ISS's New Benchmark Policies Include Board-Limit Changes

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By Michael Greene

Nov. 20 — Institutional Shareholder Services Inc. Nov. 20 released its updated benchmark policies, which include changes to how the proxy advisory firm will evaluate executive compensation, unilateral bylaw/charter amendments and directors that serve on multiple boards.

The key updates include a policy change that reduces the maximum number of boards a non-chief executive officer director can sit on before being considered “overboarded.”

However, ISS didn't make any fundamental changes to its approach to proxy access, which was a prominent issue in the last proxy season.

Instead, the proxy adviser said its “FAQ” document to be released in December will provide more information on which additional provisions it considers overly restrictive and details regarding its framework for analyzing proxy access nominations.

Too Many Boards

Under the new policy, ISS will recommend an against-vote for individual directors that sit on more than five—down from six—public company boards.

Unlike other 2016 updates—which will generally be applied for shareholder meetings on or after Feb. 1, 2016—the overboarding changes go into effect February 2017, giving companies a one-year grace period..

ISS explained that the time needed to be an effective director has increased in recent years. In addition to boards' increasing role in risk oversight, “[a]ccounting restatements, unsolicited takeover offers, corporate scandals, data breaches and executive succession crises are just a few of the events that can place around-the-clock claims on a director’s attention,” the proxy adviser added. “It is important that board members have the capacity to fulfill all duties, including responding to such unforeseen events when they happen, without compromising their professional and boardroom commitment.”

Conversely, ISS decided not to reduce the number of boards on which a public company CEO can serve, keeping the “overboarding” limit at two outside-directorships.

Distinct Policy for Unilateral Board Action

ISS is also implementing a policy that distinguishes between unilateral bylaw/charter provisions made before an initial public offering and ones adopted post-IPO.

Under its current policy, ISS recommends an adverse vote on directors that unilaterally adopt corporate provisions that adversely impact shareholder rights.

For newly public companies that adopt such provisions prior to or in connection with the IPO, ISS is providing for a “case-by-case” approach, “with significant weight given to shareholders' ability to change the governance structure in the future through a simple majority vote, and their ability to hold directors accountable through annual director elections.”

“This bifurcation reflects the differing expectations that investors may have for the governance structures of a newly-public company versus a company that has been public for some period of time,” ISS said.

Director Compensation

ISS also made a policy change regarding compensation-related votes at externally-managed issuers (EMIs).

The new policy states the proxy adviser will “generally vote against the say-on-pay proposal when insufficient compensation disclosure precludes a reasonable assessment of pay programs and practices applicable to the EMI's executives.”

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

To contact the editor responsible for this story: Yin Wilczek at

ISS's press release is available at

An executive summary is available at

ISS's complete U.S. proxy voting guideline updates are available at


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