2016 Proxy Season Developments: ISS Announces 2016 Policy Changes and Expected December Release of Proxy Access FAQs; Both ISS and Equilar/Glass Lewis Open Peer Submission Window

Sullivan & Cromwell LLP - November 24, 2015

Last Friday, Institutional Shareholder Services (“ISS”), the proxy advisory firm, released its policy changes for the 2016 proxy season. For U.S. companies, the changes include (1) a reduction in the acceptable number of total board seats held by non-CEO directors (with a one-year grace period for implementation), (2) an updated policy regarding negative director recommendations following unilateral or pre-IPO action to classify the board, introduce supermajority voting provisions for bylaw/charter amendments or eliminate the ability of shareholders to amend the bylaws and (3) a recommendation against say-on-pay proposals for externally-managed issuers (“EMIs”) who fail to provide the disclosure necessary to allow a comprehensive assessment of pay-for-performance.  These changes are generally effective for meetings on or after February 1, 2016, with the grace period for the director overboarding policy ending on January 31, 2017.

There were no new policies on proxy access proposals or board responsiveness.  However, in the executive summary of its 2016 policy updates, ISS announced that it will release in December an “FAQ” document that will address which proxy access provisions ISS considers overly restrictive.  ISS stated that its fundamental approach to company and shareholder proposals to adopt proxy access remains unchanged.  In addition, the ISS policy updates clarify that ISS would evaluate proxy access nominees on a case-by-case basis, considering the same factors as for proxy contest nominees and “additional factors which may be relevant, including those that are specific to the company, to the nominee(s) and/or to the nature of the election,” noting that “the circumstances and motivations of a proxy contest and a proxy access nomination may differ significantly.  Therefore, it is necessary to create adequate analytical latitude for evaluating candidates nominated through proxy access.”

Separately, U.S. companies may submit to ISS and Equilar changes to their compensation peer group for the 2016 proxy season. Any changes submitted to ISS must be submitted between 9:00 AM today and 8:00 PM on December 11th.  Any changes submitted to Equilar must be submitted by December 31st.  Since July 2012, Glass Lewis & Co. has been using peer groups generated by Equilar in its pay-for-performance analysis.