A small group of Swiss social activist-investors called the Ethos Fund is pressuring Swiss food giant Nestle to weaken management in favor of increasing activist influence over the company. The real force behind Ethos’s ploy, however, is the activist Trojan horse known as Institutional Shareholder Services.

Nestle CEO Peter Brabeck-Letmathe is slated to assume the board chairmanship in addition to his current duties when chairman Rainer Gut retires in April. But Ethos is demanding that the two positions remain separate. Ethos also wants to slash the terms of board member from five years to three years or less, thereby encouraging more frequent – and more potentially fractious – debates at annual meetings.

But it’s questionable how increasing Nestle’s board turnover rate with individuals who would be less knowledgeable about the firm’s operations could be construed as an enhancement of corporate governance.

It’s also not clear why Nestle shouldn’t consolidate its leadership positions if it chooses. Separating the CEO and chairman functions isn’t standard practice and there’s no obvious reason why one person can’t occupy both slots. Jack Welch executed both roles in legendary fashion at General Electric.

The debate has reached a fever pitch and Mr. Brabeck-Letmathe says that if the proposal passes, Nestle’s board would interpret it as a vote of “no confidence” and resign.

Ethos’s proposal has attracted so much attention thanks to the involvement of the American proxy advisory firm, Institutional Shareholder Services.

Many American fund managers have become almost entirely dependent on ISS’s advice regarding proxy voting – so it’s no surprise that ISS could elevate an obscure Swiss shareholder group’s proposal to the attention of major American institutional investors.

As institutional portfolios may include hundreds of companies – most of which hold annual meetings in spring – the flood of required proxy voting can be daunting. Investment managers often blindly follow ISS’s recommendations since conventional wisdom dictates such submission reduces their litigation risk.

Though investment managers may hope and believe that ISS provides them with well-researched and unbiased proxy voting advice, they are, in reality, simply outsourcing their analytical duties and, thus, their fiduciary responsibilities, to a firm whose origins they probably know little about.

While ISS has carefully crafted its image as a provider of “independent” guidance on matters of corporate governance, a closer look reveals a rather obscured trail of influence and ownership that, nevertheless, points to some of the most prominent players in the shareholder activism movement.

As documented in Jarol Manheim’s illuminating book, “Biz War and the Out-of-Power Elite: A Progressive-Left Attack on the Corporation,” ISS was founded in 1985 by Robert A.G. Monks, a former Department of Labor administrator, who is widely credited with spurring pension funds into proxy-voting activism.

Over the years, Mr. Monks faced criticism for glaring conflicts of interest when ISS began, in the words of one consultant Mr. Manheim quotes, “selling advice to corporations on how to avoid getting on [ISS’ own] list of ‘bad’ companies. There’s a veiled sense of intimidation.”

Although Mr. Monks sold ISS in 1995, he would later be involved in the acquisition of ISS by Proxy Monitor, its sole competitor. Although the financing details aren’t entirely public, a British union pension fund with a reputation for left-wing shareholder activism known as Hermes was one of the financiers.

Coincidentally, Mr. Monks was Hermes’s deputy chairman at the time. Mr. Monks’s son, Robert C. S. Monks, was also installed as ISS’s chairman. ISS acquisitions over the years include Proxy Voter Services, a company founded by labor-activist Susan Kellock, a longtime colleague of famed anti-business activist and “Rules for Radicals” author Saul Alinsky.

Since many fund managers see their reliance on ISS as something of a hedge against litigation risk, the issue is whether ISS’s guidance actually keeps shareholder interests scrupulously central to all of its recommendations, as is a fund manager’s duty when voting proxies. A fund manager’ reliance on an adviser that does not fulfill that goal would seem to pose the ultimate litigation risk.

Fund managers ought to ask themselves whether the recommendations of this “independent” and seemingly all-powerful proxy voting advisory monopoly reflect a pro-shareholder viewpoint or a left-wing anti-business bias?

I guess that depends on what the meaning of ISS is.

Mr. Milloy is an adviser to the Free Enterprise Action Fund, online at www.FreeEnterpriseActionFund.com.