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ISS Issues FAQs on Key 2015 Benchmark US Proxy Voting Policies
Practical Law Legal Update 0-601-1865 (Approx. 4 pages)
ISS Issues FAQs on Key 2015 Benchmark US Proxy Voting Policies
by Practical Law Corporate & Securities
| Published on 20 Feb 2015 • USA (National/Federal) |
ISS issued FAQs on its 2015 Benchmark US Proxy Voting Policies.
On February 19, 2015, Institutional Shareholder Services (ISS) issued FAQs on selected topics in its 2015 Benchmark US Proxy Voting Policies. The FAQs cover:
- Proxy access proposals. ISS is updating its policy on proxy access proposals. Going forward, ISS will generally recommend in favor of management and shareholder proposals for proxy access with the following provisions:
- ownership threshold of no more than 3% of the voting power;
- ownership duration of no longer than three years of continuous ownership for each member of the nominating group;
- minimal or no limits on the number of shareholders permitted to form a nominating group; and
- a cap on nominees of generally 25% of the board.
This marks a change from ISS's recently published guidelines (see Legal Update, ISS Releases 2015 US Summary Proxy Voting Guidelines).ISS will review for reasonableness any other restrictions on proxy access rights and will generally recommend a vote against proposals that are more restrictive than these guidelines.If a company presents both a management and shareholder proxy access proposal on its ballot, ISS will review each of them under this updated policy. - Exclusion of shareholder proposals. For companies that present both a board and shareholder proposal on a similar topic, ISS will review each proposal under the applicable policy. ISS will generally recommend a vote against one or more directors (individual directors, certain committee members or the entire board based on case-specific facts and circumstances) if a company excludes a properly submitted shareholder proposal when it has not obtained:
- voluntary withdrawal of the proposal by the proponent;
- no-action relief from the SEC; or
- a US District Court ruling that it can exclude the proposal from its ballot.
ISS will make this recommendation against directors regardless of whether there is a board-sponsored proposal on the same topic on the ballot. However, if the company has taken unilateral steps to implement the proposal, ISS will consider the degree to which the proposal is implemented, and any material restrictions added to it, before making its recommendation. - Unilateral Bylaw/Charter Amendments policy. For 2015, ISS adopted a standalone policy on unilateral bylaw/charter amendments (see Legal Update, ISS Releases 2015 US Summary Proxy Voting Guidelines). The FAQs note that this policy does not create a new approach for ISS. Expanding on this policy, ISS clarified that it will recommend a vote against the board if a bylaw or charter amendment, unilaterally adopted without shareholder approval, is deemed materially adverse to shareholders' rights. Examples of materially adverse unilateral amendments include, but are not limited to:
- authorized capital increases that do not meet ISS' Capital Structure Framework;
- board classification to establish staggered director elections;
- director qualification bylaws that disqualify shareholders' nominees or directors who could receive third-party compensation;
- fee-shifting bylaws that require a suing shareholder to bear all costs of a legal action that is not completely successful;
- increasing the vote requirement for shareholders to amend the charter or bylaws;
- removing a majority vote standard and substituting plurality voting;
- removing or restricting the right of shareholders to call a special meeting (raising thresholds, restricting agenda items); and
- removing or materially restricting the shareholders' right to act in lieu of a meeting via written consent.
- ISS also identified unilaterally adopted bylaw amendments that it will consider on a case-by-case basis but which generally will not be considered materially adverse:
- advance notice bylaws that set customary and reasonable deadlines;
- director qualification bylaws that require disclosure of third-party compensation arrangements; and
- exclusive venue or forum when the venue is the company's state of incorporation.
- Fee-shifting bylaws. ISS reiterated that it will generally vote against management proposals to amend the bylaws to mandate fee-shifting whenever plaintiffs are not completely successful on the merits and are instead only partially successful. As mentioned above, ISS considers any unilaterally adopted bylaw that mandates fee-shifting whenever plaintiffs are not completely successful on the merits to be materially adverse to shareholders' rights and will recommend a vote against the full board. The FAQs note that as of early February 2015, approximately 50 companies have unilaterally adopted bylaws allowing fee shifting, with none put to a shareholder vote.