ISS announced the launch of its benchmark voting policy comment period which will help set policy for the upcoming proxy season.
The draft policy takes the format with the existing policy in a left column with black line changes and the clean updated policy in the right column followed by ISS commentary.
Policies under consideration for the United States include:
- Sunset Provisions for Dual-Class Stock Structures. The proposed update is intended to provide clarity on policy application at newly-public companies by creating two distinct policies to address (1) problematic governance provisions and (2) multi-class capital structures with unequal voting rights. The change specifically creates a policy to address ISS defined problematic capital structures at newly-public companies and provides a framework for addressing acceptable sunset structures. In line with the current implementation of the policy, the proposed update also clarifies and narrows the focus of the policy to certain ISS defined highly problematic governance structures.
- Share Repurchase Programs. In the absence of the following ISS identified abusive practices, support will generally be warranted for a grant of authority to the board to engage in a buyback. The revised policy would require the absence of the following concerns: (1) the use of targeted share buybacks as greenmail or to reward company insiders by purchasing their shares at a price higher than they could receive in an open market sale, (2) the use of buybacks to boost EPS or other compensation metrics to increase payouts to executives or other insiders, and (3) repurchases that threaten a company’s long-term viability (or a bank’s capitalization level).
- Shareholder Proposals on Independent Board Chairs. The proposed update largely codifies the existing ISS policy application for proposals on independent board chairs. While ISS would maintain a holistic approach to evaluating proposals for independent board chairs, the proposed policy now explicitly states the types of factors that will be given substantial weight. Identification of such factors will generally result in ISS recommending support for proposals on independent board chairs. The overview of how ISS will analyze the scope and rationale of the proposal, the company’s current board leadership structure, the company’s governance structure and practices, company performance, and the overriding factors will be updated and subsequently relocated to ISS’ Policy FAQ document. The impact of the proposed update on ISS’ vote recommendations on shareholder proposals seeking an independent board chair is indeterminate at this time.