RiskMetrics: Proxy Advice, Lake Woebegon-Style

Dec. 4.08 | About: RiskMetrics (RMG)

From the Governance Policy Update published last week by RiskMetrics Group (RMG) (which used to be ISS):

RMG will recommend a WITHHOLD/AGAINST on all director nominees if the board lacks accountability and oversight, coupled with sustained poor performance relative to peers. Sustained poor performance is measured by one- and three-year total shareholder returns in the bottom half of a company’s four-digit GICS industry group (Russell 3000 companies only). [Emph. added]

Yikes. So if you’re a director of a company whose stock happens to trail its average peer for even a year, RMG might recommend shareholders vote to remove you.

A tad harsh, no? Harsh, in particular, since self-appointed corporate watchdogs such as RiskMetrics never seem to get tired of banging the drum for managements to run their companies for the long term and ignore quarter-by-quarter results. Yet this new policy is an incentive for companies to do precisely the opposite. I happen to believe (as do most serious, value oriented investors) that companies are best managed for long-term. But I can’t imagine agitating for a wholesale boardroom shakeup simply on account of a year’s worth of subpar stock price performance. Crazy.

The people at RiskMetrics need to get a grip. . . .