Protect the Voice of Shareholders aims to oppose H.R. 4015, the Corporate Governance Reform and Transparency Act, that passed the House last October.  While not effective, the Act is perhaps best known for requiring that the SEC withdraw the no-action letters to Egan Jones and ISS, which the SEC itself undertook recently, as we previously discussed.

The site is a joint project of ISS and CII, with ISS responsible for the content with approval from CII.  The goal is to “correct the record, reveal the mistruths and double-speak of the lobbying groups trying to mislead lawmakers.”  According to the site, the Act would “allow boardrooms to inhibit” the distribution of research reports when they disagree with recommendations, arguing that it is “inappropriate to permit companies to hinder the current free flow of unbiased research and information to investors.”  The site provides news and resources as well as a way to reach Congress to oppose the Act.
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The ISS annual global policy survey for 2018 includes only a few issues compared to prior years, but with more focus on the election of directors.  The responses to the survey will inform the new policies that govern the 2019 meetings.

The survey is again being undertaken in two parts, one covering fundamental and high-profile topics which we address in this post, and another focused on details which we will describe in Part II.

The first set closes on August 24, and the second ends on September 21.  You can access and respond to the survey here.

Auditors and Audit Committee. 
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Along with its four pillars for governance which score companies on a one to ten scale, ISS has launched Environmental & Social (E&S) QualityScore to measure corporate disclosure on environmental and social issues.  Similar to the Governance QualityScore, the measures are relative based on peer companies within a specific industry group.

An initial set of 1,500 companies is being covered globally, including Energy, Materials, Capital Goods, Transportation, Automobiles & Components, and Consumer Durables & Apparel.   It is expected that by Q2 2018, an additional 3,500 companies across 18 industries will be included.  The scores will be part of the companies’ proxy voting reports, but like all of the QualityScores, will not impact the vote recommendations.
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As discussed in a November post, ISS recently published its 2018 policy updates, effective for meetings held on or after February 1, 2018. Last week, the proxy advisory firm released further guidance in the form of three revised policy supplements.

• Pay-for-Performance Mechanics.  ISS’ December Pay-for-Performance Mechanics whitepaper describes a revised methodology for 2018 pay-for-performance evaluations. Key 2018 updates include: (a) the introduction of the Financial Performance Assessment secondary quantitative screen; (b) changes to the pay-for-performance quantitative screens for S&P 500 companies; and (c) TSR smoothing for quantitative pay-for-performance screens.
  • Financial Performance Assessment.  The most notable change to ISS’ pay-for-performance methodology is the new quantitative Financial Performance Assessment, which compares a company’s financial and operational performance against its ISS peer group.

ISS has issued its policy updates, effective for meetings held on or after February 1, 2018.

The updates are more limited in their scope compared to past seasons.  ISS conducted a two-part survey process this year for the first time.  We understand that many of the issues raised in the first survey were intended to be longer-term considerations, and did not result in updated voting guidelines for next year.  These include the appropriateness of capital structures other than one-share, one-vote, board gender diversity, and virtual or hybrid meetings.

We also understand that pay ratio disclosure will be noted, but does not inform any voting recommendations for 2018.  
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In ISS’ secondary survey results announced yesterday, the focus was primarily on compensation.  We previously discussed the larger survey results here.  Final policy updates that apply to the 2018 season should be issued in November.

Non-employee Director Pay.  The highest paid non-employee directors in 2017 received more than $2 million in annual compensation, compared to $260,000 for the median S&P 500 director.  Investors who responded to the survey believe that non-employee director pay programs should be analyzed by comparing the pay received against (ranked by preference):  the 4-digit GICS industry group, the relevant stock market index peers and all companies.  
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ISS received 602 responses from 572 organizations, including 121 institutional investors, on its governance survey.  Key findings on the governance principles survey are set forth below.  ISS also asked more detailed questions in a supplemental survey, which is still open until October. These survey responses may inform ISS’ voting policies, and updates are generally issued in November.

One-Share, One-Vote.  Among investors, 43% indicated that they find unequal voting rights never appropriate for public companies in any circumstances.   Another 43% said unequal voting rights structures may be acceptable for newly-public companies if they are subject to automatic sunset requirements, or at other public companies if the capital structure is put up for periodic reapproval by the holders of the low-vote shares.
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For US companies, the detailed portion of the ISS benchmark survey targets compensation matters, along with one question on poison pills:

Short-Term Poison Pills. ISS asks whether it should continue its approach of examining poison pills with less than a one-year term on a case-by-case basis when voting on director elections or whether they are generally acceptable.

Using Realizable Pay for Say-on-Pay Analysis. For several years ISS has calculated and presented a realizable pay metric as part of its qualitative say-on-pay analysis. ISS believes the measure helps show the difference between target bonus/non-equity incentive and what is actually paid in short term programs and for long term programs, the actual payouts and forfeitures as well as the impact of stock price movements.
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Mylan recently publicly protested what may be a little known ISS policy that impacts the provision of draft reports to S&P 500 companies.

CalSTRS, the New York City Comptroller’s office, the New York State Comptroller’s office and PGGM jointly launched a campaign asking the company’s investors to withhold support for six of the company’s board candidates up for election and the say-on-pay vote, filing exempt solicitation materials that show up under the company’s Edgar documents.

As a result, according to a letter the company sent to ISS which it made public, ISS determined that the company would not be provided with a draft voting report.
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Right on the heels of the Glass Lewis policy updates, ISS has also issued its updates that will apply to meetings held on or after February 1, 2017. Similar to Glass Lewis, the ISS policy updates are generally not significant for existing public companies. However, there are several new and revised policy changes related to equity plans, including on director compensation. These policy updates are quite technical in their details, and warrant a careful examination and thoughtful disclosure to ensure that the plans are appropriately evaluated within the correct policy framework.

Overboarding.  Similar to Glass Lewis, ISS also deferred its new overboarding policy until this season. 
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