ISS Updates Policy on Shareholder Proposal Restrictions

Bloomberg BNA’s Corporate Law & Accountability Report is available on the Corporate Law Resource Center. This news service keeps corporate practitioners informed of legal developments of...

By Michael Greene

Nov. 21 — Proxy advisory firm Institutional Shareholder Services Inc. announced Nov. 21 that it has changed how it evaluates U.S. corporate charter provisions that make it more difficult for investors to file shareholder proposals.

Under its new policy, ISS will recommend withholding support from governance committee directors if their companies have charter provisions that impose “undue restrictions on shareholders’ ability to amend the bylaws.” Such restrictions include raising the $2,000 minimum stock threshold to file shareholder proposals, ISS said.

The change is one of several updated benchmark policies that the proxy adviser will apply to shareholder meetings on or after Feb. 1, 2017.

Shareholder Proposal Process

Under current Securities and Exchange Commission rules, a shareholder must have $2,000 or more stock for one year in order to submit a shareholder proposal. However, some states allow companies to further restrict or eliminate the right to file a binding shareholder proposal.

“These prohibitions amount to a material diminution of shareholder rights,” ISS said in providing its rationale for the policy change. “Although some companies have offered management proposals as alternatives, these often have greater ownership or holding period requirements and have typically not been well received by the shareholders of non-controlled companies.”

Meanwhile, business representatives have lobbied for the SEC’s shareholder proposal process to be overhauled to increase such thresholds. Recently, Business Roundtable President John Engler told House lawmakers that the SEC process has become outdated and is being abused by corporate gadflies and political activist investors.

Other Policy Updates

ISS also made several other changes to its benchmark polices, which included:

  •  making revisions to how it will evaluate payments of dividends of unattested awards under its U.S. Equity Plan Scorecard;
  •  codifying its framework for assessing management proposals seeking ratification of non-employee director compensation;
  •  clarifying and broadening the factors considered when assessing the reasonableness of non-employee director equity plans; and
  •  updating its policy on how it will recommend voting on directors at newly public companies that in connection with an initial public offering have unilaterally adopted bylaw and charter provisions or implemented a multi-class capital structure.

 

To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

For More Information

An executive summary of the benchmark policy updates is available at https://www.issgovernance.com/file/policy/executive-summary-of-key-2017-updates-and-policy.pdf.

ISS’s complete U.S. proxy voting guideline updates are available at https://www.issgovernance.com/file/policy/2017-americas-iss-policy-updates.pdf.

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.