Tag: ISS
What happened with no-action requests this proxy season?
According to “SEC No Action Statistics to May 1, 2024” from the Shareholder Rights Group, this proxy season, the SEC staff “has nearly doubled the number of exclusions” of shareholder proposals compared with 2023; that is, relative to the prior year, the staff has issued almost twice the number of letters indicating that it would not recommend enforcement action if the company excluded the proposal from its proxy statement. While that surge reflects primarily a “sharp increase” in the number of requests for no-action filed by companies, importantly, the article indicates that it also reflects an increase in the relative proportion of no-action requests granted. From November 1, 2023 to May 1, 2024, the article reports, the SEC has granted company requests for no-action regarding shareholder proposals about 68% of the time (excluding requests withdrawn), compared with 56% at the same point last year. Notably, the article reports, that percentage (68%) is fairly comparable to the average exclusion rate (69%) during the prior administration (2017 to 2020). Since the issuance of SLB 14L in 2021, the staff has come in for criticism for applying a revised approach to evaluating no-action requests that some market participants considered perhaps a bit too generous to proponents of proposals, leading to an excess of overly prescriptive proposals presented at shareholder meetings. As the article suggests, has this criticism led to a moderation of that approach?
Is the proxy advisory industry a net benefit or cost to shareholders?
In Seven Questions About Proxy Advisors, from the Rock Center for Corporate Governance at Stanford, the authors, David Larcker and Brian Tayan, examine the proxy advisory firm industry—all two of them. Well, actually, as the paper observes, there are a large number of small players, but Institutional Shareholder Services and Glass Lewis “control[] almost the entire market.” It’s well-known that recommendations from ISS and GL are considered important—sometimes even a major aspect of the battle—especially in contests for corporate control and director elections. But, the authors point out, the extent of their influence on “voting outcomes and corporate choices is not established, nor is the role they play in the market. Are proxy advisory firms information intermediaries (that digest and distill proxy data), issue spotters (that highlight matters deserving closer scrutiny), or standard setters (that influence corporate choices through their guidelines and models)? Because of the uncertainty around these questions, disagreement exists whether their influence is beneficial, benign, or harmful. Defenders of proxy advisors tout them as advocates for shareholder democracy, while detractors fashion them as unaccountable standard setters.” The paper examines “seven important questions about the role, influence and effectiveness of proxy advisory firms.” The authors explore why there is so much controversy about the purpose, role and contribution of proxy advisory firms, asking whether “the proxy advisory industry—as currently structured—[is] a net benefit or cost to shareholders?”
ISS study finds percentage of racial/ethnic minority directors finally hits 20% mark
A study of companies in the Russell 3000 just released by ISS showed that, for the first time, directors who self-identified as racial and ethnic minorities accounted for 20% of all board directorships. The study found that each of the minority groups analyzed experienced growth in the percentage of director seats held, with the greatest growth (90% over the study period) occurring among African-American directors, who now hold 8.3% of all board seats in the study group. According to the Head of ISS Corporate Solutions, these percentages “represent a watershed moment for minority corporate directors broadly and Black directors in particular….The analysis shows the impact of increasing and continual institutional investor engagement with portfolio companies on matters around board diversity coupled with growing stakeholder pressure from various quarters over the past two years.” Still, as she told Reuters, “[w]hile this is a huge sea change in terms of the percentages, it still falls short of the ethnic breakdown of the U.S. population….It’s a watershed moment but probably not something to pat ourselves on the back too much about.”
Have we made much progress on board racial and ethnic diversity?
After the murder of George Floyd in 2020 and the national protests that it triggered, many of the country’s largest corporations expressed solidarity and pledged support for racial justice and racial and ethnic diversity, equity and inclusion. Some institutional investors also beefed up their proxy voting policies, demanding both greater transparency and more racial and ethnic diversity. One place that companies looked to implement their commitments to DEI was at the board level. Now, about two years after that horrific event, how much progress have companies made? Using the end of proxy season in 2020 as a starting point, ISS has some recent data. ISS concludes that, while substantial progress has been made in board racial and ethnic diversity, “many boards still do not reflect the diversity of their customer base or the demographics of the broader society in which they operate.”
ISS releases new benchmark policies for 2021
Yesterday, ISS released its new benchmark policies, effective for shareholder meetings on or after February 1, 2021. In addition to anticipated policy changes (see this PubCo post) regarding board racial and ethnic diversity, shareholder litigation rights (such as exclusive federal forum provisions) and director accountability for governance failures related to environmental or social issues, ISS also made a number of other policy changes and clarifications, not previewed during the comment period, that generally relate to changing market practices, certain shareholder proposals and policies that were announced previously but subject to a transition period.
ISS provides early guidance on changes to executive compensation related to COVID-19
ISS has provided some early guidance regarding how it will view pandemic-related changes to executive compensation as part of its pay-for-performance qualitative evaluation. According to ISS, the guidance was informed by direct discussions with investors as well as the results of its annual policy survey. The guidance is summarized below.
Don’t forget to vote!
ISS proposes voting policy changes for 2021
Last week, ISS released for public comment a number of proposed voting policy changes to be applied for shareholder meetings taking place on or after February 1, 2021. The proposed changes for U.S. companies relate to board racial/ethnic diversity, director accountability for governance failures related to environmental or social issues and shareholder litigation rights, i.e., exclusive forum provisions. Comments may be submitted on the proposals through October 26, 2020.
Want to know the number of virtual meetings planned for this proxy season, so far? Ask ISS
ISS now has established a COVID-19 resource center, which offers, among other things, a searchable list of companies that are holding virtual meetings this proxy season. As of April 15, the tally for virtual meetings in the U.S. held or to be held this proxy season is 1,015; according to ISS, that number was 286 for all of calendar 2019. In addition, 83 meetings have so far been cancelled or postponed.
ISS provides guidance on the impact on policy of the COVID-19 pandemic
Today, ISS provided special policy guidance on the impact of the COVID-19 pandemic, observing that, in light of the current uncertainty, it is appropriate “to provide our stakeholders with some specific guidance on a number of voting policy issues that are likely to be directly implicated over the coming months by the pandemic and the global response to it.” While the guidance suggests that ISS will apply its policies more flexibly under the circumstances, some things never change: option repricings—still disfavored.
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