Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

ISS has issued the following policy updates for 2016.


Current ISS policy considers a director “overboarded” if he or she sits on more than six public company boards – or if he or she is also a CEO, more than three public company boards (not counting subsidiaries of the CEO’s “home board”). However, the increasing demands on public company directors over the decade since that framework was first developed led ISS to review its overboarding policy.

Under the updated ISS policy, directors who are not CEOs will be considered overboarded if they sit on more than five, down from six, public company boards. However, ISS will not recommend withhold votes against such directors under this new policy for the first year, to allow those directors who sit on more than five public company boards to plan for an orderly transition if they wish to reduce their board commitments.

At this time, ISS has decided not to change the policy threshold at which a public company CEO will be considered “overboarded” (currently set at no more than two “outside” board seats for a CEO).

Proxy Access

ISS is using the policy development process to clarify the analytical framework it will use to analyze proxy access nominations. This framework is conceptually similar to the analytic framework ISS uses in analyzing proxy contests, but tailored more to the factors which might lead a shareholder to pursue change through proxy access nominations rather than a contested solicitation. Details will be included in a forthcoming ISS “FAQ” document.

Unilateral Governance Changes Which Adversely Affect Shareholder Rights

When a unilateral board amendment of the articles or bylaws adversely affects shareholder rights, current ISS policy provides for adverse vote recommendations on individual directors or the full board at the next annual meeting.  Recognizing that investors may have different expectations for established public companies versus those newly public, ISS is implementing two distinct policy responses. For established public companies, the updated policy generally calls for continuing to withhold votes from directors who have unilaterally adopted a classified board structure or implemented supermajority vote requirements to amend the bylaws or charter. For newly-public companies which have taken action to diminish shareholder rights prior to or in connection with the IPO, the updated policy calls for a case-by-case approach in subsequent years, 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. A public commitment by the company to put the adverse provisions to a shareholder vote within three years of the IPO can be a mitigating factor.

Compensation of Externally-Managed Issuers

Insufficient disclosure of compensation arrangements for executives at an externally-managed issuer (EMI) is not currently considered a problematic pay practice under ISS policy.  Under the revised policy, an EMI’s failure to provide sufficient disclosure for shareholders to reasonably assess compensation for the named executive officers will be deemed to be a problematic pay practice, and generally warrant a recommendation to vote against the say-on-pay proposal.


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