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RiskMetrics in conundrum on Yahoo director

The advisory service will refrain from issuing a recommendation on electing dissident director Gary Wilson to the board of railroad company CSX, since Wilson also faces a proxy fight in his role as a Yahoo director.

Update at 8:20 p.m. PDT, with Glass Lewis recommendation on Wilson in the CSX proxy fight

Influential institutional investor advisory service RiskMetrics Group abstained Tuesday from issuing a recommendation on Yahoo director Gary Wilson, in his "other" proxy fight.

Wilson, who is facing a proxy fight against investor activist Carl Icahn in his role as a Yahoo director, is also running as one of five members on a dissident slate against the incumbent 12-member board of railroad company CSX.

CSX is holding its annual shareholders meeting next week on June 25. Yahoo, meanwhile, is scheduled to hold its shareholders meeting August 1, in which Wilson will be on the other side of the table, battling against dissident nominees on Icahn's slate.

Because Wilson is involved in another proxy fight that is pending, and one that is high profile, RiskMetrics opted to abstained from making a recommendation on whether to elect Wilson to the CSX board, said Chris Young, director of M&A research for RiskMetrics.

"When we when evaluate a proxy fight, we look at the track record of the incumbent directors and dissident directors," Young said.

As a result, if RiskMetrics were to make a recommendation to seat Wilson on the CSX board, yet ask Yahoo investors to kick him off their board, it may leave investors of both companies a little perplexed that a contradictory view existed for Wilson, explained Young.

He stressed that RiskMetrics has not yet held formal meetings with Yahoo and Icahn to formulate an opinion on the opposing slate of directors, including Wilson.

In the CSX case, RiskMetrics advised investors to vote for four of the five dissident director nominees.

Here's an excerpt from RiskMetrics' recommendation report on CSX, as it relates to Wilson:

We note that Gary Wilson is currently a director at Yahoo. Yahoo of course is currently embroiled in a high-profile proxy fight of its own with activist investor Carl Icahn. It has been widely reported that a significant number of Yahoo shareholders are unhappy with how the Yahoo board handled the unsolicited overture from Microsoft. If the Yahoo fight goes to a vote on August 1, RiskMetrics will issue a recommendation to its shareholders on whether they should support Wilson's re-election.

We have not performed full due diligence on the Yahoo situation, and in particular we have not given the Yahoo board a chance to defend itself. As such we currently have no opinion as to Wilson's performance as a Yahoo director.

That said, given the controversy surrounding Yahoo, we also feel it would be imprudent to endorse Wilson's candidacy for the CSX board just one month prior to a potential vote recommendation against him at another company. Moreover, we believe that the dissidents here should be able to effect positive change at CSX with the election of four dissident directors, and as such do not absolutely require Wilson's services.

RiskMetrics, which also operates ISS Governance Services, provides proxy advice to 1,900 clients that range from pension funds to hedge funds to mutual funds. Some funds have internal policies that require its votes be cast according to an advisory service's recommendations, whereas other funds allow their portfolio managers to make their own call.

Glass Lewis & Co. issued its recommendation Wednesday on the CSX proxy fight, recommending a withhold vote for Wilson. Glass Lewis advised its clients to vote for two of the five dissident directors.

Proxy Governance, meanwhile, issued its recommendation on Monday to vote for two of the five dissident directors, which did not include Wilson.