The Advisors' Blog

– Liz Dunshee

Yesterday, ISS announced the 2019 updates to its proxy voting policies. We’re posting memos in our “Proxy Advisors” Practice Area (also see this blog from Exequity’s Ed Hauder – and this Davis Polk blog). Here’s the highlights for US companies – except as otherwise noted, the policies apply to meetings held on or after February 1st:

1. Board Diversity: Beginning in 2020 for Russell 3000 and S&P 1500 companies, the chair of the nominating committee (or other directors on a case-by-case basis) will receive an “against” recommendation when there are no women on the company’s board. Mitigating factors include a firm commitment in the proxy statement to appoint at least one female director in the near term, the presence of a female on the board at the preceding annual meeting, or other relevant factors.

2. Economic Value Added Data: During 2019, ISS research reports will feature Economic Value Added data as a supplement to GAAP-based measures that measure the alignment between CEO pay & company performance. Moving into 2020, ISS will consider the inclusion of EVA-based measurements as part of its Financial Performance Assessment methodology.

3. Board Meeting Attendance: ISS is codifying its case-by-case approach to chronic poor attendance without reasonable justification. In addition to voting against the director(s) with poor attendance, it will recommend voting against other directors. After three years of poor attendance, the policy applies to the chair of the nominating or governance committee; after four years, the full committee; and after five years, all nominees.

4. Management Proposals to Ratify Existing Charter or Bylaw Provisions: Similar to Glass Lewis’s new policy on conflicting & excluded proposals, ISS is codifying its policy to vote against individual directors, members of the governance committee, or the full board, where boards ask shareholders to ratify existing charter or bylaw provisions – taking into account factors such as the presence of a shareholder proposal addressing the same issue, the board’s rationale for seeking ratification, the actions to be taken by the board should the ratification proposal fail, whether the current provision was adopted in response to the shareholder proposal, previous use of ratification proposals to exclude shareholder proposals, the company’s ownership structure, etc.

5. Board Responsiveness to Ratification Proposals: ISS’s existing responsiveness policy is updated to reflect that failure to act on a failed “ratification” proposal will trigger a board responsiveness analysis at the next annual meeting.

6. Director Performance Evaluations: When identifying companies that have long-term underperformance, ISS will look at three- and five-year TSR during the initial screen – rather than using five-year TSR as part of a secondary step in the evaluation.

7. Reverse Stock Splits: ISS broadened its policy to allow analysts to take a case-by-case approach for companies that are not listed on major stock exchange and may have a legitimate need to carry out a reverse stock split. ISS is also broadening the factors it will consider for all companies – exchange listed and non-exchange listed, where substantial risks exist.

8. E&S Proposals: ISS is codifying its case-by-case approach to E&S proposals – to make more explicit that significant controversies, fines, penalties or litigation are considered.