Here’s news from this blog by Davis Polk’s Ning Chiu:
Last week, ISS posted a number of updated documents on their policies, including a revised set of summary guidelines and concise guidelines (hint: the summary guidelines are more useful and contain the list of factors that impact their own analysis of what makes a director not independent). It includes ISS’ new policy regarding evaluation of board responsiveness to majority-supported shareholder proposals that we previously discussed.
In mid-December, ISS updated its compensation FAQs. Although it has not yet posted its full set of non-compensation FAQs in full, it released a brief set of questions and answers to address companies’ adoption of a bylaw that disqualifies any director nominee who receives third-party compensation, without putting such a bylaw to a shareholder vote. In these cases, ISS indicates that it may recommend a vote against or withhold from director nominees as a material failure of governance, stewardship, risk oversight, or fiduciary responsibilities. There is no discussion as to the factors that ISS would weigh in its decision, and we note that ISS has already taken a negative view against at least one company before it adopted this policy.
It is also expected that ISS will be updating its Governance QuickScore ranking system at the end of the month, and making additional policy changes to account for new shareholder proposals such as the “confidential voting” one, which aims to prohibit management and boards from access to voting reports for solicitation purposes prior to the annual meetings.
Those who do not subscribe to Glass Lewis services can access an overview of its guidelines, which includes its own set of what constitutes an affiliate, non-independent director. In addition to independence, Glass Lewis has numerous policies regarding director elections that might be surprising, for example, the firm recommends against the audit committee chair if an audit committee does not meet at least four times a year, and members of the compensation committee if at least two other compensation committees on which they served received “F” grades for pay for performance.
First mentioned at our executive pay conference last September, ISS has now opened a new consultation period on approaches to longer term policy changes beyond 2014. This is the first year ISS is enacting this type of method for seeking market feedback – with the goal of shifting its process from a seasonal to a continual focus on policy development. The consultation period closes on February 14th. Direct comments to policy@issgovernance.com.
As noted in this Gibson Dunn blog, ISS has revised its corporate governance ratings service – now “QuickScore 2.0.” Some basic information about the retooling was announced, with further details promised on January 27th.
More importantly for companies, from January 27th to February 7th, you can check the data that ISS will use in QuickScore 2.0 through the ISS Governance Analytics webpage before the launch. Learn more in this Compensia memo.
By the way, no information about this development is online. ISS only sent an email to companies in their QuickScore coverage universe…
One of the big stories last year was Jana Partners’ attempt to pay directors that they were able to get voted onto a board of one of their portfolio companies. The corporate backlash was the adoption of bylaws that disqualified any directors that receive payments from outsiders. As noted in this Financial Times article, 33 companies have adopted such bylaws – and activists are fighting back. Prof. Bainbridge weighs in again on this topic.
To top this off, a few days ago, ISS issued FAQs explaining its views on director qualification/compensation bylaws. Here’s an excerpt from this Weil Gotshal memo:
ISS’ new FAQs discuss how it views a board’s adoption of a bylaw that disqualifies any director nominee who receives compensation from a third party (a “director qualification/compensation bylaw”), where such adoption was not approved or ratified by shareholders. According to the FAQs, ISS considers board adoption of director qualification/compensation bylaws without shareholder approval as a “material failure of governance because the ability to elect directors is a fundamental shareholder right…[and] [b]ylaws that preclude shareholders from voting on otherwise qualified candidates unnecessarily infringe on this core franchise right.”
Pursuant to its US proxy voting policy relating to “Governance Failures,” ISS may therefore issue a negative vote recommendation against directors individually, committee members or the entire board. In contrast, ISS stated in the FAQs that it will not recommend against directors at companies whose board has adopted bylaws precluding from board service those director nominees who fail to disclose third-party compensatory payments (for example, advance notice bylaws). According to ISS, such bylaws “may provide greater transparency for shareholders, and allow for better-informed voting decisions.”
In the event that a board seeks shareholder approval of a director qualification/compensation bylaw, ISS has stated that it will review the proposal “case-by-case…taking into consideration among other factors the board’s rationale for proposing the bylaw, whether the proposed bylaw materially impairs, and/or delivers any off-setting improvements in shareholder rights, and any market-specific practices or views on the underlying issue.” In the context of a proxy contest, ISS has stated that it considers compensation arrangements with director nominees as a factor in its case-by-case analysis.
In addition to today’s Section 162(m) litigation webcast, tune in tomorrow for the webcast – “Executive Compensation Litigation: The Latest Developments: Your Upcoming Proxy Disclosures” – to hear Mark Borges of Compensia, Alan Dye of Hogan Lovells and Section16.net, Dave Lynn of CompensationStandards.com and Morrison & Foerster and Ron Mueller of Gibson Dunn discuss all the latest guidance about how to overhaul your upcoming disclosures in response to say-on-pay–including the latest SEC positions–and the other compensation components of Dodd-Frank, as well as how to handle the most difficult ongoing issues that many of us face.
Tune in tomorrow for the webcast – “Executive Compensation Litigation: Section 162(m) Disclosures”” – to hear McDermott Will’s Andrew Liazos, Shearman & Sterling’s Doreen Lillenfeld and Winston & Strawn’s Mike Melbinger as they drill down on how Section 162(m)-related lawsuits are faring and what you can do to avoid them.
Last week, Nasdaq announced that it has posted the final form of its compensation committee certification on its Listing Center. Anyone can view a blank form in the preview mode – and a Listing Center user can log in to complete the form online on behalf of a company. As I’ve blogged, Nasdaq previously had posted only a preview of the certification form…
Tune in tomorrow for the webcast – “Executive Compensation Litigation: Proxy Disclosures” – to hear Pillsbury’s Sarah Good, Wilson Sonsini’s Ignacio Salceda and Dave Thomas and Fenwick & West’s Scott Spector discuss what is involved in the latest rash of executive compensation-related lawsuits, as well as how to handle them.