U.S. Proxy Access Restrictions Remain Problematic, Sizeable Majority Of Investors Do Not Support Multiple Voting Rights For Long-Term Shareholders

ROCKVILLE, MD. (Sept. 28, 2015) – Institutional Shareholder Services Inc. (ISS), a leading provider of proxy advisory, corporate governance, and sustainable investment solutions to financial market participants, today released the results of its annual global voting policy survey.

ISS received more than 421 total responses to this year’s survey, of which 114 were from institutional investors, nearly half of whom each manage assets in excess of $10 billion. ISS also received responses from 277 members of the corporate community (including companies, consultants/advisors to companies, and other organizations representing companies), with the remainder comprised of academics, non-profit organizations, and other governance stakeholders. Respondents spanned the globe, hailing from Australia, France, Ireland, Japan, Mexico, Singapore, South Africa, Sweden, Taiwan, the U.K, and the U.S., among other jurisdictions.

This year’s survey, conducted between Aug. 4 and Sept. 4, covered a range of issues, including: the provision of multiple voting rights in Europe; proxy access in the U.S.; overboarding for directors and CEOs, globally; and factors for addressing the qualifications of outside directors in Japan.

“The level of participation and the diversity of responses to this year’s survey have both been good. Consultation and feedback are the cornerstone of our inclusive and transparent benchmark voting policy development process,” said Georgina Marshall, ISS’ Global Head of Research and Policy. “Views we receive from a broad range of investors, companies, and other market participants inform the ongoing development of the nature and scope of ISS’ benchmark policies, which will soon be released for public comment and additional feedback. This is another step in our dialogue and engagement with all stakeholders. We will continue to evolve varied channels for gathering relevant feedback across global capital markets.”

Key findings from this year’s survey include:

U.S. Proxy Access

  • Survey respondents were asked, in the event that a shareholder proposal to provide proxy access receives majority support, and the board adopts proxy access with material restrictions not contained in the shareholder proposal, what types of restrictions should be viewed as sufficiently problematic to call into question the board’s responsiveness and potentially warrant negative votes on directors. Most investor respondents effectively endorsed proxy access on the terms proposed by the SEC in its proposed Rule 14(a)-11, as large majorities of investor respondents stated that an ownership threshold in excess of 3 percent or an ownership duration of greater than three years could warrant negative votes on directors. Ninety percent of investor respondents indicated that a required ownership duration of greater than three years, or an ownership threshold requirement in excess of 5 percent, could be grounds for negative votes.
  • Large majorities of investors (ranging from 68 percent to 80 percent) also stated that the following factors could all potentially justify negative votes on boards that imposed such restrictions:
    • a cap on nominees set at less than 20 percent of the existing board;
    • an aggregation limit of less than 20 shareholders;
    • re-nomination restrictions in the event a proxy access nominee fails to receive a stipulated level of support;
    • restrictive advance notice requirements or information disclosure requirements more extensive than those required of the company’s own nominees; and
    • restrictions on compensation of access nominees by nominating shareholders.
  • Company respondents generally did not agree that directors should be penalized for imposing restrictions on proxy access after shareholders had approved a shareholder proposal on the topic, citing the non-binding nature of such proposals and the desirability of a company-specific approach to the issue. However, a slight majority of company respondents agreed that negative votes on directors could be warranted if the company established an ownership threshold greater than 5 percent, and 40 percent of companies stated that negative votes could be warranted for an ownership duration requirement in excess of three years.

Director Overboarding

  • With respect to directors who are not active CEOs, 34 percent of investor respondents indicated that four total board seats is an appropriate limit, 18 percent supported a limit of five board seats, and 20 percent favored a limit of six board seats. Sixteen percent of investors responded that a different limit – commonly three total board seats – should apply, or that the appropriate limit depends on circumstances, while 12 percent did not support a general limit on board seats, but responded that each board should consider what is appropriate and act accordingly. Among company respondents, 41 percent did not favor setting any general limits on the number of board seats held by directors, while 25 percent, 7 percent and 19 percent of non-investor respondents favored limits of six, five and four board seats, respectively.
  • With respect to directors who are active CEOs, 48 percent of investors indicated that two board seats (a CEO’s “home board” plus one outside board) is an appropriate limit, while 32 percent favored a limit of three board seats. Eight percent of investors answered “other” or “it depends,” although comments by these respondents suggested that several would support a limit of two total board seats, and one respondent indicated that a CEO should not sit on any outside boards. As with non-CEO directors, 12 percent of investors did not favor any particular limit on the number of boards on which a CEO should serve. Among company respondents, a majority supported a limit of three total board seats (37 percent) or two total board seats (20 percent) for an active CEO, while 35 percent did not support any particular limit.
  • Additionally, 58 percent of investor respondents, and 74 percent of company respondents, indicated that exceptions to the “overboarding” limits should be made for directors’ service on boards of non-operating companies, or for service by investment holding company executives on the boards of publicly-traded companies in which the holding company has an interest.

Multiple Voting Rights in Europe

  • In light of some recent regulatory developments in Europe introducing or encouraging multiple voting rights for certain categories of long-term shareholders, survey respondents were asked whether or not they generally supported multiple voting rights, loyalty dividends, or special tax incentives for long-term shareholders. Eighty-five percent of investor respondents said they did not support such enhanced multiple voting rights, and 75 percent and 77 percent of investors respectively said they did not support such differential loyalty dividends and tax incentives. More than 90 percent of investors agreed with the views that long-term shareholder value is best enhanced by treating all shareholders equally, and that loyalty benefits can be discriminatory across different types of shareholders (potentially disadvantaging overseas investors or those who hold shares through omnibus custodian accounts, who may not be able to take advantage of such benefits) and are ineffective in rewarding long-term shareholding.

Outside Director Qualifications in Japan

  • Respondents were asked their views on the importance of various factors in assessing outside directors on Japanese boards, in light of the new Japanese Corporate Governance Code and the sharp increase in the number of outside directors in that market. Among investors who answered these questions, 88 percent responded that an outside director’s independence from management is very important, while 8 percent considered it is somewhat important, and no investors responded that it is not important. Sixty-six percent of investor respondents answered that an outside director’s skill set (such as qualification as an attorney or accountant, or global experience) is very important, while 26 percent answered that it is somewhat important, and only 4 percent that it is not important. A director’s education level was deemed very important by 25 percent of investors, and somewhat important by 48 percent, while 19 percent do not consider it important. A director’s service on other boards was viewed as very important by 37 percent of investors, somewhat important by 48 percent, and not important by 11 percent. A nominee’s number of years of industry experience was seen as very important by 44 percent of investors, somewhat important by 47 percent, and not important by 4 percent.

Download a copy of this year’s survey results


ISS’ survey is part of its annual policy development process, which will culminate in middle November with the release of final policies applicable to global shareholder meetings occurring on or after Feb. 1 of 2016. On Oct. 26, ISS will release draft policies that will be subject to a public comment period before they are finalized.

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