ISS Launches Open Comment Period for Potential 2021 Policy Updates

Published: October 2020

 

As part of its annual policy review and update process, ISS has issued draft 2021 policy updates for comment until October 26. While the proposed changes cover a variety of topics, they do not include executive compensation for the second consecutive year.


As part of its annual policy review and update process, Institutional Shareholder Services (ISS) has issued draft 2021 policy updates for comment. The topics span board diversity, director accountability and procedural issues; but one topic it doesn’t touch on: executive compensation. For the second year in a row, the proxy advisory firm has omitted executive pay topics when seeking feedback in the open comment period. This fits the pattern of recent years where changes to a firm’s compensation policies tend to be rolled out in the form of updates to FAQs later in the year.

The open comment period runs until October 26. Full details of the proposed changes can be accessed on ISS’ website here. Comments should be submitted to ISS directly at policy@issgovernance.com. As in prior years, the draft policies do not cover all potential changes under consideration by ISS.

ISS is soliciting input from investors, issuers and other stakeholders on 17 potential new or amended polices across various geographic markets and governance topics. Key topics relevant to companies in the United States (U.S.) market include:

Board Diversity, Race and Ethnicity (U.S.)

Under consideration is a policy that would apply to companies where the board has not publicly identified any racially or ethnically diverse directors. Absent of mitigating circumstances, under the proposed policy, ISS would recommend votes against the chair of the nominating committee or other relevant directors at such companies as determined on a case-by-case basis. Like other new policies, such as those related to gender diversity on boards, ISS anticipates a one-year implementation delay, which would make the policy effective in February 2022. However, ISS research reports would identify boards that do not meet these criteria beginning in 2021. This proposed new policy would apply to all companies in the Russell 3000 and S&P 1500 indices.

Director Accountability (All Global Policies, including U.S.)

This proposed policy update would clarify an existing policy related to the election of directors. The proposal notes that significant risk oversight failures related to environmental and social concerns (including climate change) may, on a case-by-case basis, trigger vote recommendations against board members. ISS policies currently cite several examples of failures, including material failures in governance, stewardship, risk oversight or fiduciary responsibilities. ISS expects the proposed change would impact only a small number of directors annually.

Exclusive Forum Bylaws (U.S.)

With exclusive venue provisions remaining an area of focus, ISS is considering updates to existing policies that would, for the first time, shift from a case-by-case approach to one that looks more favorably on certain charter or bylaw provisions. Provisions that would be generally supported include those that specify Delaware or the Delaware Court of Chancery for companies incorporated in Delaware, or U.S federal courts for claims arising under federal securities law (in contrast to provisions that restrict the forum to a particular U.S. district court). Charter and bylaw provisions at companies incorporated outside of Delaware would continue to be reviewed by ISS on a circumstantial basis, taking into account the terms of the exclusive forum provisions under consideration. ISS would generally not support requests where companies select a state other than their state of incorporation. ISS expects the proposed changes to impact only a limited number of vote recommendations.

Next Steps

Across these topics, ISS is seeking feedback as to whether respondents support the proposed changes, while also determining if there are any concerns that might arise or mitigating factors that ISS should consider when evaluating these matters before issuing a negative vote recommendation. In addition, ISS is seeking feedback on other factors that it should consider when evaluating the proposed policy change.

Revised ISS policies for 2021 are expected to be announced in November and will become effective for shareholder meetings taking place on or after February 1, 2021.

For questions about the policy updates, their potential impact or other corporate governance inquiries, please contact the author or write to rewards-solutions@aon.com

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