On March 29, proxy advisory firm Institutional Shareholder Services (ISS) updated its frequently asked questions (FAQs) for US proxy voting procedures and policies (excluding compensation-related policies and procedures). The following is a brief summary of the new/updated FAQs.
- Proxy analyses will generally be issued to ISS clients 13-30 days before a shareholder meeting (although delivery may be closer to 13-18 days from April to June, during the peak of the proxy season). For special purpose acquisition company acquisition reports, where meeting materials are usually filed only 10-13 days before the meeting, analyses will generally be delivered 5-8 days before the meeting.
- ISS has clarified their process for changing a vote recommendation in a proxy alert:
For ISS to respond to new or revised information shared by a company with its shareholders after an ISS proxy report has been published, such information must be publicly disclosed, preferably via a relevant regulator’s public website, such as EDGAR for SEC filers or the Securities Exchange Act Filing System or OTC Markets site for non-SEC filers (or if neither of these are applicable, in a press release or on the company website). ISS should generally be alerted to any new information at least five business days before a meeting for ISS to review the information and consider changing a vote recommendation. ISS will evaluate if the new material warrants an update, and if it does ISS will issue a proxy alert.
- To request an engagement with a US research analyst, a company should email the Research Helpdesk at firstname.lastname@example.org with a detailed agenda for the engagement, a list of the company’s participants and a preferred date/time for such engagement. ISS reminded all company participants that all discussions are on the record and should not include material non-public information.
- Accepting an engagement remains at the sole discretion of ISS. For non-contentious meetings, ISS prefers meetings scheduled August–February, and meetings related to new ISS policies should be scheduled after the ISS policy updates in November. Most engagements take place prior to the filing of proxy materials. After a proxy is filed, ISS will only be able to undertake engagement with companies where necessary and appropriate. For contentious meetings, such as proxy fights or contested mergers, ISS will generally reach out directly to both sides to schedule the engagement once proxy materials are released. A vote-no campaign against directors may be sufficiently contentious to warrant engagement, as decided by ISS after a review of the materials, at which point ISS will reach out to both sides. A vote-no campaign would need to be via EDGAR filings to warrant consideration by ISS.
- For non-contentious meetings, ISS prioritizes requests from companies with substantive governance issues, such as a company with low shareholder support on its say-on-pay or director elections, majority-supported shareholder proposals, ISS recommendations against management proposals at the prior election or a company undergoing a major transition.
- There is no blackout period for engagement with research, but there is a blackout period for ISS Corporate Solutions from the filing of the proxy statement through the date of the shareholder meeting (the period during which ISS research is analyzing and making voting recommendations). Governance QualityScore data verification is closed from the filing of the proxy statement until the publication of the ISS proxy report.
In addition to the above procedural questions, ISS also addressed certain substantive questions:
- ISS further clarified its position that absences from board and committee meetings by newly appointed directors are generally exempted from ISS’s 75 percent threshold for meeting attendance by directors, because companies generally schedule their board and committee meetings more than a year in advance, and new directors do not have advance notification.
- ISS updated its FAQ regarding how ISS will evaluate a board’s implementation of proxy access in response to a majority-supported shareholder proposal. Specifically, ISS clarified that providing the board with broad and binding authority to interpret the proxy access provision, while problematic, may not void the right on its own, but would be considered with restrictions or conditions on proxy access that ISS views as problematic.
- ISS clarified that it will recommend against director nominees at companies with non-shareholder approved poison pills regardless of when they were adopted, and will generally not continue to exempt pills adopted/renewed prior to November 2009, a reversal of their previous grandfathered poison pill policy from their updates in 2004 and 2009.
- In addressing how a company may terminate a poison pill prior to its expiration, ISS clarified that most companies are able to accelerate the pill’s expiration date without involving the costs of redemption, and points to Alliant Energy Corporation’s pill redemption on January 13.
- ISS reiterated that it still considers deadhand or slowhand provisions problematic and will recommend against the board of any company holding a long-term pill that has not been ratified by its shareholders.
- If a company adopts a poison pill before a company goes public, and the pill is not put to a binding shareholder vote at the first shareholder meeting, ISS will recommend a withhold or against vote on all director nominees.
- Under the Governance Failures policy, ISS has been recommending against the boards of the Indiana-incorporated companies that have yet to opt out of the state’s 2009 law that requires a classified board. For 2018, ISS separated this as a stand-alone policy.
- For newly-public companies, ISS will generally continue to recommend adverse voting recommendations due to adoption of a multi-class structure, classified board and/or supermajority vote requirements. ISS will also continue withhold recommendations for fee-shifting provisions.
- ISS clarified its position that the Governance Failures policy is designed to catch one-off egregious actions that have not yet applied to enough companies, or persisted year after year, to necessitate being broken out by ISS into their own standalone policy. For 2018, ISS separated out standalone policies related to excessive pledging and the failure to opt out of state statutes requiring a classified board (in Indiana-incorporated companies), as ISS noted that these withhold recommendations recurred year after year.
The ISS’ new/updated FAQs for US proxy voting research procedures and policies is available here.