2016 ISS Policy Updates

Institutional Shareholder Services (ISS) recently released their 2016 proxy voting guideline policy updates. These updated policies are anticipated to be applied to shareholder meetings on or after February 1, 2016.

A few of the most important U.S. benchmark policy updates include:

Changes to the director overboarding policy

  • Directors who are not CEOs will be considered “overboarded” if they sit on more than five public company boards. This has been reduced from six.
  • In order to plan for orderly transition, there will be a one year grace period for companies to make any necessary changes to board prior to the 2017 proxy season
  • No changes to the public company CEO threshold for “overboarding.” This will remain at two outside seats.

Updates to policies around unilateral board actions which adversely affect shareholder rights

  • The U.S. benchmark policy will be updated to distinguish between newly-public companies and established public companies recognizing that investor expectations may be different.
  • For newly-public companies, the updated policy calls for a case-by-case approach in subsequent years, with significant weight given to shareholders’ ability to change the governance structure in the future through a simple majority vote and their ability to hold directors accountable through annual director elections.
  • For established public companies, the updated policy generally calls for continuing to withhold votes from directors who have unilaterally adopted a classified board structure or implemented supermajority vote requirements to amend the bylaws or charter.

Policy change addressing insufficient disclosure of compensation arrangements for executives at an externally-managed issuer (EMI)

  • An EMI’s failure to provide sufficient disclosure around executive compensation will be deemed a problematic pay practice and will generally warrant a recommendation to vote against the say-on-pay proposal.

In a November 20, 2015 press release, Georgina Marshall, ISS Global Head of Research remarked, “Today’s release of our policy updates for 2016 is part of our regular policy development process and reflects the input of a wide range of investors, companies and other market participants, who this year provided feedback through our annual survey, through topical and regional roundtables, and through year-round direct discussions with ISS. The significant input we receive helps ensure that ISS’ benchmark policies reflect changing market good practices, create dialogue around important issues and, most importantly, serve the needs of our institutional investor clients worldwide in assisting them in making informed voting decisions.”