Separate Updates Include Additional Factor on Multi-Class Share Structures in U.S. and Canada
SYDNEY & ROCKVILLE, M.D. (May 22, 2018) – Institutional Shareholder Services Inc. (ISS), a leading provider of end-to-end governance and responsible investment solutions to the global financial community, today announced the release of ISS QualityScore methodology updates for Australian companies.
Additional board-level factors now applicable to Australian companies include those detailing the lowest level of support received by management-nominated directors at their most recent election as well as the proportion of non-executive directors on the board for less than six years. With respect to the latter, board refreshment has become an important topic globally and ANZ companies have reacted well in this regard. An ISS Analytics analysis finds that 77 percent of ANZ companies covered by QualityScore satisfy the goal of having at least one-third of their board comprised of non-executives with less than six years tenure each.
Methodology changes will also cover areas related to remuneration, including weighing the level of support received from shareholders on the most recent remuneration report proposal, with only 17.8 percent of ANZ covered companies receiving less than 90 percent support at their most recent annual meeting, according to ISS Analytics data.
Other remuneration-related methodology changes cover the degree of alignment between the subject company’s annualized 3-year pay percentile rank, relative to peers, and its 3-year annualized total shareholder return (TSR) rank, relative to peers; the degree of alignment between the company’s TSR and change in CEO pay over the past five years; and the size of the CEO’s 1-year cumulative pay, as a multiple of the median pay for company peers.
Separate from the aforementioned changes and applicable only to covered companies in the U.S. and Canada, the rating will now include an additional factor on enhanced voting rights to increase the clarity that QualityScore offers investors to identify companies that have classes of stock with unequal voting rights. The new factor will report and evaluate the proportion of voting power controlled by shares with enhanced voting rights. The new factor will be scored in the U.S. but not for Canada where it will initially be provided only for informational purposes.
Roughly 8 percent of U.S. covered companies have multi-class share structures, according to ISS Analytics, and the new data point will help investors differentiate between cases where multi-class share structures severely impair base-class shareholder rights compared with cases where the impact is less pronounced.
“These enhancements to ISS’ QualityScore methodology are in keeping with our commitment to meet the evolving needs of investors, many of whom are now sharply focused on comparing portfolio companies across jurisdictions,” said John Roe, Head of ISS Analytics, the data intelligence arm of Institutional Shareholder Services. “Additional factors with regard to remuneration will in particular aid in cross-market comparisons as a growing number of institutions seek to determine sector and industry champions on a global, rather than national or regional, basis.”
ISS QualityScore provides a score for each company in its coverage universe that measures the company’s level of corporate governance risk, both overall and within four broad pillars: board structure, compensation/remuneration, shareholder rights, and audit & risk oversight. Importantly, ISS QualityScore subscribers have the ability to access and analyze the underlying data from which the scores are generated, allowing them to screen portfolio companies against hundreds of corporate governance factors or perform detailed side by side comparisons of two or more companies’ profiles.