On October 26, Institutional Shareholder Services (ISS), a leading proxy advisory firm, released for comment draft voting policy changes for 2016. The three proposals are as follows:
- Director Overboarding: Under the current policy, ISS issues negative vote recommendations for individual directors who (1) sit on more than six public company boards; or (2) are CEOs of public companies and sit on the boards of more than two public companies other than their own (in such case, the negative recommendations being only for the outside board positions). Under the new proposed policy, ISS would issue negative vote recommendations for CEOs of public companies who sit on the board of more than one public company (rather than two) other than their own (which would continue to apply only to the outside board position). For directors who are not CEOs, ISS is proposing to lower the acceptable number of public company board positions from the current six to a total of either four or five (and is seeking comment as to whether four or five is preferable, or if the acceptable number should remain at six). There would be a one-year grace period (until 2017) before the above policy recommendations would take effect.
- Unilateral Board Actions: Under the new proposed policy, if a board unilaterally amends the company’s bylaws or charter to either (1) classify the board or (2) establish supermajority vote requirements in any period after the company completes its IPO, then ISS would generally issue negative vote recommendations for all director nominees until such unilateral action is reversed or is subsequently approved by the shareholders. ISS is also considering adopting a policy of making negative vote recommendations for director nominees at annual meetings following the completion of an IPO if the board implements (a) a classified board and (b) supermajority vote requirements prior to or in connection with the company’s IPO.
- Compensation-Related Votes For Externally-Managed Issuers: The third policy proposal would affect issuers (such as REITs) that are externally managed. ISS is proposing to generally recommend an “Against” vote for an issuer’s “say-on-pay” proposal in cases where a comprehensive assessment of executive pay is “impossible” because the externally managed issuer provides insufficient disclosure about compensation practices and payments made to executives on the part of the external manager.
The comment period for these proposed policy changes is open until 6:00 p.m. (ET) on November 9. ISS expects to release its final 2016 policies on November 18, and if adopted, the final policies will take effect for shareholder meetings held on or after February 1, 2016.