Adds comment from Elliott in paragraph 5, context in paragraph 8, advisory firm Egan-Jones recommendation in paragraph 9

By Svea Herbst-Bayliss

NEW YORK, May 12 (Reuters) - Elliott Investment Management scored a victory on Monday in its board fight at Phillips 66 PSX.N when prominent proxy advisory firm Institutional Shareholder Services (ISS) recommended that investors elect all four of the activist's director nominees.

Elliott, which owns a roughly $2.5 billion stake in Phillips, has been pushing the oil refiner, valued at $48 billion, for changes that include spinning off or selling its midstream business. Elliott wants investors to refresh the board in order to achieve its goals.

Now with ISS's backing, on the heels of two similarly favorable recommendations from smaller rivals Glass Lewis and Egan-Jones, the hedge fund may have won significant support, analysts and investors said.

"Although the board has been reshaped since the pandemic, important industry perspectives have been overlooked, and there is strong evidence that the board is not willing to exercise independent oversight of management," the ISS report said. "The dissident has assembled a strong slate, which has the experience and independence that PSX requires."

Phillips 66 did not immediately respond to a request for comment. Elliott said the ISS report's recommendations "fully validate Elliott's case for change."

Investors often take recommendations from proxy advisory firms into consideration when casting votes on hot-button issues like who sits on boards.

The Elliott and Phillips 66 battle is one of the year's most bitter proxy fights with each side piling time and money into trying to persuade shareholders they have the better candidates.

Investors will cast votes for four directors, out of a 14-member board. Structures where all directors aren't elected annually have become a flashpoint for investors and Elliott has criticized it at Phillips 66.

Glass Lewis urged investors to elect three Elliott nominees while Egan-Jones recommended support for all four Elliott candidates at the May 21 annual meeting.

Phillips 66's stock price has dropped 18% over the last 52 weeks, closing trading at $118.68 on Monday.

ISS wrote that even though returns have been positive since Phillips 66 was spun off from ConocoPhillips COP.N in 2012 and since the company's CEO transition in 2022, the stock began underperforming peers in mid-2021 and "has not been able to close the gap."

"The data does not support the board’s argument that the integrated strategy results in superior returns over the long-term, and it undermines assertions about the success of turnaround efforts since the CEO transition," when Mark Lashier took over from Greg Garland.

Elliott, which invests $70 billion, has a strong record in the energy sector and has made successful investments at Marathon Petroleum MPC.N, NRG Energy NRG.N, Suncor Energy SU.TO and Hess HES.N All were led by John Pike, a partner with Elliott who is also spearheading the Phillips 66 campaign and a recent $2.5 billion investment in BP BP.L.

(Reporting by Svea Herbst-Bayliss; Editing by Richard Chang, Leslie Adler and Sonali Paul)

((svea.herbst@thomsonreuters.com; +617 233 2138; Reuters Messaging: svea.herbst.thomsonreuters.com@reuters.net))