In the boardrooms of America’s largest corporations, a company with scarcely over $100 million in annual revenue and $10 million in profits commands directors’ full attention: the proxy advisory firm Institutional Shareholder Services. ISS advises pension funds, mutual funds and hedge funds on how to vote on corporate ballot items.

The company is the dominant proxy adviser, reporting 1,700 clients that manage an estimated $26 trillion in assets. But its role in corporate governance is largely a creation of federal regulations—and its positions on countless ballot items follow the lead of special-interest investors like labor-union pension funds and “socially responsible” investing vehicles, not those of the average diversified investor.

In 2011 and 2012, for example, every public company in the Fortune 200 held an advisory vote on executive pay as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. According to an analysis by the Manhattan Institute, ISS recommended that shareholders vote against 44 compensation packages in 338 “say on pay” votes (13%), but a majority of shareholders opposed executive pay at only six companies (1.5%).

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