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ISS Issues FAQs on Its 2016 US Proxy Voting Policies and Procedures
Practical Law Legal Update w-001-1023 (Approx. 4 pages)
ISS Issues FAQs on Its 2016 US Proxy Voting Policies and Procedures
by Practical Law Corporate & Securities
| Law stated as of 18 Dec 2015 • USA (National/Federal) |
Institutional Shareholder Services (ISS) issued FAQs on its 2016 US proxy voting policies and procedures. The FAQs address non-compensation related issues.
On December 18, 2015, Institutional Shareholder Services (ISS) issued FAQs on its 2016 US proxy voting policies and procedures. The FAQs address non-compensation related issues and cover:
- ISS US research procedures.
- Engagement with ISS US research analysts.
- Company review of draft ISS proxy analyses.
- ISS proxy voting guidelines.
- Specific issues relating to:
- audit-related issues;
- the board of directors;
- accountability issues;
- unilateral bylaws/charter amendments;
- governance failures;
- majority-supported shareholder proposals, including evaluation of a board's implementation of proxy access in response to a majority-supported proxy access shareholder proposal;
- proxy contests and proxy access;
- independent chair shareholder proposals;
- shareholder rights and defenses;
- capital restructuring; and
- social and environmental issues.
Proxy Access
In particular, ISS added new FAQs relating to the evaluation of adoption of proxy access and process access nominees.
ISS noted that it will evaluate a board's response to a majority supported proxy access shareholder proposal by examining:
- Whether the major points of the shareholder proposal are being implemented.
- Additional provisions that had not been included in the shareholder proposal to assess whether these provisions unnecessarily restrict the use of a proxy access right.
ISS may issue an adverse recommendation if a proxy access policy implemented or proposed by management contains material restrictions more stringent than what was proposed in a majority-supported shareholder proposal on:
- Ownership thresholds: above three percent.
- Ownership duration: longer than three years.
- Aggregation limits: less than 20 shareholders.
- Cap on nominees: less than 20 percent of the board.
ISS also identified restrictions that it considers potentially problematic, particularly when combined together, including:
- Prohibitions on resubmission of failed nominees in subsequent years.
- Restrictions on third-party compensation of proxy access nominees.
- Restrictions on the use of proxy access and proxy contest procedures for the same meeting.
- How long and under what terms an elected shareholder nominee will count towards the maximum number of proxy access nominees.
- When the proxy access right will be fully implemented and accessible to qualifying shareholders.
In addition, ISS identified two types of restrictions that it considers to effectively nullify the proxy access right:
- Counting individual funds within a mutual fund family as separate shareholders for purposes of an aggregation limit.
- The imposition of post-meeting shareholding requirements for nominating shareholders.
Other FAQs
ISS also released FAQs covering equity compensation plan-related issues in December 2015. For more information, see Legal Update, ISS Issues Updated FAQs on US Equity Compensation Plans and Its Scorecard Approach.
Additionally, ISS released FAQs covering executive compensation-related issues in December 2015. For more information, see Legal Update, ISS Issues Updated FAQs on Its 2016 US Executive Compensation Policies.
ISS also released its 2016 summary proxy voting guidelines. For more information, see Legal Update, ISS Releases 2016 US Summary Proxy Voting Guidelines.
Update: On March 14, 2016, ISS updated the FAQs on its 2016 US proxy voting policies and procedures and added a new question on how ISS evaluates a company’s GHG emissions performance. For more information, see ISS's website.