TheCorporateCounsel.net

I blogged yesterday about the climate-related results of ISS’s recent benchmark policy survey. Another topic that we expect ISS to address in its forthcoming 2023 voting policies is which companies and directors will find themselves facing adverse voting recommendations as a result of multi-class share structures.

The survey results suggest that directors holding super-voting shares and the chair of the governance committee will be in the cross-hairs under the new policy, and that 5% may be the threshold for exceptions to this policy. Here’s more detail:

Already announced in 2021, effective as of Feb. 1, 2023, ISS plans to start recommending votes against certain directors at U.S. companies that maintain a multi-class capital structure with unequal voting rights, including companies that were previously exempted from adverse vote recommendations.

In 2022, we said that we planned to apply exceptions in cases where the capital structure is not deemed to meaningfully disenfranchise public shareholders. When asked what the appropriate threshold for exemption should be, a strong majority of investor respondents agreed that there should be an exception. They were split on exactly what that threshold should be, but “no more than five percent” was the most popular threshold chosen by investor and non-investor respondents. Almost a third of investors responded that there should be no exemptions.

When asked what the appropriate target for an adverse vote recommendation, respondents favored any director who holds super-majority shares and the chair of the governance committee. Twenty-nine percent of non-investor respondents stated that there should not be votes against directors in this situation.

In cases where shareholder do not have the ability to vote against the director who holds super-majority shares, a majority of investor respondents said that shareholders should vote against whatever director was on ballot to protest against the multi-class structure.

When asked to define the most appropriate time for a sunset to begin phasing out problematic governance structures such as a classified board, a plurality of investor respondents chose “between 3 and 7 years.”

When asked whether smaller companies should be exempted from negative vote recommendations for maintaining a classified board or supermajority voting requirement, a strong majority of investor respondents said that should
not. Nearly two-thirds of non-investor respondents, on the other hand, replied that smaller companies should be exempted from either one or both of those provisions.

Both investors and non-investors supported having a supermajority vote requirement of two-thirds of shares outstanding to amend governing documents.

One thing that we can probably all agree on, is that these survey results would be more entertaining if they were unveiled in a “Family Feud” format. We may have to host a game show next year.

– Liz Dunshee