November 20, 2018

ISS Releases ’19 Voting Policy Updates

Yesterday, ISS announced the 2019 updates to its proxy voting policies. We’re posting memos in our “Proxy Advisors” Practice Area (also see this blog from Exequity’s Ed Hauder – and this Davis Polk blog). Here’s the highlights for US companies – except as otherwise noted, the policies apply to meetings held on or after February 1st:

1. Board Diversity: Beginning in 2020 for Russell 3000 and S&P 1500 companies, the chair of the nominating committee (or other directors on a case-by-case basis) will receive an “against” recommendation when there are no women on the company’s board. Mitigating factors include a firm commitment in the proxy statement to appoint at least one female director in the near term, the presence of a female on the board at the preceding annual meeting, or other relevant factors.

2. Economic Value Added Data: During 2019, ISS research reports will feature Economic Value Added data as a supplement to GAAP-based measures that measure the alignment between CEO pay & company performance. Moving into 2020, ISS will consider the inclusion of EVA-based measurements as part of its Financial Performance Assessment methodology.

3. Board Meeting Attendance: ISS is codifying its case-by-case approach to chronic poor attendance without reasonable justification. In addition to voting against the director(s) with poor attendance, it will recommend voting against other directors. After three years of poor attendance, the policy applies to the chair of the nominating or governance committee; after four years, the full committee; and after five years, all nominees.

4. Management Proposals to Ratify Existing Charter or Bylaw Provisions: Similar to Glass Lewis’s new policy on conflicting & excluded proposals, ISS is codifying its policy to vote against individual directors, members of the governance committee, or the full board, where boards ask shareholders to ratify existing charter or bylaw provisions – taking into account factors such as the presence of a shareholder proposal addressing the same issue, the board’s rationale for seeking ratification, the actions to be taken by the board should the ratification proposal fail, whether the current provision was adopted in response to the shareholder proposal, previous use of ratification proposals to exclude shareholder proposals, the company’s ownership structure, etc.

5. Board Responsiveness to Ratification Proposals: ISS’s existing responsiveness policy is updated to reflect that failure to act on a failed “ratification” proposal will trigger a board responsiveness analysis at the next annual meeting.

6. Director Performance Evaluations: When identifying companies that have long-term underperformance, ISS will look at three- and five-year TSR during the initial screen – rather than using five-year TSR as part of a secondary step in the evaluation.

7. Reverse Stock Splits: ISS broadened its policy to allow analysts to take a case-by-case approach for companies that are not listed on major stock exchange and may have a legitimate need to carry out a reverse stock split. ISS is also broadening the factors it will consider for all companies – exchange listed and non-exchange listed, where substantial risks exist.

8. E&S Proposals: ISS is codifying its case-by-case approach to E&S proposals – to make more explicit that significant controversies, fines, penalties or litigation are considered.

Proxy Process Roundtable: Worthwhile Written Comments

Last week, I blogged about what it was like to attend the SEC’s “Proxy Process Roundtable” – you can also check out Cydney Posner’s blog for more details on the substantive discussions. One thing I noted was that there were many people on each panel. The SEC invited a lot of speakers in an effort to get a wide range of views. But since time was limited, not everyone got to delve into their specific recommendations – so at many points, people made reference to the written comments that they’d submitted.

During the ABA meeting the following day, Corp Fin Director Bill Hinman noted that over 80% of the comments came in during the last week – and the Staff thinks they’ve been very constructive. Here are some of the many submissions, from panelists and others:

Neuberger Berman
The Capital Group
Glass Lewis
Egan Jones
Broadridge Independent Steering Committee
Proxy Insight
Carl Hagberg & Associates

More on “Proxy Season Blog”

We continue to post new items daily on our blog – “Proxy Season Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Math With Broker Non-Votes
– An Anti-ESG Campaign Begins
– Vote Tabulations: A Handy Primer
– Iran Disclosure: Impact of Latest Sanctions
– Revenue Recognition: Corp Fin Comments

Liz Dunshee