ISS has released its 2017 draft policy changes. There are only a handful of proposed changes and many US public companies will not be impacted. However, certain changes will be important for IPO companies and companies listed in the US but incorporated in another jurisdiction. Following is a summary of the key proposals.
New Triggers for Adverse Director Vote Recommendations
Unilateral Board Actions: IPO’s with Unequal Voting Rights/Problematic Governance
- Proposed Policy Change: ISS would generally issue adverse director vote recommendations if a company IPO’d with a multi-class capital structure with unequal voting rights or other problematic governance provisions but will consider the inclusion of a “reasonable” sunset provision on the unequal structure or the problematic provisions. ISS currently considers whether the problematic provisions are put to a post-IPO shareholder vote but would no longer do so.
- Companies Impacted: This may impact private equity portfolio companies and companies controlled by founders and early investors, which are the most likely to IPO with dual-class stock, staggered boards, supermajority vote provisions and other defenses.
Restrictions on Shareholder Right to Amend Bylaws
- Proposed Policy Change: ISS would issue adverse vote recommendations on directors serving on a company’s governance committee for so long as the company has in place “undue” restrictions on shareholders’ ability to amend the company’s bylaws. Examples include:
- an outright prohibition on the submission of binding shareholder proposals, or
- share ownership requirements or holding periods in excess of SEC Rule 14a-8 (which permits shareholders who have held shares valuing at least $2,000 for one year to submit precatory and binding shareholder proposals.)
- Companies Impacted: In our experience, very few companies have such provisions in their bylaws.
Approval for Share Issuances at U.S. Listed, Non-US-Incorporated Companies
- Proposed Policy Change: ISS would recommend in favor of proposals seeking general share issuance authority for up to 20 percent of currently issued capital, as long as the duration of the issuance authority is reasonable and clearly disclosed.
- Companies Impacted: This would apply to companies that are treated by the SEC as a U.S. domestic issuer and have a sole listing in the U.S. but are required in their jurisdiction of incorporation to seek shareholder approval for any share issuance (primarily companies re-incorporated or merged with companies incorporated in UK/Irish and continental European countries.) It would not apply to dual-listed companies that are required to comply with the listing rules of their country of incorporation.
Executive Pay Assessments at Cross-Market Companies
- Proposed Policy Change: ISS would implement, on a case-by-case basis, US policy in the evaluation of all compensation proposals on the ballots of companies listed in the US, but incorporated elsewhere.
- For proposals where there is no applicable US policy, the ISS policy from the country requiring the ballot item will be used.
- Say-on-pay proposals from most markets will be evaluated under the US Management Say-on-Pay voting policy.
- Companies Impacted: This would apply to companies that are treated by the SEC as a U.S. domestic issuer and that are subject to requirements of a foreign market (such as listing, incorporation or national code requirements.)
Comment Period Ends November 10
If there are issues on which you would like to provide input, comments are due November 10th and we are happy to work with you on a submission. It is expected that ISS will release its final policies in late November.