The Ownership of Glass Lewis Is All Wrong

Glass Lewis & Co. is one of the cops on the beat. Although not as powerful as Institutional Shareholder Services (ISS), Glass Lewis' ratings of companies and their corporate governance practices really matter. And in contested proxy battles, many investors turn to Glass Lewis for its opinion.

It's been an absolute travesty for Glass Lewis to be owned by Xinhua Finance, a unit of the Chinese government's official news agency, Xinhua. Even the mere appearance of possible conflicts of interest was too great for anyone to tolerate. Two top level officials resigned. The Chinese must have realized they had a problem on their hands because they sold Glass Lewis to Canada's Ontario Teachers' Pension Fund for $46 million, roughly equal to what they paid for it last year.

But that merely creates a new problem because pension funds have axes to grind in the boardroom, just like everyone else. Bruce Gibson, senior vice president for public equities at Ontario Teachers', was quoted in the Wall Street Journal as saying "we have no intention of being involved in day-to-day decisions" at Glass Lewis. Any perception of bias or a conflict of interest would "undermine the value of the business," he added.

It's hard to believe, however, that there will be no connection between the two entities. Teachers', with about $100 billion in assets, invests in stocks of companies around the world as well as other financial instruments. Earlier this year, it lead a private equity group that bought Montreal-based communications giant BCE Inc., the biggest corporate takeover in Canadian history.

So how is Glass Lewis going to evaluate the corporate governance practices of BCE? Indeed, how would it rate the practices of any company where Teachers' has a major investment? And what if Teachers' wants to take over another company? What will the Glass Lewis recommendation be to shareholders?

No, it just doesn't wash. Either Teachers' sells Glass Lewis to a company that can legitimately argue that there is no potential for conflicts of interest, or boards and shareholders should discount and even ignore anything that Glass Lewis says. In today's climate of heightened sensitivity, if conflicts of interest are not good for chief executive officers or boards of directors, they're also not good for the people who police the markets.