Restrictions on Shareholder Rights
ISS will vote against/withhold on governance committee members if a company’s bylaws impose restrictions on their shareholders’ right to amend bylaws. Such restrictions include:
- A prohibition on binding shareholder proposals to amend the bylaws
- Share ownership requirements, and
- Subject matter restrictions, and
- Time-holding requirements, any of which exceed SEC 14a-8 requirements
Subject matter restrictions include a prohibition on shareholders’ ability to amend the specific bylaw that governs the shareholders’ ability to amend bylaws, so that being able to change the time or ownership requirements cannot be achieved.
ISS will continue to recommend voting against/withhold on governance committee members until shareholders are provided with an unfettered ability to amend the bylaws.
ISS has policy changes to two shareholder proposal types:
- Governance-type proposal requesting an independent board chair
ISS has broadened its rationale for supporting such proposals to include where companies do not have a strong lead independent director to assist in balancing the combined Chair/CEO role, or where the chair is not independent, or if there has been a recent recombination of the roles of CEO and chair, or where the board is a majority non-independent, or when there is evidence that the board has failed to oversee material risks the company is facing, or where the company has material governance failures, or where there is evidence that the board has failed to step in when shareholders’ interests conflict with those of management.
- Social policy proposal for pay data disclosures
ISS has expanded its support for social policy proposals regarding pay data disclosures. Now, in addition to gender, ISS will expand its support for proposals requesting disclosure of such information in terms of race or ethnicity.
ISS has two changes to its U.S. policies.
- ISS added Economic Value Added (EVA) to its executive compensation pay-for-performance evaluation. This will now be a factor in the financial performance assessment (FPA) secondary screen as an additional metric in ISS’ quantitative analysis.
- The second change applies to ISS’ evaluation of a company’s equity compensation plan proposal. The result will be an against vote recommendation if there is an evergreen feature in the plan, i.e., meaning shares will be automatically added to the plan.
Share Repurchase Programs
ISS has updated its policy on share repurchase programs to review for potential misuse. Generally, ISS supports such management proposals for open-market repurchase programs, but will review on a case-by-case basis to:
- Determine if there are greenmail issues (repurchasing shares from insiders at a premium to market price).
- Ascertain if the repurchase is being conducted as a way to positively affect executive compensation metrics.
- Ensure the repurchase does not pose a threat to the long-term viability of the company.