ISS Proxy Voting Policy Updates: Updates for U.S. Companies in 2017 Include Negative Director Recommendations for Dual-Class IPO Companies and Implementation of Tougher Overboarding Restriction

Sullivan & Cromwell LLP - November 22, 2016

Yesterday, Institutional Shareholder Services, the proxy advisory firm, announced updates to its benchmark proxy voting policies applicable to meetings held on or after February 1, 2017.  For U.S. companies, the updates provide for negative vote recommendations for:

  • directors at newly public companies that have classes of stock with unequal voting rights, or that have other materially adverse provisions (such as supermajority voting requirements), absent a reasonable sunset provision;
  • directors at companies that impose undue restrictions on shareholders’ ability to amend the company’s bylaws (relevant in the few states, including Maryland, that permit such restrictions); and
  • non-CEO directors who hold more than five public company board seats (down from six under current policy).

ISS also made largely technical changes to its policies on share authorization requests and on equity plan approvals, including the addition to the equity plan scorecard of payment of dividends prior to vesting and clarification of how its policies apply to proposals seeking approval solely for Section 162(m) purposes.

Finally, ISS adopted a new policy to evaluate management proposals to ratify non-employee director pay programs (which are rare), and a clarification and broadening of the policy to evaluate non-employee director equity plans. While these are not broadly impactful changes for U.S. companies, they may signal a growing focus of ISS on director compensation generally, especially when viewed together with a broad new policy on problematic director compensation practices at Canadian companies.