The CEO of arts and crafts e-commerce company Etsy has lambasted proxy voting adviser Institutional Shareholder Services (ISS) for recommending against directors at his company.
Speaking at The Deal’s 2019 Corporate Governance Conference in New York City, Joshua Silverman said his decision not to seek a sale of the company at the start of his tenure has been justified by the rapid rise in Etsy’s stock price, which is up over 400% since he was appointed CEO.
“I’m frankly angry about it, it’s not a good use of time and I think it shows poor judgment on the part of ISS,” Silverman said, explaining that each year his staff call investors to dissuade them from following ISS recommendations, and yet several directors still receive significant opposition. Such criticism could deter potential board members from joining the company, he noted.
Proxy advisers have come under fire from groups representing issuers in recent years, leading to calls for regulation and a right of review prior to publication. Nonetheless, many investors subscribe for access to research and voting capabilities, regardless of whether they follow ISS recommendations.
“It is entirely one-size fits all, tick the box,” Silverman complained. “Don’t waste your money, don’t subscribe to ISS.”
According to Proxy Insight, ISS recommended against at least three directors over 2017 and 2018, with Silverman explaining that the recommendations were because of Etsy’s staggered board and takeover defenses. Some but not all directors have received as much as 33% opposition in recent years. Activist Insight Online does not have access to ISS reports or recommendations.
Silverman’s lawyer, Paul, Weiss, Rifkind & Garrison Partner Scott Barshay, said proxy voting advisers should acknowledge the value creation record of a company when making recommendations. “You’d think you would have the ISS’ of the world be like a third base coach, saying ‘go, go, go’,” he told the conference.
In 2017, Etsy was targeted by activist investors and announced a strategic review but decided not to pursue a sale in order to invest in stimulating demand through advertising and other initiatives, raising seller commissions to pay for them. The stock has risen from $11.39 to $61.49 since the activists first began agitating.
Despite Etsy’s defenses, the board was prepared to do the right thing, Silverman said. “We were open to a sale of the company, 100%,” he said.
Subsequent to the publication of this article, Activist Insight Online was asked to clarify that Etsy’s communications with shareholders was not limited to the topic of proxy adviser recommendations. In its latest proxy statement, Etsy said it held more than 400 meetings with shareholders during 2018, representing 88% of its outstanding shares.
“We discuss a variety of topics, including but not limited to, our financial and operating performance, our business and growth strategy, corporate governance practices, impact strategy, and executive compensation matters,” the company added. “We value the insights and feedback we gather from these engagements.”