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

As is usual in the doldrums of summer, ISS has released its 2018 policy survey which generally foreshadows changes to ISS’ voting policies. In prior years, not everything on the survey resulted in a new voting policy.  Likewise, there could be some new voting policies not discussed in the policy survey.

The highlights from the 2018 policy survey include:

    • Gender Diversity on Boards. ISS is soliciting information on gender diversity on Boards. ISS notes the focus on gender diversity in corporate boardrooms has increased in numerous markets in recent years. Many of these markets have implemented enhanced disclosure requirements, best practice recommendations or regulatory quotas to drive increased female representation on public company boards. Despite this heightened attention, there have been varying levels of progress amongst companies in increasing the number of female directors on boards and some institutional investors continue to express frustration with a perceived lack of progress in boosting gender diversity in certain markets or industry sectors.
    • Share Issuance and Buyback Proposals. ISS is soliciting information about share issuances and buyback proposals. ISS notes its 2018 Governance Principles Survey Rules regarding shareholder approval of share issuances and buybacks vary by market. ISS notes US listing rules do not require shareholder approval for share repurchases, and only require shareholder approval for share issuances in excess of 20 percent of issued capital where such issuances are private placements at a price below book value or market value, or where the issuances will result in a change of control or are in connection with an acquisition. Any other share issuances, up to the number of shares authorized in the charter, do not require a shareholder vote. By contrast, many European markets in principle require shareholder approval of all share issuances and share buybacks, but allow companies to seek approval for annual mandates covering share issuances during the coming year, up to a specified percentage of issued capital, or share buybacks during the coming year.
    • Virtual/Hybrid Meetings. ISS is soliciting information about virtual and hybrid meetings. ISS notes in the US, UK and some other markets worldwide, companies are permitted to use electronic means of communication to facilitate the participation of shareholders at general meetings. In some cases, companies may employ technological means to allow such participation as a supplement to the physical meeting (these are known as “hybrid meetings”), while in other cases the “virtual shareholder meeting” entirely supplants the physical meeting. In the UK, a number of companies have sought or are seeking shareholder approval to amend their articles of association in order to be able to hold hybrid or virtual-only shareholder meetings. In the US, companies have generally made the switch to a hybrid or virtual-only meeting without a shareholder vote, following changes in state laws on the matter.
    • Pay Ratio Between Senior Executives and Employees. ISS is soliciting information about the SEC’s pay ratio rules. ISS Notes beginning in 2018 (unless the rule is repealed prior to implementation), U.S. issuers will be required to report in their proxy statement the ratio of CEO pay to the pay of the median company employee. Similar rules have been proposed in the UK, where companies are already required to compare the year-on-year percentage change in compensation between the CEO and other employees (though long-term incentives are excluded). The EU Shareholder Rights Directive, which member states will have to incorporate into their local laws by 2019, requires disclosure of the annual change in each executive’s pay over five years, along with company performance and the change in average employee pay.