(Adds statementS from ADP and Ackman, comments from report)
By Svea Herbst-Bayliss
BOSTON, Oct 23 (Reuters) - Proxy advisory firm Glass Lewis recommended on Monday that Automatic Data Processing Inc shareholders vote for all three dissident directors proposed by activist investor Bill Ackman.
Glass Lewis, whose clients are large institutional investors, is the first advisory firm to issue its findings before the Nov. 7 vote, where shareholders will decide among candidates from the human resource software company and Ackman's hedge fund, Pershing Square Capital Management.
Ackman is pushing ADP to become more efficient and expand its margins, something the company says is possible only if it eliminates thousands of jobs. The hedge fund manager has said he and two other directors can bring a fresh perspective to the 10-member board, but the company has said the three nominees have not suggested anything it has not already looked at.
"We strongly disagree with Glass Lewis’ recommendation, which does not take into account the significant business risk inherent in Pershing Square's margin expansion target nor the negative impact it would have on client retention and ADP’s overall business," the company said in a statement.
Bill Ackman said in a statement that he was "extremely pleased to receive such a strong endorsement from Glass Lewis."
Glass Lewis wrote that recent returns and operational performance were not as strong as ADP claims.
"We believe the Company's supposed rebuttals of the substance of Pershing Square's case either miss the point or actually result in further validating the Dissident's argument," the firm's report said.
Glass Lewis also said the company had lost business to competitors that can "generate superior profit margins and returns at the expense of ADP and its shareholders" as a result.
"The board’s stated operational and financial plan strikes us as being inadequate and underwhelming given the substantial opportunity thoroughly detailed by Pershing Square," Glass Lewis said in the report.
Institutional shareholders do not necessarily act on a proxy advisory firm's recommendations, but Glass Lewis' support should help Ackman as he visits large investors to lay out his case.
Pershing Square has an 8.3 percent stake, but less than a quarter of that is in common shares, the only stock it can vote. (Reporting by Svea Herbst-Bayliss; Editing by Lisa Von Ahn)