ISS's Cernich, who made recommendations on proxy fights, leaves firm

By Svea Herbst-Bayliss

BOSTON (Reuters) - Chris Cernich, who has been instrumental in determining the outcome of some of America's most hotly contested mergers and proxy contests as head of special situations research at Institutional Shareholder Services, said he has left the advisory firm.

"I've had the single best job in the financial markets - a front row seat to pivotal moments in M&A and shareholder activism," Cernich told Reuters on Thursday, confirming his departure from ISS. He declined to comment on his future plans.

ISS said in an internal email, seen by Reuters, that Cernich has "decided to pursue new opportunities outside of ISS" and that Cristiano Guerra was named the acting head of special situations research.

Cernich played a critical role in recommending how mutual funds, pensions and other large investors cast their votes on boardroom battles ranging from computer maker Dell's decision to go private to hedge fund Starboard Value's play to oust all 12 directors at Darden Restaurants .

For six years Cernich weighed in on roughly 180 contests, leading him to become an expert in industries ranging from restaurants to railroads to insurers and chemical companies, said hedge fund managers and other investors who worked with him.

Anne Sheehan, head of corporate governance at the California State Teachers' Retirement System, known as CalSTRS, called Cernich's departure "a big loss to ISS."

"His thoughtful approach to analyzing contested situations has been an invaluable resource to investors, like CalSTRS. He set the standard for thorough, methodical, and unbiased research in the marketplace," Sheehan, whose pension fund oversees $193 billion in assets, said in an email.

Cernich has not decided where to go next but he is sure to receive offers from corporations who want him as a director, hedge funds who want his insight into proxy battles and banks who work with companies and hedge funds on contests, fund managers and industry analysts said.

His predecessor in the position at ISS, Christopher Young, moved to Credit Suisse where he is a managing director and heads contested situations for the bank.

Cernich's departure comes at a time ISS is likely to be as busy as ever going into the proxy season that unofficially begins in the early fall. ISS, which has some 1,400 clients, including the world's biggest mutual funds and pension funds that oversee some $20 trillion in assets, has come under criticism in recent years for being too powerful in these expensive and high-stakes contests.

Analysts say it is nearly impossible to win a shareholder vote without the backing of ISS even though a recommendation from the firm does not always spell victory. Last year, ISS backed Nelson Peltz's Trian Fund Management, which tried to add directors at DuPont but lost the vote.

ISS recommendations can send stock prices up or down.

As Cernich dug into the arguments on each side, fund managers, lawyers and analysts said he distinguished himself by keeping an open mind. He observed and commented, but kept a distance from the involved parties, they said.

He came to corporate America with a doctorate in literature and an MBA and felt the position at ISS allowed him to keep writing long papers. In May, he published a note titled "Shakespeare in the Boardroom," about family drama at corporations including Viacom .

(Reporting by Svea Herbst-Bayliss; Editing by Alan Crosby and Leslie Adler)

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