Securities Regulation and Corporate Governance


Securities Regulation and Corporate Governance > Posts > ISS Releases Surveys for 2018 Policy Updates
ISS Releases Surveys for 2018 Policy Updates

On August 3, 2017, the proxy advisory firm Institutional Shareholder Services (“ISS”) launched its annual policy survey.  Each year, ISS solicits comments in connection with the review of its proxy voting policies. ISS then uses the data to inform its voting policy review.  At the end of this process, ISS will announce its updated proxy voting policies applicable to 2018 shareholder meetings.

This year, ISS divided its survey into two parts: the Governance Principles Survey and the Policy Application Survey.  The Governance Principles Survey consists of a brief, high-level set of questions addressing what ISS views as the “fundamental and high-profile” issues this year: 

  • One-share, one-vote principle. Snap Inc.’s initial public offering was the first to issue only non-voting shares to the public in an IPO.  In addition, there has been recent investor criticism of dual class stock structures that concentrate voting control in the hands of founders and early-round investors.  The Governance Principles Survey asks when it is appropriate, if ever, for companies to issue multi-class capital structures with unequal voting rights and whether those structures should automatically expire or be subject to periodic reapproval by holders of the low-vote shares.
  • Gender diversity on boards.  The survey asks whether the absence of female directors on a public company’s board is problematic and, if so, what factors impact that analysis (e.g., company disclosure about efforts to increase gender diversity or industry practices).  The Governance Principles Survey then asks what actions are appropriate for shareholders to take at a company that has no gender diversity on the board and/or has not disclosed a policy on the issue. 
  • Virtual/hybrid meetings.  The Governance Principles Survey asks whether virtual-only and/or hybrid (physical and virtual) meetings—an increasing trend in the United States—are an acceptable practice.  Among the responses is the option to indicate that virtual-only meetings are acceptable “if they [provide] the same shareholder rights as a physical meeting.”
  • Pay ratio.  Beginning in 2018, U.S. public companies will be required to report in their proxy statements the ratio of their chief executive officer’s pay to that of its median company employee.  The Governance Principles Survey asks how respondents intend to evaluate this information (e.g., compare across industries or assess year-to-year changes in a company’s ratio) and seeks input as to how shareholders should use the disclosed pay ratio data (e.g., as background information, as a data point in determining various votes or not at all because the disclosure will not be meaningful).
  • Share issuance and buyback proposals.  U.S.-listed companies incorporated in the United Kingdom, Ireland, or the Netherlands may be required under those countries’ laws to seek shareholder approval for share issuances or share repurchases, even where such approval is not required under their stock market listing’s requirements.  ISS is reviewing its existing policy, which evaluates these proposals with a view to the country of incorporation’s policy.  The survey seeks input on whether share issuances and buybacks should be voted on by shareholders or decided by the board, and what standards ISS should apply to these proposals at companies listed in the U.S. but incorporated in other countries.

Respondents then are asked to complete the Policy Application Survey only once the Governance Principles Survey is completed.  For U.S. companies, the questions focus on executive and director compensation, gender pay, and stockholder rights plans (poison pills):

  • Outcomes-based compensation measures.  A number of companies with performance-based compensation opt to disclose in their Compensation Discussion & Analysis section “realized pay” or “realizable pay” to better reflect the compensation that the named executive officers actually receive.  ISS has in the past presented its own calculation of chief executive officers’ realizable pay at S&P 1500 companies.  ISS also considers that data in its qualitative analysis of executive compensation programs.  The Policy Application Survey asks whether ISS should also add an outcomes-based measure, such as realized or realizable pay, to its quantitative pay-for-performance methodology and, if so, how realizable pay should be used in its evaluation (e.g., as mitigating pay-TSR misalignment or excessive pay concerns).
  • Non-employee director pay.  ISS views a pattern of excessive director compensation as calling into question director independence.  The Policy Application Survey solicits input on what factors ISS should consider when determining whether a non-employee director compensation program raises governance concerns regarding high pay magnitude (e.g., comparing compensation levels to index or industry peers) and problematic pay structures (e.g., stock option grants or excessive perquisites).  It also solicits input on what actions by ISS would be appropriate due to a pattern of excessive director compensation (e.g., whether or not ISS should issue adverse vote recommendations for directors). 
  • Gender pay gap.  In light of recent shareholder proposals asking companies to disclose their policies and goals to reduce any gender pay gap, the Policy Application Survey asks whether companies should disclose their gender pay gap information, what factors influence that answer (e.g., only if legally required or if the company has experienced significant related controversies), and whether disclosure about other matters (e.g., diversity and inclusion policies) mitigates the lack of gender pay gap disclosure.
  • Poison pills.  ISS policy currently assesses on a case-by-case basis a board’s adoption, without shareholder approval, of a poison pill with a term of one year or less.  The Policy Application Survey asks whether to apply a case-by-case approach using the current criteria or instead, whether short-term poison pills are acceptable and thus votes against directors are not warranted.

It is important to note that the ISS annual policy surveys do not necessarily address every topic that may be covered by ISS’ new proxy voting policies applicable to 2018 shareholders’ meetings.  In past years, ISS also revised its proxy voting policies on issues that were not covered by its annual surveys.  Nevertheless, the policy surveys are an important indication of possible changes and provides interested parties an opportunity to express their views.

The Governance Principles Survey closes on Thursday, August 31 at 5:00 p.m. ET.  ISS will publish the results of the survey after its close.  The Policy Application Survey closes on Friday, October 6 at 5:00 p.m. ET.  Public companies and others are urged to submit their views by completing the surveys as ISS considers the support expressed for the various alternatives set forth in its surveys in developing its policies.

ISS will then open a comment period on its proposed 2018 policy updates before releasing the final 2018 policy updates.  More information on ISS’ policy development process is available at the ISS policy gateway, available here.  The Governance Principles Survey is available here.

Special thanks to Lauren Assaf in Orange County for her work on this blog post.

 ‭(Hidden)‬ Blog Tools

© Copyright 2019 Gibson, Dunn & Crutcher LLP.
Attorney Advertising. Prior results do not guarantee a similar outcome. All information provided on this site is for informational purposes only, does not constitute legal advice, is not confidential, and does not create an attorney-client relationship. Statements and content posted to this site do not represent the opinion of Gibson Dunn & Crutcher LLP ("Gibson Dunn"). Gibson Dunn makes no representations as to the accuracy, completeness, currentness, suitability, or validity of any information on this site and will not be liable for any errors or omissions therein, nor for any losses, injuries, or damages arising from its display or use.