firms ISS and Glass Lewis have enormous power.
Elon Musk likes to attack circles of power.
It’s as if it’s his mission.
Nothing seems to motivate him more than slapping on a revered institution or icon. He seems to be committed to challenging all forms of representations of power.
During the past few weeks, the Techno King, as he’s known at Tesla (TSLA) – Get Free Report, has lashed out at Dr Anthony Fauci, the face of America’s response to the Covid-19 pandemic despite the risks that such an attack could backfire on him and more specifically on some of his companies like tesla whose the customer base is made up of progressives. The latter are often ardent defenders of Dr. Fauci.
But none of that has stopped Musk, who wants Dr. Fauci prosecuted.
He even promised Covid files in the coming weeks to denounce the totalitarianism of the health authorities around the pandemic. These covid files are also supposed to expose Dr. Fauci.
Musk then attacked the World Economic Forum (WEF), the last edition of which has just ended in the ski resort of Davos in Switzerland. The billionaire accused the Forum of acting like an unpopular world government. He has thus taken up the discourse of the anti-elite and anti-globalists of all political stripes.
“WEF is increasingly becoming an unelected world government that the people never asked for and don’t want,” the tech tycoon blasted on January 18.
ISS and Glass Lewis Have ‘Far Too Much Power’
His charge against Davos has helped heighten criticism of this gathering of global economic and political elites and civil society figures. If Musk, the second richest man in the world, strongly criticizes a circle made up of people just as rich as him, it is proof that Davos does not seem to be fulfilling the mission the forum has given itself, critics have deduced.
“The World Economic Forum meeting in Davos has become largely irrelevant, little more than an exercise in self-congratulation for the world’s elites to convince themselves that they’re making a difference,” blasted Patriotic Millionaires, an association of rich individuals fighting for “equal political representation, a livable minimum wage and a fair tax system.”
If the billionaire does not expect his targets to immediately fall from their pedestal under his blows, he hopes to have caused enough damage to permanently weaken them.
But while his attacks on Davos are still hot, now the global CEO is targeting two other entities that also symbolize power. These are the two largest proxy advisory firms Institutional Shareholder Services (ISS) and Glass Lewis. For Musk, ISS and Glass Lewis are the real masters of the stock market. In other words, they are the ones who lead the dance. He believes that this power is disproportionate.
The two advisory firms provide advice to shareholders on executive compensation and the voting of board members but their advice is also ignored.
“Far too much power is concentrated in the hands of ‘shareholder services’ companies like ISS and Glass Lewis, because so much of the market is passive/index funds, which outsource shareholder voting decisions to them,” Musk criticized on Jan. 24.
As a result, “ISS and Glass Lewis effectively control the stock market.”
As often with Musk, the first attack aims to set the stage and take the temperature. It is to be expected that he will multiply attacks in the coming weeks or even days against the two firms, which encourage the implementation of ESG (environmental, Social and Corporate governance). Musk has made ESG his number one enemy.
ISS and Glass and Lewis did not respond to separate requests for comment.
‘What Does ISS Think About That?’
Musk’s charge against them, on the other hand, was welcomed by Twitter users.
“These ‘governance solution’ companies are very disconcerting,” commented a Twitter user. “The words ‘recommends vote against/for’ is a thinly disguised threat that they are in control and you better go along with them. I would never delegate my vote to them. 97% market share voting advice = complete control.”
“Ouch!” quipped another user.
“It is so important to vote as an individual investor rather than leave it up to these ‘shareholder services’ companies that manipulate the stock market,” said one Twitter user.
There is bad blood between Musk and the two firms. ISS and Glass Lewis had, for example, recommended that shareholders vote against the generous compensation package granted by Tesla to its charismatic CEO in 2018. A trial on Musk’s pay was held last November.
According to Jim Woodrum, clinical Professor of Executive Education at the Kellogg School of Management at Northwestern University, there is muted criticism of ISS and Glass Lewis on the boardrooms.
“If you ask experienced directors about their biggest complaint about the changes in the boardroom over the last 20 years, I think many would grumble and then say something about Institutional Shareholder Services (ISS) and Glass Lewis,” Woodrum said. “To some, these entities have taken the fun out of being a director, as creativity has been replaced by an increased focus on compliance.”
Woodrum then explained how the two consulting firms operate and how they gain power.
“Both firms have created models of what they think good governance looks like. And both use various algorithms to determine whether a given company is deserving of a ‘yes’ vote on Say on Pay, and whether individual board members should be supported,” he continued.
“Many institutions follow their recommendations, while others subscribe to the services yet also employ their own staff to determine how they should vote their shares. The most interesting thing about these firms is that their business model requires them to change their guidelines on a regular basis. After all, if they had a straightforward set of rules and all companies adopted them, there would then be no need for ISS or Glass Lewis to exist.”
But boardrooms have become ISS and Glass Lewis dependent, Woodrum warned. Most popular boardroom conversation is, according to him, “‘What does ISS think about that?'”.
“This has also led to a homogenization of boardroom practices, as more and more companies come into compliance with the latest edict from ISS and/or Glass Lewis,” deplored the professor who believes that there is a way for the boards of directors and the two consulting firms to coexist.
