Institutional Shareholder Services (ISS) and Glass Lewis have released updates to their proxy voting policies that will apply to shareholder meetings held on or after February 1, 2016. The ISS policy updates can be found here and include a new limit on director overboarding and new guidance on pre-IPO unilateral board actions for U.S. companies.
- Director Overboarding. For directors other than the CEO, the maximum number of public company boards that a director can sit on before being considered “overboarded” is being reduced from six to five. There will be a one-year grace period until 2017. During 2016, ISS research reports will highlight if a director is on more than five public company boards, but adverse voting recommendations will not be issued unless the current maximum of six boards is exceeded. For CEOs, the current overboarding limit will remain at two outside directorships.
- Unilateral Board Actions. For established public companies, ISS will generally continue to make adverse voting recommendations for directors who have unilaterally adopted charter or bylaw provisions that significantly reduce shareholder rights without approval by shareholders (so-called unilateral board actions), such as classified boards or supermajority voting requirements to amend the charter or bylaws. The same policy will apply to directors of companies that have taken action to diminish shareholder rights prior to or in connection with the IPO at the first annual meeting following the IPO. In subsequent years, however, the updated policy calls for a case-by-case approach looking at such factors as whether the shareholders can amend the relevant provisions by a majority vote and can vote for directors annually and whether the company has committed to put the matter to a shareholder vote within three years of the IPO.
The updated policies do not address proxy access. ISS announced, however, that it expects to release a new “FAQ” in December 2015 that will provide guidance regarding proxy access provisions that it considers to be overly restrictive as well as its methodology for evaluating directors nominated through the proxy access process. ISS also announced that companies may submit updated self-selected peer groups through December 11, 2015.
The updated ISS policies for Canadian companies provide that the maximum number of public company boards that a director can sit on is being reduced from two to one for CEOs and from six to four for all other directors. This new overboarding policy is being phased in the same way as the change in the U.S. policy discussed above. There is no proposed change to the current Canadian policy proviso that no negative recommendations will be issued against an overboarded director who has attended a least 75 percent of the board and committee meetings during the past year. ISS also adopted a “scorecard” model for assessing the equity plans of Canadian companies listed on the Toronto Stock Exchange, similar to the model it currently uses for U.S. companies. The model replaces the current series of standalone pass/fail tests and takes into consideration a range of positive and negative factors for equity incentive plan proposals.
The recently issued 2016 proxy voting guidelines for Glass Lewis can be found here. Glass Lewis is also tightening its guidelines for director overboarding. Beginning in 2017, a director who is also an executive officer of the company will be limited to two additional boards instead of three, and other directors will be limited to five additional boards instead of six. Other policy updates from Glass Lewis include the following:
- The approach Glass Lewis will use to determine whether to support conflicting management and shareholder proposals has been provided.
- The policy to recommend voting against the governance committee chair when a company adopts an exclusive forum provision without shareholder approval has been changed to a case-by-case review where the provision is adopted in connection with an IPO.
- Additional detail is provided for when Glass Lewis will recommend a vote against directors for lapses in environmental and social risk management.
- The policy regarding the nominating committee makes clear that Glass Lewis may consider recommending that shareholders vote against the chair of the nominating committee where the board’s failure to ensure that the board has directors with relevant experience, either through periodic director assessment or board refreshment, has contributed to a company’s poor performance.