How to Prepare for ISS in a Proxy Contest: No Playbook, Just Strategic Clarity
Rodolfo Araujo, CFA | May 14, 2025
Over the years, many clients have brought me in to help navigate engagements with Institutional Shareholder Services (ISS) during a proxy contest. One of the most frequent questions I get is: What’s the playbook for securing ISS support? My answer is always the same—there isn’t one.
That’s not to say there aren’t patterns or guiding principles. But every proxy contest is unique. There’s no checklist or ten-step plan that guarantees ISS will side with the company. The key to success lies in anticipating what the ISS team will ask and, more importantly, in being able to answer those questions in a way that builds their confidence in the company’s future value creation. That confidence, if properly established, can help ISS overlook even a history of underperformance.
This connects closely to a broader point I’ve written about before: understanding how investors perceive your strategy is just as important as having one. ISS often mirrors investor sentiment, especially around trust in management and confidence in future returns. (For more on this, see: Bridging the Gap: Why Understanding Investor Expectations Is So Critical).
Understand ISS’s Framework: The “Case for Change”
ISS’s assessment process begins with a fundamental question: Is there a compelling case for change? If the answer is yes, they will then evaluate whether the activist’s proposed nominees can realistically deliver that change.
To reach their conclusion, ISS analyzes three core areas: Total Shareholder Return (TSR), Operational Performance, and Governance. Let’s unpack how they approach each one and how companies can prepare accordingly.
1. TSR: Past is Context, Not Destiny
ISS assesses TSR across multiple time frames—1-, 3-, and 5-year periods—as proxies for short-, medium-, and long-term performance. They also examine TSR over other periods, such as the CEO’s tenure, particularly when the activist is advocating for a leadership change.
Importantly, TSR is generally measured up to the date the activist’s campaign went public, isolating market reaction from the company’s actual performance. ISS also reviews performance following the campaign’s announcement to assess its impact.
ISS knows TSR doesn’t tell the whole story—it’s sensitive to timeframes and peer sets. That’s why companies have some leeway to contextualize TSR. But beware: attempts to "game" the numbers or cherry-pick periods can backfire badly. If ISS suspects manipulation, it undermines confidence in management’s transparency and weakens the case for a promising future.
Crucially, a track record of underperformance doesn’t necessarily doom a company. If management can credibly articulate why the future looks different—and better—than the past, ISS may still offer its support.
2. Operational Performance: Beyond the Stock Chart
Once TSR has been assessed, ISS turns to the company’s operational performance. The core question is: Has poor TSR been caused by weak business fundamentals or by external sentiment?
If TSR is underwhelming but operations have improved, then ISS may conclude the market hasn’t fully recognized the company’s progress. That’s an opportunity to reinforce a narrative of value creation in progress.
Still, the emphasis should always be forward-looking. Acknowledge past missteps, but demonstrate what was learned and how that insight will drive a better future. ISS isn’t seeking to assign blame. They’re trying to decide whether the status quo or a board refresh is more likely to generate long-term shareholder value.
To make this point about future expectations more tangible, about ten years ago, I was leading an ISS interview with the board of a company involved in a proxy contest. The company’s historical operational performance wasn’t bad, and management was investing in a new business segment that had the potential to drive topline growth. However, as I walked through a back-of-the-envelope calculation with management, we concluded that the expected return on invested capital (ROIC) from those investments was only 5% after year five—below the company’s cost of capital. That implied value destruction and pointed to poor capital allocation, helping explain the recent decline in TSR. More concerning, the directors' reaction suggested they had never evaluated the potential returns of that strategy. That lack of rigor made it difficult for ISS—or investors—to trust that the current board could effectively oversee value creation going forward.
3. Governance: Policies Matter, But People Matter More
Finally, ISS evaluates governance. This goes beyond checking for staggered boards or poison pills. They want to understand whether the current board has the independence and expertise to oversee management and execute change if needed.
Two key questions guide this evaluation:
Do the directors have the skills and knowledge to hold management accountable and drive strategic decisions?
Are they truly independent and prepared to act when necessary, or do they appear to be aligned more with management than with shareholders?
Interactions with ISS can be just as revealing as formal policies. I’ve seen board members unintentionally undercut their credibility in real time. In one instance, a lead independent director repeatedly looked to the CEO for affirmation after answering questions. That subtle behavior signaled deference, not independence, an observation that ultimately swayed ISS to back the activist.
It’s About the Future, Not the Script
There’s no formula for winning ISS support in a proxy fight. Each case is different, and ISS applies a nuanced and often subjective lens to its analysis. But one principle holds true: ISS is trying to determine what will deliver the best long-term outcome for shareholders.
That means your focus shouldn’t be on rehearsing a pre-written playbook. Instead, invest in building a compelling narrative for the future, one that is credible, data-driven, and grounded in a clear-eyed understanding of past performance.
Confidence in that story—not just from the company, but from ISS and investors—is the most powerful tool you have.