November 22, 2005

ISS’ Voting Policies for 2006

ISS has released its voting policies update for 2006, including a new policy on majority vote shareholder proposals. Below is a snapshot of the most notable developments, as ISS will now:

– recommend a vote “against” shareholder proposals seeking implementation of a majority voting standard in a director election if company has adopted a corporate governance principle that addresses certain key points and the company satisfies other criteria.

– recommend a “withhold” vote from director nominees who serve on audit committees if company has serious internal controls issues

– recommend a “withhold” vote from director nominees who serve on compensation committees if company has poor compensation practices (also encouraging compensation committees to include “tally sheet” or other total compensation disclosures)

More on ISS’ Majority Vote Voting Policy

Fleshing out ISS’ new voting policy on majority vote shareholder proposals, Gibson Dunn issued this law firm memo that recaps the voting policy – and an ABA panel from this weekend where John Connolly and Martha Carter, ISS’s President/CEO and its SVP/Director, U.S. Research, respectively, stated:

“For 2006, ISS will generally support “reasonably crafted” shareholder proposals (regardless of whether binding or non-binding) asking a company to implement a majority voting standard in uncontested director elections. However, ISS will consider recommending votes “Against” this type of shareholder proposal if the company has adopted formal corporate governance principles that “present a meaningful alternative to the majority voting standard and provide an adequate response to both new nominees as well as incumbent nominees who fail to receive a majority of votes cast.” At a minimum, such principles should:

– apply to each nominee in an uncontested election who fails to receive affirmative votes of a majority of the votes cast in the election (i.e., not a majority of outstanding shares standard);

– contain guidelines that are disclosed annually in the company’s proxy statement;

– provide a clear and reasonable timetable for all decision-making regarding the status of a nominee who does not receive a majority vote;

– state that the process for determining the nominee’s status will be managed by independent directors, excluding the nominee in question;

– detail the range of remedies that can be considered concerning the nominee (e.g., accept a resignation from the nominee, cure issues underlying the voting results, etc.);

– commit to prompt disclosure of the nominee’s status via an SEC filing; and

– describe the timeline for disclosing the directors’ decision regarding a nominee’s status and explaining how the decision was reached.

The ISS representatives emphasized that the new policy is intended to be flexible (as opposed to a “check the box” approach), that ISS is not endorsing any one company’s policy or approach and that it is very important for a company to explain why any policy it adopts is appropriate for that company.

The 2006 Policy Updates reflect this last point where they state that “In addition, the company should articulate to shareholders why this alternative [implementing a corporate governance policy on majority voting as opposed to changing the voting standard] is the best structure at this time for demonstrating accountability to shareholders.” Finally, in considering its voting recommendation, ISS will also evaluate the company’s accountability to shareholders, including whether it has a classified board or a history of not responding to shareholder proposals that received a majority vote.”

The Gibson Dunn memo – and these other law firm memos – provide a number of practice pointers about what you should consider now in light of these new changes.

Working in Corp Fin During the ’60s

How about a human interest story for the holiday? In this podcast, Bob Curley of Mayer Brown Rowe & Maw provides some insight into what it was like to work in the Division of Corporation Finance forty years ago, including:

– Where was the SEC located? What was the Staff’s composition?
– What was nature of working in Corp Fin back then?
– How were filings processed and reviewed?
– What were some of your favorite moments when you were on the Staff?
– What are some of things you missed most when you left?