The Institutional Shareholder Services has published an update to its benchmark voting policy. ISS has confirmed that it will make the following changes to its UK & Ireland Proxy Voting Guidelines to be published in December 2015:
“Overboarding”: ISS may issue an adverse recommendation for overboarding if the following guidelines are not met (although a stricter view may apply for directors who serve on the boards of complex or highly regulated companies, or who chair a number of key committees):
- Executive directors should not hold other executive or chairmanship positions, though they may hold up to two other non-executive directorships.
- A board chairman should not hold an executive position elsewhere, or more than one other chairmanship position, but may hold up to three other non-executive directorships.
- A non-executive director who does not hold executive or chairmanship positions may hold up to four other non-executive directorships.
Pre-emption rights: The updated policy, in line with the revised guidelines of the Pre-Emption Group (endorsed by the UK Investment Association and the Pensions and Lifetime Savings Association), will raise the threshold to issue 10% of the issued share capital on a non pre-emptive basis provided that any amount above 5% is used for an acquisition or a specified capital investment.
Authority to call general meeting on 14 days’ notice: Before the implementation of the EU Shareholder Rights Directive, companies were able to hold general meetings on 14 days’ notice in line with the Companies Act 2006. However, since the Directive increased the minimum notice period to 21 days, shareholder authority must first be granted to opt out of the requirement. The new guidelines will confirm that companies are expected to give as much notice as is practicable when calling a general meeting, with the additional flexibility afforded by this authority only being used in limited and time-sensitive circumstances where it would clearly be to the advantage of shareholders as a whole. Companies will need to provide assurance that the shorter 14 days’ notice period would only be used when merited.
Accepting financial statements and statutory reports of smaller companies: ISS will generally vote for approval of financial statements and statutory reports, unless:
- There are concerns about the accounts presented or the audit procedures used; or
- There has been an accounting fraud or material misstatement during the year.
The overall quality of disclosure will be considered, and the weakest examples, such as where the meeting documents are not released in time for investors to review these ahead of the meeting, will be likely to attract a negative vote recommendation. Other minimum disclosure requirements include:
- The identity of all the directors, their board roles, committee memberships and independence classification;
- A list of major shareholders; and
- Attendance at board and committee meetings.
In addition, where no appropriate resolution to target an investor’s specific concern is on the ballot, ISS may recommend a vote against this resolution.
Audit fees at smaller companies: Current ISS policy for FTSE All Share companies provides for recommendations against the remuneration of the external auditors, as well as the chairman of the audit committee, if the ratio of non-audit fees to audit fees has been over 100% for more than one year, and the company appears unwilling to address the issue. This policy will be applied to smaller UK companies as of 2016.
Remuneration: The new guidelines will make a distinction between a remuneration policy resolution and a remuneration report resolution for smaller companies. To ensure that the policy captures a greater number of key issues of potential concern, the new guidelines include an expanded list of issues which drive a negative vote consideration.
Voting disclosure and the response to significant shareholder dissent: In the new guidelines, ISS clarifies that, where a company has received a significant level of dissent on a resolution at a general meeting, it will consider if and how the company has sought to understand the reasons behind the vote result and how the company has communicated its response to the dissent. It may recommend a vote against the relevant resolution at a future general meeting if the company has not explained its reaction to the dissent.
The updated guidelines will become effective for shareholder meetings occurring on or after 1 February 2016.