Board Response to Majority-Supported Shareholder Proposals (U.S.)

Background and Overview

The marketplace has been evolving in the matter of board responsiveness to majority-supported shareholder proposals, in both institutional investors’ expectations, and in the actual responsiveness by issuers. ISS’ 2012-2013 Policy Survey results show that 86 percent of the institutional investor respondents expect that the board should implement a shareholder proposal that receives support from a majority of shares cast in the previous year. Almost half (47 percent) of issuer respondents agreed with that view as well. Issuers have been increasingly responding to shareholder proposals that received only one year of a majority of votes cast: in 2010, 37 percent of the proposals that received only one year of a majority of votes cast in 2009 were implemented (an additional 18 percent received a partial response); in 2012 thus far, 50 percent have been implemented (an additional 6 percent have been partially implemented). 

Key Changes Under Consideration

ISS is proposing to strengthen its policy to hold directors accountable for failure to respond to a shareholder proposal that receives one year of a majority of votes cast.  Under the current policy, ISS recommends a vote AGAINST or WITHHOLD from the entire board of directors (except new nominees, who should be considered CASE-BY-CASE) if:

  • The board failed to act on a shareholder proposal that received the support of a majority of the shares outstanding the previous year; 
  • The board failed to act on a shareholder proposal that received the support of a majority of shares cast in the last year and one of the two previous years.

Under the proposed policy, ISS would recommend a vote AGAINST or WITHHOLD from the entire board (except new nominees, who should be considered CASE-BY-CASE) ifthe board failed to act on a shareholder proposal that received the support of a majority of shares cast in the previous year.

Intent and Impact

The proposed change in ISS’ policy is in line with an evolved market view of board responsiveness to majority-supported shareholder proposals.

As of August 2012, 107 shareholder proposals have received the majority support of votes cast. Seventy-four of these proposals also received the majority support of two years of votes cast or one year of shares outstanding. Thus, under the proposed policy, ISS may recommend against or withhold from all directors at 24 additional companiesfor the 33 additional proposals assuming the companies do not sufficiently implement the proposals.

Request for Comment

Please feel free to add any additional information or comments on the proposed policy change.  In addition, ISS is specifically seeking feedback on the following:

For All Respondents:

  • Are there circumstances where a board should not implement a majority-supported proposal that receives support from a majority of votes cast for one year?  If yes, please specify.

For Investor Respondents:

  • How would your organization vote on directors who failed to implement a shareholder proposal that received majority support in the previous year (vote against the full board; vote against the governance committee; other)?
  • Would a commitment from the company for future implementation of a shareholder proposal that received majority support of votes cast in the previous year be acceptable?

To submit a comment, please send via e-mail to policy@issgovernance.com. Please indicate your name and organization for attribution. While ISS will consider all feedback that it receives, comments will not be published without attribution.

All comments received will be published as received, unless otherwise requested in the body of the e-mail submission.