October 28, 2016

ISS Issues Draft Policies: November 10th Deadline

Yesterday, ISS released draft policy changes for comment in 15 areas spanning the globe (based on these survey results from constituents) – the deadline for comment is November 10th. It’s expected that ISS will release its final policies in late November (although burn rate thresholds & pay-for-performance quantitative concern thresholds are typically announced through updated FAQs in mid-December; here’s info about the ISS policy process).

For US companies, there are several significant proposals to be aware of:

Director elections:

1. Director election vote recommendations for directors at companies that impose undue restrictions on shareholders’ ability to amend bylaws:
– ISS proposes to amend its director election policy to include a provision to issue adverse vote recommendations on governance committee director elections where companies have placed “undue” restrictions on shareholders’ ability to amend the company’s bylaws.
– Examples of these restrictions include the outright prohibition on the submission of binding shareholder proposals, or share ownership requirements or holding periods in excess of SEC Rule 14a-8.
– Adverse vote recommendations will continue until the restrictions are completely lifted.

2. Director election vote recommendations for directors that have taken unilateral board actions or maintain unequal voting rights:
– ISS proposes to clarify its director election policy to state that, upon a company holding an IPO with a multi-class capital structure with unequal voting rights or other problematic governance provisions, ISS will generally issue adverse director vote recommendations unless there is a “reasonable” sunset provision on the unequal structure or the problematic provisions.
– The key change is that ISS will no longer consider the results of shareholder votes on problematic features when issuing vote recommendations; instead, ISS will only consider the inclusion of “reasonable” sunset provisions.

US-listed cross-market companies (companies listed in the US, but incorporated outside):

1. General share issuance proposals at companies listed in the US, but incorporated outside the US:
– ISS proposes to recommend in favor of general share issuance authorities up to 20 percent of currently issues capital, as long as the duration of the issuance authority is reasonable and clearly disclosed.

2. Executive compensation proposals at companies listed in the US, but incorporated outside the US:
– ISS proposes to implement, on a case-by-case basis, US policy in the evaluation of all compensation proposals on the ballots of companies listed in the US, but incorporated elsewhere.
– For proposals where there is no applicable US policy, the ISS policy from the country requiring the ballot item will be used.
– For clarification, say-on-pay proposals from most markets will be evaluated under the US Management Say-on-Pay voting policy.

Failure to Detect Fraud: EY Pays $12 Million Fine

Recently, EY agreed to pay $12 million to the SEC for failure to detect auditing fraud at a client. The client paid a $140 million penalty to the SEC for using deceptive income tax accounting…

Happy 25th! A Tear-Jerker…

Proving that some good things do happen on Facebook, here’s a note that my son in college posted about our 25th wedding anniversary this week:

A child’s parents are their first glimpse into the world of human interaction, the primary source in their subconscious thesis on how to deal with other people. Lucky then, that my social foundations are anchored in a relationship such as the one you two have – one born from love, empathy, and mutual respect.

The decency with which you treat each other is something I’ve learned a great deal from, and the effort you give to make each other happy is something I strive to replicate every day. You’ve taught me that any kind of relationship, whether it be a friendship or a romantic endeavor, isn’t something you passively observe – but is instead something you work on and maintain. It takes time, energy, and genuine care.

25 years later and Dad’s still tearing up at dinner about how much he loves Mom. That’s pretty hard to beat. If I’m lucky enough to find even half of what the two of you have, I would count myself as blessed.

Happy 25th Anniversary Mom and Dad, sending love and laughter on your special day!

Broc Romanek