NEW YORK (Reuters) - Institutional Shareholder Services on Monday recommended that Masimo shareholders elect both director candidates proposed by activist investment firm Politan, arguing change is needed at the medical device maker.

ISS, the proxy advisory firm whose recommendations often influence how investors decide on proposed mergers and who serves on boards, wrote that change is necessary even after Politan won two board seats last year in a vote.

The board will have six members after the July 25 meeting.

Masimo's stock price has fallen 27% in the last 52 weeks and Politan has said it would immediately review strategy, costs and plans for growth if its candidates are elected.

U.S.-based Masimo "has continued to display a dangerous lack of accountability to shareholders that will require additional board change to rectify," the report, seen by Reuters, said.

ISS recommended investors elect Bill Jellison and Darlene Solomon instead of backing Masimo founder and CEO Joe Kiani and Christopher Chavez. Only two board seats will be voted on this year.

While ISS said Kiani deserves credit for shaping the company into a "business with an innovative and successful core product" it wrote that the company was "operating like a private business, and was disregarding shareholders in the process."

Politan has offered to reappoint Kiani to the board if he is ousted and has said it is not actively seeking to replace him as CEO.

ISS said Jellison and Solomon are both independent from Kiani and have appropriate experience serving on public company boards and with mergers and acquisitions and business separations.

ISS' report came on the heels of rival proxy advisory firm Glass Lewis' report, which also recommended voting for both dissident candidates.

(Reporting by Svea Herbst-Bayliss; Editing by Rod Nickel)