On Sept. 29, 2016, Institutional Shareholder Services, or ISS, released the results of its policy survey for the 2017 proxy season discussed in the last bi-weekly update. The following is a brief summary of the results:
- Board Refreshment and Tenure. Survey respondents were asked whether certain factors might have an impact on a board’s refreshment and nominating process. A majority of investor respondents viewed the absence of recently-appointed independent directors unfavorably and lengthy average tenure as problematic, while only one-quarter of non-investor respondents viewed the absence of recently-appointed independent directors unfavorably. 68% of investor respondents considered a high proportion of directors with long tenure to be cause for concern, as compared to 31% of non-investor respondents.
- Overboarding of Executive Chairs. Survey respondents were asked whether non-CEO executive chairs should be subject to the same public company overboarding standard as non-executive directors (no more more than 5 boards) or the more restrictive CEO standard (no more than 3 boards). In response, 64% of investor respondents preferred the more restrictive CEO standard, while 36% preferred the non-executive director standard. Non-investor respondents went the other way, with 38% favoring the stricter standard and 62% favoring the less restrictive standard.
- IPO Dual Class Structures. Survey respondents were asked whether ISS should recommend voting against directors that, in connection with an IPO or in post-bankruptcy, approved multiple classes of stock that have different voting rights. For investor respondents, 57% supported ISS recommending against such directors and 19% opposed an against recommendation, while 24% opposed an against recommendation provided that the different voting rights were subject to a sunset provision. By comparison, of the non-investor respondents, 46% opposed the against recommendation regarding such directors, 24% supported such against recommendation and 31% opposed an against recommendation provided that the different voting rights were subject to a sunset provision.
- Metrics to Evaluate Executive Compensation. Survey respondents were asked whether ISS should consider other metrics in addition to total shareholder return to analyze the relationship between CEO pay and company performance. In response, 79% of investor and 68% of non-investor respondents supported the concept, 3% of investor and 11% of non-investor respondents opposed it, and 19% of investor and 21% non-investor respondents were neutral. Supportive and neutral investor respondents favored return on investment metrics (such as ROIC) and return metrics (such as ROA and ROE), while supportive and neutral non-investor respondents leaned toward earnings metrics (such as EPS or EBITDA).
- Say-on-Frequency. Survey respondents were asked whether “say-on-pay” votes should be held every one, two, or three years, and whether certain factors should play a part in this frequency analysis. Of investor respondents, 66% favored annual say-on-pay votes, 11% favored a vote every two years and 7% preferred a vote every three years. 17% of investor respondents supported the company-specific recommendations, citing financial performance and the presence or absence of recent pay practices as important to the analysis. Non-investor respondents favored annual say-on-pay votes at 42%, with 7% and 19% favoring votes every two years and three years, respectively. 31% of non-investor respondents believed that vote frequency depends on factors specific to each company.
- Cross-border Executive Pay. Survey respondents were asked how ISS should evaluate situations where companies incorporated in one country but listed in another country face multiple say-on-pay votes due to the applicable legal requirements of different jurisdictions. Currently, ISS will evaluate each proposal under the policy of the country whose laws or listing rules require the proposal to be voted on, but will generally align its recommendations based on the policy perspective of the country in which the company is listed. In response, 65% of investor and 59% of non-investor respondents agreed that vote recommendations should be aligned so as to not produce inconsistent evaluations, while 27% of investor and 28% of non-investor respondents found opposing vote recommendations acceptable if each reflects the policy of the affected country.
ISS will issue draft policies for public comment in mid-November, with final policies being implemented on Feb. 1, 2017.