ISS Issues for Comment Its Proposed 2017 Draft Policy Changes


Following the release in September of the results of its global policy survey, proxy advisory firm Institutional Shareholder Services Inc. has made available for comment its proposed draft policy changes for 2017.

For U.S. companies, the proposed changes cover several important governance and executive pay topics:

Unilateral Board Actions – Multi-Class Capital Structure at IPO

According to ISS, there has been a marked increase in the number of companies going public with multi-class capital structures in which the classes have unequal voting rights.  Through Aug. 30 of this year, 17 companies held their first annual meeting with these types of share structures, says ISS.  That being the case, ISS is seeking comment on “the inclusion of a reasonable sunset provision on the adverse capital structure or governance provision.”

Specifically, ISS would like feedback on the following:

  • What factors do you consider as an appropriate sunset provision? Should a sunset provision always be based on duration, or is another factor such as ownership makeup considered appropriate?
  • What length of time do you consider appropriate for a sunset provision?
  • Should the terms of a sunset provision differ based on the feature being sunset (e.g., classified board vs. supermajority vote requirements vs. multi-class capital structure)? If so, how?

Restrictions on Binding Shareholder Proposals

In an effort to protect shareholders’ ability to submit proposals to amend bylaws, ISS is contemplating a vote against or withholding votes from members of the governance committee if the company’s charter or articles of incorporation restrict shareholder’s right to amend the bylaws.

Specifically, ISS is seeking feedback on the following:

  • Is the vote recommendation to withhold from members of the governance committee on an ongoing basis sufficient?
  • Going forward, how would you consider boards should address this issue? For example, would the introduction by a company of a super-majority vote requirement to approve binding shareholder proposals in place of a previous prohibition be viewed as sufficiently responsive?

General Share Issuance Mandates for Cross-Market Companies (Listed in the U.S., But Incorporated Elsewhere)

According to ISS, a number of formerly U.S.-based companies, treated as U.S. domestic issuers by the SEC, have reincorporated in recent years to jurisdictions where shareholder approval is required for any share issuance.  There is not currently, however, “a U.S. policy on general share issuance mandates, as companies incorporated in the U.S. are not required to seek approval for share issuances except in certain specified circumstances.”

This being the case, ISS is proposing to “recommend in favor of general share issuance authorities up to a maximum of 20 percent of currently issued capital, as long as the duration of the authority is clearly disclosed and reasonable.”

ISS is seeking feedback on the following:

  • As proposed, the new policy would effectively extend the NYSE/NASDAQ requirement for shareholder approval of issuances above 20 percent to scenarios in which the listing rules do not currently apply, such as public share issuances for cash. Do you believe that 20 percent is an appropriate threshold for such cross-market companies, or would it be more appropriate to grant a mandate for issuances up to a lower or higher level?
  • Should such companies seek annual approval for share issuance mandates, or would a longer mandate (e.g., 2 years or 3 years) be acceptable?
  • Should the same policy also apply to companies treated by the U.S. SEC as Foreign Private Issuers?

Executive Pay Assessments (Cross-Market Companies)

According to ISS, “A growing number of companies around the world are incorporated in one country but listed in a different country (often the U.S.) and may be required to include multiple compensation proposals on the same ballot relating to the same pay program.”  Under the changes proposed by ISS,

U.S. Domestic Issuers with multiple compensation proposals on ballot that pertain to the same pay program will be assessed on a case-by-case basis using the following guiding principle: (1) align voting recommendations so as to not have inconsistent recommendations on the same pay program, and (2) use the policy perspective of the country in which the company is listed (e.g. U.S. say-on-pay policy for proposals relating to executive pay). However, if there is a compensation proposal on ballot under which there is no applicable U.S. policy, then the policy of the country that requires it to be on ballot would apply. This is a limited carve out; for U.S.-listed companies, most markets' say-on-pay proposals would be viewed from a U.S. say-on-pay policy perspective, aligned to the U.S. Management Say-on-Pay vote recommendation.

With regard to this change, ISS would like to know the following:

  • How should companies that are dual-listed or have dual incorporations fit into this framework?

All Comments are due by 6 p.m. ET on Nov. 10 and can be submitted to  ISS will release its final 2017 voting policies the week of Nov. 14 and these policies will apply to shareholder meetings taking place on or after Feb. 1, 2017.