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ISS Releases FAQs on Independent Board Chair Policy
Practical Law Legal Update 6-593-8745 (Approx. 3 pages)
ISS Releases FAQs on Independent Board Chair Policy
by Practical Law Corporate & Securities
| Published on 23 Dec 2014 • USA (National/Federal) |
Institutional Shareholder Services (ISS) released FAQs on its updated 2015 voting policy regarding independent board chair shareholder proposals.
On December 22, 2014, Institutional Shareholder Services (ISS) released FAQs that discuss how ISS will make voting recommendations on shareholder proposals requiring that the position of chairman of the board be filled by an independent director (independent board chair proposals).
Under ISS's previous approach, ISS generally recommended voting for an independent board chair proposal unless the company satisfied all of ISS's criteria. Under ISS's new approach, before making a voting recommendation, ISS will conduct a holistic review of all of the factors related to a company's board leadership structure, governance practices and performance. One factor that might have previously resulted in a vote for or against may now be mitigated by other factors.
Among other items, the FAQs indicate that:
- ISS will consider many additional factors under its new independent board chair policy, including:
- the presence on the board of directors of a separate executive or non-independent chairman in addition to the CEO;
- whether the role of chairman and CEO was recently recombined;
- a recent departure from a structure with an independent chairman;
- any recent transitions in board leadership, and the effect on independent board leadership;
- designation of a lead director role; and
- board tenure, including concurrence of director/CEO tenure, which will be considered in the context of the overall leadership structure.
- ISS will consider one-, three- and five-year total shareholder return in evaluating company performance. ISS will weigh long-term performance more heavily than short-term performance. Company performance will be a significant factor in ISS's holistic review.
- ISS will also consider problematic governance practices that may lead it to support an independent board chair proposal. Examples of problematic governance practices include:
- problematic compensation practices;
- multiple related-party transactions;
- failures of risk oversight;
- adoption of shareholder-unfriendly bylaws without seeking shareholder approval; and
- the board's failure to adequately respond to majority-supported shareholder proposals or directors receiving less than majority support.
- ISS will consider whether other action may be deemed a sufficient company response to a majority-supported independent board chair proposal. Although full implementation consists of separating the roles of CEO and chairman, with an independent director becoming chairman, if the company adopts a policy to separate these roles on the resignation (or other departure) of the current CEO/chairman, ISS would consider this sufficiently responsive. ISS will evaluate other responses on a case-by-case basis.
For more information on ISS's 2015 voting guidelines, see Legal Updates, ISS Releases 2015 Proxy Voting Guideline Updates and ISS Releases 2015 US Summary Proxy Voting Guidelines.