Rob Swystun, Pristine Advisers
In case you haven’t heard, ISS may be changing the way it does things ahead of the 2016 proxy season in the United States.
As outlined in the Harvard Law School Forum on Corporate Governance and Financial Regulation, by Andrew R. Brownstein; partner and co-chair of the Corporate practice group at Wachtell, Lipton, Rosen & Katz; the areas ISS is considering changing its voting policy for next year are:
- when a sitting CEO or director will be viewed as “overboarded,“ meaning they sit on too many boards
- unilateral board actions that reduce shareholder rights, and
- compensation disclosure at externally managed issuers.
Bafflingly, as pointed out by Brownstein, ISS eschewed any proposed changes in the areas of proxy access, responsiveness to majority-supported shareholder proposals or other topics that are currently garnering much attention in the US. (Apparently, they’re taking the “ostrich approach” to these timely and pressing subjects.)
ISS is proposing lowering the acceptable number of board positions for both CEOs and non-CEO directors.
- For CEOs, ISS is proposing a limit of one outside public company directorship (with “Withhold” recommendations applying only to the CEOs’ outside boards).
- For other directors, ISS is proposing to reduce the acceptable number of total public boards they sit on from the current six to a total of either five or four. All of these totals include the board under consideration.
In all cases, there would be a proposed one-year grace period until 2017. During this time ISS would include cautionary language in research reports but would not recommend negative votes for this reason.
Unilateral Board Actions
ISS is proposing to issue adverse vote recommendations for director nominees when the board of a post-IPO company unilaterally amends its governing documents to newly classify the board or establish supermajority vote requirements, Brownstein says. These recommendations would continue until the unilateral action is reversed or it’s ratified by a shareholder vote.
Also under consideration is whether or not it should issue adverse voting recommendations if a pre-IPO board amends the company’s bylaws or charter prior to or in connection with the IPO to classify the board and establish supermajority vote requirements to amend the bylaws or charter.
If this proposed policy is enacted, withhold recommendations would apply to director nominees at the annual meetings following completion of the IPO. ISS is also asking whether other board actions beyond self-classification and adopting new supermajority requirements should lead to adverse recommendations.
Compensation at Externally Managed Issuers (EMIs)
ISS is proposing to generally recommend “Against” the say-on-pay proposal at EMIs. In the absence of a say-on-pay proposal on the ballot, ISS, under this proposed policy, would also generally recommend an adverse vote for the EMI’s compensation committee members, the compensation committee chair, or the entire board when “a comprehensive pay analysis is impossible because the EMI provides insufficient disclosure about compensation practices and payments made to executives on the part of the external manager.”
Give your feedback
ISS wants your input on these proposed updates, but formal written comments are due by Nov. 9, (but you weren’t planning on doing anything this weekend anyway, right?) You can email them to email@example.com.
ISS expects to release its final 2016 voting policies Nov. 18, and the final policies will apply to shareholder meetings taking place on or after Feb. 1, 2016.
Despite these proposed changes, Brownstein reminds both boards and investors that they should not substitute ISS policies or pronouncements for their own independent, case-by-case, fiduciary judgments.
Do you agree with ISS’ proposed policy changes?