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28 November 2017 • Articles

Morrow Sodali

ISS 2018 Proxy Voting Guidelines Updates


Proxy Updates

ISS 2018 Proxy Voting Guidelines Updates
Changes are Modest in Scope

ISS recently released updates to its proxy voting guidelines for 2018. These policy changes will be effective for meetings taking place after February 1, 2018. Overall, the policy changes are modest in nature and are meant to simplify, clarify and codify ISS practices and policies. We do not anticipate the updates will have a significant impact on voting in 2018.

Board Composition. ISS made a minor change to the fundamental principles that it applies when determining how to recommend on director nominees. For its board composition principle, ISS added a provision that boards should be “sufficiently diverse to ensure consideration of a wide range of perspectives.”

Gender Diversity. ISS will identify in its reports boards where there are no female directors. However, a lack of gender diversity will not result in a negative recommendation. This policy is being instituted because 69% of respondents to ISS’ 2017 – 2018 Governance Principles Survey said they consider a lack of gender diversity to be problematic.


Excessive Non-Employee Director Compensation. ISS will recommend against or withhold on compensation committee members where ISS sees what it considers a pattern of excessive compensation (relative to peers and the broader market) for non-employee directors and where the company has not provided “compelling rationale” for the compensation. This policy will not impact vote recommendations in 2018, but will in the future when there is a pattern (2 or more years) of excessive compensation for non-employee directors.

Pledging of Company Stock. Since 2013, ISS has been recommending against or withhold on directors serving on the committee responsible for risk oversight at companies with significant level of pledging. ISS has updated its policy regarding the pledging of company stock by establishing an explicit policy that will consider
the following: the presence of an anti-pledging policy disclosed in the proxy statement, the magnitude of pledged shares, the progress (or lack thereof) in reducing the number of pledged shares over time, and disclosure in the proxy statement that shares subject to stock ownership and holding requirements do not include pledged shares.

Pay-for-Performance Evaluation. ISS has added a new criterion to its pay-for-performance evaluation. ISS will now also consider the rankings within a peer group of the CEO total pay and company financial performance over a three-year period.


State Mandated Classified Boards. ISS has added a provision under Board Accountability indicating that it will recommend a vote against or withhold on the entire board if the company has opted into, or failed to opt out of, a state law requiring a classified board structure. ISS notes that this only affects approximately 20 companies incorporated in Indiana.

Poison Pills. To simplify and strengthen its policy on poison pills ISS has made several changes. For companies with annually-elected boards that maintain a non-shareholder approved long-term pill (longer than one year), ISS will now recommend against or withhold on all directors each year as opposed to every three years under its current policy. Also, ISS will no longer consider a commitment to put a long-term pill to a vote in the following year to be a mitigating factor. For short-term pills, ISS will continue to recommend case-by-case and the “relevant factors” that ISS will considers will include the disclosed rational and a commitment to put any renewal to a shareholder vote.

Restrictions on the Submission a Shareholder Proposal to Amend the Bylaws. ISS has broadened the language in its policy regarding companies that restrict shareholder proposals to amend the bylaws. Since that restriction can be found in a company’s bylaws rather than its charter, ISS has substituted “governing documents” for the word “charter” in its policy.

Low Vote on Say on Pay. ISS will be looking for additional disclosure at companies that received support of less than 70% of the votes cast on the Say on Pay proposal. Specifically, ISS wants disclosure on the timing and frequency of engagement with large institutional investors, whether independent directors participated, the specific concerns voiced by shareholders, and the specific and meaningful actions taken to address shareholder concerns. This change will pertain both to the election of directors and to the Say on Pay vote in the year after a low Say on Pay vote.

SPAC Proposals for Extension. With the increase in the number of special purpose acquisition companies (SPACs), ISS has added a new policy to evaluate SPAC extension proposals. ISS will consider the length of the extension, progress of pending acquisitions or the acquisition process, added incentives for non-redeeming shareholders, and prior extension requests.

Shareholder Proposals on Climate Change Risk. ISS has added additional language to its policy on shareholder proposals on climate change risk. ISS states that the change is being made to better align its policy with the recommendations of The Task Force on Climate-Related Financial Disclosures (TCFD) which seeks transparency around the board and management’s role in assessing and managing climate-related risks.

Shareholder Proposals on Gender Pay Gap. There have been an increasing number of shareholder proposals requesting a report on whether a gender pay gap exists and, if so, what is the company doing to eliminate the gap. In response, ISS has instituted a new policy addressing shareholder proposals regarding gender pay gap. ISS will evaluate case-by-case taking into account the company’s current policies and disclosure on its diversity and inclusion policies related to compensation, whether the company has been the subject of recent controversy or regulatory action, and whether the company’s disclosure on gender pay gap lags its peers.
Following the release of the Update, ISS will publish a complete set of updated policies and Frequently Asked Questions (FAQs) on certain U.S. policies. We will monitor these releases and provide commentary as appropriate.
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