ISS Survey Finds That Most Investors Oppose Board Unilateral Adoption of Bylaws

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By Michael Greene

Sept. 29 — Most investors think boards should never unilaterally adopt bylaws that diminish shareholder rights, according to an Institutional Shareholder Services Inc. survey released Sept. 29.

In evaluating board accountability, 72 percent of the investors surveyed indicated that “the board should never adopt bylaw/charter amendments that negatively impact investors' rights without shareholder approval.”

Additionally, 20 percent of the investors surveyed said “it depends,” and more than 90 percent of those respondents indicated that “unilateral bylaw/charter amendments regarding diminishing shareholder rights to call a special meeting/act by written consent and classifying the board would raise concern.”

In contrast, 44 percent of issuer respondents indicated that “the board should be free to unilaterally adopt any bylaw/charter amendment(s) subject to applicable law.” Additionally, 34 percent of the issuers answering this question chose ‘it depends.”

Although ISS didn't identify them specifically in plumbing the unilateral bylaw issue, fee-shifting bylaws, which allow enacting companies to recoup litigation expense from unsuccessful plaintiffs, have become an emerging tactic for corporate boards to use in deterring potential legal actions, especially in Delaware—where the Supreme Court has conceptually endorsed the measures (12 CARE 529, 5/16/14). There is a pending legal challenge to a provision that one company unilaterally adopted (see related story, this issue).

CEO Pay Limits

In other matters, most investors that ISS surveyed also appear concerned about the magnitude of CEO pay and how it is determined.

More than 60 percent of the investors surveyed indicated that “there is a threshold at which the magnitude of CEO pay warrants concern even if the company's performance is positive (e.g., outperforming peer group.)”

However, investors are divided on how to determine this threshold, “as 27 percent support relative proportional limits based on the degree of outperformance versus the company's peer group; 19 percent favor absolute limits on CEO compensation regardless of performance; and 14 percent advocate for proportional limits on compensation in relation to absolute company performance.”

Board Diversity

A majority of investors (60 percent) and issuers (75 percent) indicated that they consider overall diversity on the board when evaluating boards. Notably, however, “17 percent of investor respondents and 7 percent of issuer respondents indicate that they do not consider gender diversity at all when evaluating boards.”

ISS's annual global voting policy survey was conducted between July 17 and Sept. 5. The survey garnered more than 370 total responses, including 105 from institutional investors and 255 from members of the corporate issuer community.

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Ryan Tuck at

A link to the survey is available at

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