Shareholder research firms are not the enemy by Eleanor Bloxham @FortuneMagazine March 19, 2014, 2:34 PM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons FORTUNE — Very few things are as unyielding as an undeserved reputation. That truism goes for people and organizations — and it has applied to a number of firms that provide research on the matters shareholders vote on. Why should you care? Because the research provided by these firms helps inform the votes that mutual funds and pension funds exercise on your behalf. And that research helps these institutions make better voting decisions. Last week, The Wall Street Journal reported that Insight Ventures might acquire one of those research providers, Institutional Shareholder Services (ISS), which is currently owned by publicly traded MSCI MSCI . In the fourth quarter of 2013, MSCI said it had “engaged Morgan Stanley to explore strategic alternatives for the Governance business, including the potential divestiture or other separation of the entire business.” Prior to the Insight Ventures speculation, The Financial Times last year suggested Broadridge might buy the research firm. Broadridge already controls a lion’s share of the paperwork shuffling for small shareholders like you and me — and its actions have caused a great deal of concern among institutional shareholders, as I described here last month. A purchase of ISS by Broadridge might not only be dire for shareholder democracy, it could be bad for part of ISS’ business, as large shareholder customers, distrustful of Broadridge, might flee. MORE: Gold vs. bitcoin: An apocalyptic showdown Insight Ventures or any purchaser of ISS will need to address the lack of education and outright misinformation about ISS and the other proxy research firms that compete and complement ISS’ business. If a buyer could bring the muscle of an educational campaign, ISS’ management might find itself with more time to devote to the business of research itself. Around the country, board members of publicly traded companies take an avid interest in ISS. Some are appreciative of the work ISS does. And they speak up to say so. ISS makes us think more deeply about what corporations are doing, these directors say. But a dislike for these research firms coupled with misinformation is out there too. I encountered this issue in early December. A board member had just been to a conference where ISS was one of the topics for discussion. “I just don’t like the way ISS operates,” the board member said. “When it provides voting advice, it’s one size fits all,” the director said. This is a popular misconception — and at that moment, I had to decide whether this was something I would let go or if I would, in the nicest way possible, lay out the facts. I chose the latter. “Did you know that ISS doesn’t just provide one set of advice on how to vote?” I asked. The advice provided depends on what the customer requests. No, the board member hadn’t known that. “That’s interesting,” the director said. For ISS, it’s similar to the old Burger King slogan, “Have it your way,” Pat McGurn, special counsel at ISS, told me in a wide-ranging conversation last year. ISS has the standard burger — but you can get custom recommendations as well — and many do. Gary Retelny, president of ISS, explained in a letter to the SEC last week, “ISS implements more than 400 custom voting policies on behalf of institutional investor clients.” And ISS is not alone in doing that. In an SEC roundtable held in December, Katherine Rabin, CEO of another research firm, Glass Lewis, said, “Eighty percent of our clients have custom policies.” It’s not one size fits all in another way as well. To the annoyance of both corporations and shareholders alike, ISS’ “house” recommendations often don’t take a hard and fast line. As an example, a proposal requiring an independent chair, which to me is a no-brainer, is one ISS will not support if certain other criteria are met. The power of ISS to sway votes has been “grossly overstated,” Michelle Lowry, professor of finance at Penn State, told me. “ISS is not controlling the world.” Her research related to mutual fund voting shows that most mutual funds do not consistently vote with ISS’ house view, and even within a fund family, different funds may vote differently. The way Vanguard does their voting mirrors the way many other large institutional shareholder use ISS. Vanguard buys and finds useful ISS’ non-customized research along with data from a number of other providers as a set of inputs to form their own voting opinions on each issue, says Glenn Booream, head of proxy voting at Vanguard. Those decisions could differ from fund to fund, he says, particularly in M&A transactions, if one portfolio holds the acquirer, one holds the target, and one holds both. “I don’t know whether to be insulted [or to] feel patronized [by the comments] that we just blindly follow the proxy advisory firms. We don’t,” Anne Sheehan, director of corporate governance at CalSTRS, said at the December SEC roundtable. The remarks by Karen Barr, general counsel of the Investment Adviser Association, made clear that advisers recognize that the responsibility for voting rests squarely with them and not with the research firms that provide advice and information. Even small firms know this, she said, and will not blindly follow what a research provider might recommend. MORE: Bitcoin hedge fund launches with Silicon Valley and Wall St. support Mutual funds have had a reputation for being laggards in stepping up to their voting responsibilities. When I was in the mutual fund business in the 1980s and 1990s, it was common for all votes to go with management, no matter what. Today, Lowrey’s data show that less than 8% of mutual funds do that. That’s progress. Corporate boards have also made progress. Ten, even five years ago, when I’d discuss the importance of studying the company’s voting materials and making sure they were accurate, some eyes would roll. Today, whether they do a thorough job or not, few board members would say they are not responsible for reviewing those documents. Like going to a movie so you can discuss it with your friends, knowing that research firms are reading the materials, that institutional investors are taking more care in their reviews, and that the press is reporting on the issues provides impetus for board members to take an interest. No doubt, the “one size fits all” meme for the research firms will not die easily. A concerted educational campaign will be required. Until an ISS buyer emerges, who will take up the task? Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://thevaluealliance.com), a board education and advisory firm.