ISS published the results of its 2016 voting policy survey, which will inform the final updates to ISS’s policies. Of the topics covered in the survey, ISS issued for public comment changes to voting policies on just a few topics including unilateral board actions and overboarding (directors are considered “overboarded” if their board service results in excessive time commitments and the potential inability to fulfill their duties). Comments on these policies are due on November 9. ISS’s final voting polices are scheduled to be released on November 18 and will apply to annual meetings after February 1, 2016.

Highlights from the survey include:

  • Material restrictions on proxy access. 90% of investors responded that an against or withhold vote in a director election would be warranted if a proxy access provision had an ownership threshold in excess of 5% or an ownership duration in excess of three years. A significant majority of investors also found the following terms, among others, to be problematic: ownership thresholds in excess of 3%; an aggregate limit of fewer than 20 shareholders; a cap on nominees at less than 20%; limits on third-party compensation; and renomination restrictions in the event a shareholder nominee fails to receive a specified level of support
  • Unilateral charter and bylaw amendments.  ISS has proposed amending its current policies to provide that if a public company unilaterally amends its charter or bylaws (including, potentially, in connection with an IPO) to classify the board or establish a supermajority vote requirement, ISS will continue to issue adverse vote recommendations for director nominees until the board reverses the action or ratifies the amendment by a shareholder vote, rather than only for the year after the action is taken by the board. In the survey, investors indicated that classifying a board, diminishing rights to call special meetings, establishing supermajority vote requirements, or restricting third-party compensation of directors or director nominees may be sufficiently problematic to warrant a recommendation against directors.
  • Overboarding. ISS has proposed amending its current policies with respect to overboarding to limit CEOs to two public company directorships (including their own), rather than three, and to limit directors who are not CEOs to four or five public company directorships, rather than six. There would be a one-year grace period before the policy takes effect. ISS estimates that, under the proposed policy, 336 CEOs and either 61 or 231 non-CEO directors (based on a four- or five-company limit, respectively) would be considered overboarded, compared to 79 CEOs and 21 non-CEO directors under the current policy. ISS will recommend withholding votes or voting against directors who are deemed overboarded. In the survey, 48% of investors responded that two board seats was an appropriate limit for acting CEOs.
  • Executive Compensation. 81% of investors believe that adjusted metrics can be acceptable in incentive compensation programs, with 66% noting that performance goals and results should be clearly disclosed and reconciled with GAAP metrics, and the reasons for the adjustments adequately explained.
  • Director compensation. Investors expressed concern about equity awards, such as stock options, SARs and performance-vesting restricted stock, that may blur the distinction between the drivers of executive and director compensation or that link director compensation to management performance.