November 20, 2015

Alert

ISS Releases 2016 U.S. Policy Updates

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Daniel Laddin
Founding Partner daniel.laddin@capartners.com 212-921-9359
Eric Hosken
Partner eric.hosken@capartners.com 212-921-9363

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ISS released their finalized 2016 policy changes, which are consistent with the proposed changes previously announced. The changes are relatively minor and the key changes are related to

  • Director Overboarding
  • Negative director election vote recommendations for directors that have taken unilateral board actions
  • Proxy Access
  • Compensation-related votes at externally-managed issuers and Shareholder Proposals related to equity retention
  • Shareholder Proposals: Hold Equity Past Retirement or for a Significant Period of Time

The changes are as follows:

  1. Director Overboarding
    • Previously, ISS recommended an “Against” or “Withhold” for a director if the director sits on more than 6 public company boards or 2 public company boards for the CEO (besides their own for CEOs)
    • ISS changed the threshold to 5 for a regular board member and made no changes for CEOs, though they did propose reducing the CEO threshold to 1 in the draft guidelines
    • This change will be in effect for meetings on or after Feb. 1, 2017
  2. Negative director election vote recommendations for directors that have taken unilateral board actions
    • ISS clarified that it will generally issue “Against” vote recommendations for directors, committee members or entire board for bylaws amendments, without shareholder approval, calling to classify the board or introducing supermajority vote requirements (policy will also apply if directors amended the bylaws immediately prior to an IPO)
    • Negative vote recommendations will be issued until the unilateral reduction is reversed or approved by a shareholders vote
  3. Proxy Access
    • ISS clarified current policy that vote recommendations for directors nominated using proxy access will be evaluated using similar criteria to those used in proxy contests
  4. Compensation-related votes at externally-managed issuers
    • ISS will generally recommend “Against” say-on-pay proposals if there is insufficient disclosure for ISS to perform a comprehensive pay-for-performance analysis [limited situations and often impacts externally managed issuers like REITs]
  5. Sharholder Proposals: Hold Equity Past Retirement or for a Significant Period of Time
    • ISS has broadened the policy to encompass executive retention proposals more generally, eliminating the need for a separate policy covering the proposals seeking retention of 75% of net shares
    • The proposed retention ratio and required duration of retention are just some of the several factors that ISS will consider in its case-by-case analysis

 For further details on the updated policies for 2016, please visit https://www.issgovernance.com/file/policy/2016-americas-policy-updates.pdf