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CII and ISS Team Up to Oppose House Legislation on Proxy Advisory Firms, Speak for “Real Main Street” Investors

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.
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ISS Releases Responses to Policy Survey

ISS announced the results of its high-level policy survey. The results will inform the new and updated policies for the 2019 proxy season, which is usually released in November.

Auditors and Audit Committee. ISS asked whether additional indicators of audit quality and independence would be useful in addition to considering non-audit services and fees when assessing auditor independence.
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In Advance of Roundtable, SEC Withdraws Letters on Investment Advisers’ Reliance on Proxy Advisory Firms for Voting Recommendations

The SEC issued a statement today announcing that its Division of Investment Management has rescinded the letters issued in 2004 to ISS and Egan-Jones, effective immediately.

The letters have been criticized to have unintentionally resulted in the endorsement of investors using proxy advisory firms in making proxy voting recommendations, in order to address potential conflicts of interests by investment advisers exercising their fiduciary obligations when voting proxies. 
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ISS Detailed Policy Survey Addresses Independent Chair Proposals, Board Matrix and Compensation – Part II

In additional to the high-level questions in its global policy survey which we previously discussed here, ISS also included a more detailed set of questions for the U.S. that addresses:

Independent Chair Shareholder Proposals.  ISS generally supports these proposals after taking into account factors such as the company’s governance structure and practices as well as financial performance. 
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ISS Policy Survey Covers Possibility of Tracking Directors and Additional Audit Committee Evaluations – Part I

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.
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ISS Updated FAQs Focus on Proxy Reports and Engagements

U.S. proxy reports are issued 13 to 30 calendar days before a shareholder meeting, but closer to 13 to 18 days during April to June due to the volume, according to the most recent ISS FAQs on U.S. Proxy Voting Research Procedures and Policies. Updated Q&As are highlighted in the report.

Several revisions relate to engagement with ISS and changing vote recommendations, both timely topics for the current stage of the proxy season.
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Environmental and Social Metrics Added to ISS QualityScore

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.   
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ISS Launches Corporate Profile Products for Investors that Includes More Focus on Individual Directors, a Board Skills Matrix and QualityScore Analysis

Recently, ISS announced a new product for investors, called corporate due diligence profiles, that contains a historical review of past ISS recommendations and vote results, measurements of company governance and compensation practices against QualityScore best practices with red flags indicating deviations, as well as charts of each director’s tenure against the TSR at the public companies where that director serve.
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ISS Releases Additional Guidance on 2018 Policy Updates

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.

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Glass Lewis Updates Its Policy Guidelines

The board should take action when director elections or say-on-pay votes receive less than 80% support, according to the Glass Lewis updated policy guidelines:

Board responsiveness.  Glass Lewis believes that boards should respond to any ballot item that receives more than 20% approval or dissent votes by shareholders, including say-on-pay, director elections and shareholder proposals.
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ISS Policy Updates for 2018 Focus on Few Issues

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. 
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ISS Requests Public Comments on a Few of the Policies to be Updated for 2018

ISS is seeking public comment on three policies that will impact U.S. companies with the comment period to close on November 9.  It will release final policy updates, which will contain more than just these three changes, that will impact the 2018 season in the second half of November.  We previously reported on the issues that were raised in two separate surveys here and here.
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ISS Survey Results Focus on Possibility of Adverse Recommendations for Non-Employee Director Pay and Use of Realizable Pay in Say-on-Pay Analysis

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. 
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Glass Lewis Will Not Incorporate Pay Ratio Data into Say-On-Pay Analysis in 2018

As year-end companies begin preparing to disclose pay ratio information in their 2018 proxy statements, Glass Lewis announced that it does not intend to make the ratio a part of the proxy advisor’s assessment of how investors should vote on say-on-pay “at this time” because it is not material for the analysis of the structures that companies use to pay their NEOs and the disclosures of those pay decisions.  
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ISS Survey Results Provide Investor Sentiments on Hot Topics, Including Pay Ratio and One Share-One Vote, and May Influence Next Year’s Voting Guidelines

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.
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The Drivers that Continue to Dog Say-on-Pay

Although the failure rate for 2017 say-on pay results achieved an all-time low of just 1.3%, the number belies the fact that more than 2,000 say-on pay proposals have either received negative recommendations from ISS or less than 70% support, or both, since say-on-pay resolutions started in 2011.

Approximately 12% to 14% of companies run into problems every year. 
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ISS Detailed Benchmark Survey Focuses on Governance Debates Largely Surrounding Pay Topics – Part II

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.
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ISS Benchmark Survey for Next Season Focuses on Recent Governance Debates – Part I

ISS has launched its benchmark policy survey, which helps formulate policies that guides the proxy advisory firm’s voting recommendations. For the first time, the policy has two parts: a high-level survey covering what it believes to be fundamental and high-profile topics that closes on August 31; and a more expansive version to drill down on key issues that closes on October 6.
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Company Protests ISS Policy on Draft Reports in Vote No Campaigns

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.
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ISS Updates Executive Compensation and Equity Plan FAQs

As described in our recent memorandum, ISS will be using other financial and operational metrics in addition to TSR in evaluating say-on-pay. In a recently updated FAQ on its executive compensation policies, this is called the Relative Pay and Financial Performance Assessment.

ISS will introduce this assessment for companies in the Russell 3000E beginning with meetings on or after February 1, 2017.
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ISS Policy Updates for 2017

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.
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ISS Publishes Draft 2017 Voting Policies for Comment

Yesterday ISS published its draft 2017 voting policies for public comment. Any updated policies will apply to meetings held on or after February 1, 2017. Comments are due by 6:00 p.m. EST on November 10. The final release of the 2017 updates is expected the week of November 14.

Only a few of the topics that were addressed in the ISS survey, which we previously discussed here, are covered by the draft policy.
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ISS Releases Survey Boards That Will Inform 2017 Policy Changes

ISS has just released the results of its survey on potential policy changes.  We previously discussed the survey questions here. The global survey attracted 439 responses, from 417 organizations. 120 of the respondents were institutional investors, representing 115 organizations, including 73 asset managers or investment managers, 16 mutual funds, 15 government or state-sponsored pension funds, three foundations/endowments, three insurance companies (investment side), two alternative asset managers, and two labor union pension funds.
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