Yesterday Institutional Shareholder Services (ISS) released a set of five frequently asked questions related to select proxy voting policies for the 2015 proxy season. The first two questions address shareholder proxy access and the exclusion of shareholder proposals; the remaining three address unilateral bylaw or charter amendments. ISS also released a brief Research Desk Bulletin that summarizes its proxy access approach.
Voting Recommendations Related to Shareholder Proxy Access Proposals
Historically ISS has evaluated shareholder proxy access proposals on a case-by-case basis, considering, among other things: “[c]ompany-specific factors; and [p]roposal-specific factors, including: … ownership thresholds … (i.e., percentage and duration); the maximum proportion of directors that shareholders may nominate each year; and the method of determining which nominees should appear on the ballot if multiple shareholders submit nominations.”
As revised ISS’ new policy will be to generally recommend voting for management and shareholder proposals that meet the following minimum criteria:
- Ownership threshold: maximum requirement not more than three percent (3%) of the voting power;
- Ownership duration: maximum requirement not longer than three (3) years of continuous ownership for each member of the nominating group;
- Aggregation: minimal or no limits on the number of shareholders permitted to form a nominating group;
- Cap: cap on nominees of generally twenty-five percent (25%) of the board.
ISS will generally recommend voting against proposals with more restrictive criteria.
Where a company presents both management and shareholder-sponsored proxy access proposals, ISS will review each proposal using the above outlined criteria.
In its Research Desk Bulletin ISS notes that in the 2014 proxy season proposals calling for shareholder proxy access for shareholders holding more than 3% of a company’s shares over a 3-year period received average support of 54.7% of votes cast.
As of February 19, 2015, ISS is tracking 96 pending shareholder proxy access proposals.
Voting Recommendations Related to Exclusion of Shareholder Proposals
With Chair White’s announcement that the Commission will be reviewing Rule 14a-8(i)(9) and CorpFin’s concomitant announcement that it will not be expressing views on the rule’s application during the 2015 proxy season as backdrop, ISS has taken the position that:
under [its] governance failures policy, [it] will generally recommend a vote against one or more directors (individual directors, certain committee members, or the entire board based on case-specific facts and circumstances), if a company omits from its ballot a properly submitted shareholder proposal when it has not obtained:
1) voluntary withdrawal of the proposal by the proponent;
2) no-action relief from the SEC; or
3) a U.S. District Court ruling that it can exclude the proposal from its ballot.
The recommendation against directors … is regardless of whether there is a board sponsored proposal on the same topic … . If the company has taken unilateral steps to implement the proposal, however, the degree to which the proposal is implemented, and any material restrictions added to it, will factor into [ISS’] assessment.
In its Research Desk Bulletin ISS suggests that where Rule 14a-8(i)(9) no action relief is unavailable, companies “have several options: … include the shareholder proposal on their ballots; … include the shareholder proposal along with a competing management proposal; … include only a related management proposal on the ballot; or … exclude any proposal.”
Where a company presents both management and shareholder-sponsored proposals on a similar topic, ISS will review each under its applicable policy.
Voting Recommendations Related to Unilateral Bylaw or Charter Amendments
With respect to unilateral bylaw or charter amendments, ISS’ hasn’t made any changes to its prior policy–recommending, under its governance failures policy, a vote against “directors who adopt, without obtaining shareholder approval, bylaw or charter amendments that materially diminish shareholder rights.” Rather it has simply created a stand alone policy to address the three most common categories of conduct:
- unilateral bylaw amendments that diminish shareholders’ rights;
- excessive share pledging; and
- failure to opt out of state statutes requiring a classified board (Indiana and Iowa).
ISS provides examples of both unilateral amendments which are materially adverse to shareholder rights (including fee-shifting bylaws that require a suing shareholder to bear all costs of a legal action that is not 100% successful, of which approximately 50 have been adopted as of February 2015) and unilateral amendments which generally are not materially adverse to shareholder rights, but which will be considered on a case-by-case basis.