Tejon Realty: ISS Backs Director Nominations Amid Governance and Environmental Crosscurrents

Investors evaluating Tejon Realty’s upcoming proxy vote face a complex landscape: a leading proxy advisory firm, ISS, has recommended shareholders vote “FOR” all 10 director nominees, despite high-stakes governance and environmental controversies. This endorsement hinges on ISS’s nuanced assessment of Tejon’s defensive measures, environmental disclosures, and governance responsiveness. Below, we dissect the rationale and implications for investors.

The Poison Pill Debate: A Governance Tightrope

At the heart of ISS’s analysis is Tejon’s adoption of a 10-year shareholder rights plan (“poison pill”) with a 15% ownership trigger. While such pills are legally permissible under Delaware law without shareholder approval, ISS typically penalizes companies for long-term defensive measures that entrench management. However, ISS’s 2025 guidelines grant leeway if the pill’s terms align with “exceptional circumstances”, such as sudden shifts in market dynamics or existential threats.

Tejon’s case may have met this threshold. The company operates in a volatile real estate sector, where activist investors often target land-rich firms for breakups or leveraged buyouts. ISS’s recommendation suggests it views the 10-year term as justified given Tejon’s unique asset base and the lack of evidence pointing to governance failures. Yet, shareholders should scrutinize whether the pill’s indefinite renewal potential undermines long-term accountability.

Environmental Disclosures: Transparency vs. Scrutiny

ISS’s support for the board also rests on Tejon’s alignment with the Taskforce on Nature-related Financial Disclosures (TNFD). The company reported a 15% improvement in habitat corridor maintenance and a 10% water usage reduction in Q1 2025. However, these claims face pushback from environmental groups like the Sierra Club, which cite satellite data showing 7% habitat fragmentation near its Logistics Airport and a 12% rise in water withdrawals.

Here, ISS’s stance reflects its prioritization of “process over perfection”. While acknowledging gaps in third-party validation, ISS may have weighed Tejon’s voluntary adoption of TNFD frameworks—despite inconsistencies—as a positive governance signal. The firm’s recommendation could also signal confidence in the board’s ability to address regulatory risks, such as the ongoing California DOJ lawsuit over inadequate biodiversity assessments.

Legal and Governance Pressures: The Underlying Risks

The controversies surrounding Tejon’s disclosures are not trivial. The Center for Biological Diversity’s CEQA lawsuit and the leaked internal memo revealing delayed TNFD compliance until 2026 underscore governance challenges. ISS’s guidelines penalize boards that fail to address material shareholder proposals (e.g., the ICCR’s resolution demanding fuller disclosures) if they receive >30% opposition. While ISS did not explicitly note such thresholds in its Tejon analysis, the firm’s 2025 policies emphasize “commitment to engagement”.

Tejon’s defense—that seasonal variations and “ongoing data standardization” explain discrepancies—may not be sufficient. Investors should monitor whether the board:
1. Engages with critics to resolve data inconsistencies.
2. Complies with TNFD’s “involvement” phase requirements by 2026.
3. Addresses CalSTRS’ ESG downgrades, which reflect investor skepticism.

Conclusion: A Vote of Confidence, but Risks Remain

ISS’s “FOR” recommendation reflects a calculated balance: the board’s proactive adoption of environmental frameworks and defensive measures appears to outweigh near-term controversies. However, the risks are material.

• Environmental Compliance: If lawsuits (e.g., the CEQA challenge) result in penalties or forced revisions to projects like Phase III of Grapevine Development, Tejon’s valuation could drop. The company’s market cap of ~$1.2B (as of Q1 2025) depends heavily on its ability to maintain regulatory licenses and ESG credibility.
• Governance Longevity: The 10-year pill’s indefinite renewal potential could deter activist investors, but it may also limit shareholder influence. ISS’s support here may signal confidence in the board’s current alignment with stakeholders, not its long-term accountability.
• Market Sentiment: Tejon’s stock has underperformed the S&P 1500 Real Estate Sector by ~12% over three years, reflecting investor wariness. A positive proxy vote outcome could catalyze a rebound if it signals stability, but unresolved environmental disputes may sustain headwinds.

For investors, ISS’s endorsement is a green light to back the board—but only if they’re comfortable with the company’s environmental reporting risks and its defensive posture. The next 12–18 months will test whether Tejon’s governance and disclosures can align with both ISS’s criteria and the growing demands of ESG-conscious shareholders.