UPDATE 1-ISS urges Pitney Bowes shareholders to back 4 dissident directors in proxy fight

(Adds details on ISS report, background on proxy fight, company comment)

By Svea Herbst-Bayliss

BOSTON, April 26 (Reuters) -

Institutional Shareholder Services on Wednesday recommended that Pitney Bowes shareholders elect four of the five dissident director candidates investment firm Hestia Capital has proposed, signaling it believes change is needed at the shipping and mailing company.

The proxy advisory firm is backing Hestia's chief investment officer, Kurt Wolf, along with three other candidates. "Substantial board change is still necessary," ISS wrote in its report to investors which was seen by Reuters.

Hestia wants a new board to explore alternative strategies for the global ecommerce segment and focus on cash-generating segments like Presort Services, its mail aggregation business, and SendTech Solutions, its postage meter business.

The company added two new directors in March, said three incumbent directors would leave, and backed election of one of the dissident nominees, Katie May. ISS said the steps had a "positive impact on overall board composition."

Still, it is not enough, ISS wrote, adding Pitney Bowes has a "history of failing to deliver on important self-established expectations." Recommendations from ISS and its smaller rival Glass Lewis often influence how large shareholders will vote on who sits on the board or proposed mergers.

"We strongly disagree with the recommendation of ISS that shareholders vote for such an extreme and destabilizing level of change at Pitney Bowes," company spokesman Bill Hughes said. "We have undergone a significant amount of transformation to our business as well as our Board, and do not believe that shareholders would be well served by following this recommendation."

Pitney Bowes is valued at $624 million, down from its peak of $2 billion when CEO Marc Lautenbach joined in 2012. "Shareholders have endured a decade of underperformance and disappointment, there are unanswered questions and serious concerns about the path forward," ISS wrote.

Investors will have a chance to cast votes at the company's annual meeting on May 9 unless a settlement is reached beforehand.

ISS noted that several investors have publicly supported Hestia's campaign and that the proxy advisory firm has received unsolicited support for the dissident. "This suggests that there is an elevated likelihood that all five dissident nominees will be elected." (Reporting by Svea Herbst-Bayliss Editing by Chris Reese and David Gregorio)