January 15, 2014

ISS’ New “Director Qualification Bylaw” FAQs: Negative Recommendation Possible

As blogged about by Duane Morris’ Oliver Rust, ISS issued FAQs yesterday explaining its views on director qualification/compensation bylaws. Here’s an excerpt from this Weil Gotshal memo:

ISS’ new FAQs discuss how it views a board’s adoption of a bylaw that disqualifies any director nominee who receives compensation from a third party (a “director qualification/compensation bylaw”), where such adoption was not approved or ratified by shareholders. According to the FAQs, ISS considers board adoption of director qualification/compensation bylaws without shareholder approval as a “material failure of governance because the ability to elect directors is a fundamental shareholder right…[and] [b]ylaws that preclude shareholders from voting on otherwise qualified candidates unnecessarily infringe on this core franchise right.”

Pursuant to its US proxy voting policy relating to “Governance Failures,” ISS may therefore issue a negative vote recommendation against directors individually, committee members or the entire board. In contrast, ISS stated in the FAQs that it will not recommend against directors at companies whose board has adopted bylaws precluding from board service those director nominees who fail to disclose third-party compensatory payments (for example, advance notice bylaws). According to ISS, such bylaws “may provide greater transparency for shareholders, and allow for better-informed voting decisions.”

In the event that a board seeks shareholder approval of a director qualification/compensation bylaw, ISS has stated that it will review the proposal “case-by-case…taking into consideration among other factors the board’s rationale for proposing the bylaw, whether the proposed bylaw materially impairs, and/or delivers any off-setting improvements in shareholder rights, and any market-specific practices or views on the underlying issue.” In the context of a proxy contest, ISS has stated that it considers compensation arrangements with director nominees as a factor in its case-by-case analysis.

Did the “SEC News Digest” Go Out of Business?

Here’s a blog from Stinson Leonard Street’s Steve Quinlivan noting that the “SEC News Digest” hasn’t been published in a month – and how the SEC’s response to his query about it was that it indeed may be done. Let me know your reaction. Are you okay with RIP?

Webcast: “The Latest Developments: Your Upcoming Proxy Disclosures”

Tune in tomorrow for the webcast – “” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and, Dave Lynn of and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance about how to overhaul your upcoming disclosures in response to say-on-pay–including the latest SEC positions–and the other compensation components of Dodd-Frank, as well as how to handle the most difficult ongoing issues that many of us face.

– Broc Romanek