ROCKVILLE, Md. (November 16, 2017) – Institutional Shareholder Services Inc. (ISS), the leading provider of end-to-end governance and responsible investment solutions to the global financial community, today released updates to its 2018 benchmark proxy voting policies for the Americas, EMEA, and Asia-Pacific regions. The updated policies will generally be applied for shareholder meetings on or after Feb. 1, 2018.
To ensure its voting policies take into consideration the changing views and needs of its institutional investor clients and the perspectives of companies and the broader corporate governance community, ISS gathers input each year from institutional investors, companies, and other market constituents worldwide through a variety of channels and over many months. The updates announced today are a result of the careful consideration of the many inputs received.
“We are particularly pleased with the many thoughtful comments received during our recent open consultation period that resulted in a number of modifications to the final updates,” said Georgina Marshall, ISS’ Global Head of Research. “We also recognize and appreciate the time and effort of hundreds of investors, companies, corporate directors, and other market participants, who this year provided input not only through the recent open consultation period but also through ISS’ two benchmark policy surveys, many topical and regional roundtables, and many direct engagements with ISS.”
Among the updates and modifications, ISS is introducing a change to its U.S. policy that will explicitly provide for adverse vote recommendations on the re-election of board members responsible for approving/setting non-executive director (NED) compensation when there is a recurring pattern (i.e., two or more consecutive years) of excessive NED pay without a compelling rationale or other mitigating factors. Negative recommendations will be triggered only where a pattern of excessive NED pay is identified in two or more consecutive years under the new policy, and as such the update will not impact vote recommendations in 2018.
ISS’ U.S. and Canadian pay-for-performance methodology, meanwhile, will be modified to include the rankings of CEO total pay and company financial performance within a peer group, each measured over a three-year period.
For Canada, ISS is introducing a new policy on board gender diversity that will be applicable in 2018 to S&P/TSX Composite Index companies and in 2019 to all TSX-listed companies. Reflecting new disclosure requirements mandated by the Canadian Securities Regulators on companies’ gender diversity policies, as well as the views on the topic of many Canadian investors, under the new policy and with certain exceptions, if: i) a company has not adopted a formal written gender diversity policy; and ii) no female directors serve on its board; then ISS will generally recommend “withhold” votes for the chair of the nominating committee or the chair of the committee designated with the responsibility of a nominating committee, or the chair of the board if no nominating committee has been identified or no chair of such committee has been identified.
Across Europe and after a one-year transition period through February 2019, ISS is tightening limits for recommending in favor of general share issuance requests in Continental Europe to 10 percent without preemptive rights and 50 percent where preemptive rights are provided. This reflects the views of many institutional investors who have already tightened their own internal voting guidelines on this issue and a growing number of whom look to see that general share issuance authorities are within these thresholds.
For ISS’ U.K./Ireland and European Benchmark Voting Guidelines, ISS is introducing a new policy regarding virtual or on-line shareholder meetings. From 2018, ISS will generally recommend voting “for” proposals that allow for the convening of “hybrid” (both physical and electronic/on-line) shareholder meetings, but will generally recommend “against” proposals that permit the convening of virtual-only shareholder meetings, with no physical meeting.
In Japan, ISS is introducing a policy change which reflects the accelerating trend in that market of increasing numbers of outside directors on company boards, and recognizes that the level of outside directors is increasingly being held to standards comparable to global peers. Under the updated policy, ISS may recommend a vote “against” director(s) at companies where, after the pending shareholder meeting, at least one-third of the board members will not be outside directors.
In China and Hong Kong, meanwhile, many institutional investors and other market participants favor a more stringent approach to charter document amendments to establish, or formalize the existence of, a Chinese Communist Party Committee at listed companies. Consequently, ISS is introducing a new policy to generally recommend a vote “against” article and/or bylaw amendments introducing or formalizing such committees where the proposed amendments lack transparency or are not considered to adequately provide for board accountability and transparency to shareholders.
For additional details on these and other ISS 2018 benchmark policy updates, please visit the ISS Policy Gateway.
To aid market participants in understanding the nature and scope of the 2018 policy updates as well as other developments shaping the governance landscape, please join ISS staff on November 30 at 4:00p.m. GMT (11:00a.m. EST | 8:00a.m. PST) for a one-hour informational webcast. To register, please click here.