Paulson & Co.’s efforts to replace most of Detour Gold Corp.’s (DGC.TO) board were dealt a blow after a prominent shareholder advisory firm urged investors to side with the company’s plans to appoint just two of the activist’s eight nominees.

Institutional Shareholder Services Inc. said while Paulson had made a case that change was warranted at the Toronto miner, Detour had been responsive to its concerns by appointing three new directors in August and offering to appoint two of the dissident’s nominees to its board.

“Despite seeking to replace all but one of the incumbent nominees, the dissident has not articulated a sufficiently detailed go-forward plan,” ISS said in its report issued late Friday.

The advisory firm did say that due to the company’s prolonged under performance, investors may want to instill “the board with an even greater sense of urgency and perhaps speed up the CEO search.” It recommended investors consider supporting an additional dissident nominee, such as Dawn Whittaker, in that case, in addition to Steven Feldman and Christopher Robison, who are supported by both the company and Paulson.

Ongoing Battle

The New York-based hedge fund run by billionaire John Paulson has been locked in a battle with the company since June, initially pushing Detour to explore strategic alternatives, including a sale. Paulson is seeking to replace eight of the company’s nine directors at a special shareholder meeting slated for Dec. 11. Wholesale changes are needed at the company because the current board is entrenched and failing shareholders, according to Paulson.

Paulson, which has a 5.7 per cent stake in Detour, has also called for Detour’s interim Chief Executive Officer Michael Kenyon and Chairman Alex Morrison to resign.

Detour’s board and management has resisted Paulson’s efforts and in a recent letter to shareholders argued the hedge fund would move the the company “backwards.” While the miner said it saw value in appointing two of his nominees, replacing the entire board would be a “disaster.” It said it would resume its search for a new CEO the day the proxy fight was over.

ISS urged investors to vote for two of Paulson’s nominees, Feldman and Robison, and withhold votes for removal of Lisa Colnett and Jonathan Rubinstein on the company proxy card as Detour proposed last month.

Representatives of Paulson and Detour weren’t immediately available for comment outside regular business hours.

--With assistance from Danielle Bochove