The Institutional Shareholder Services (ISS) annual benchmark policy survey is now open, with a focus on climate and environment, or the “E” in ESG (environmental, social and governance). The survey collects feedback from institutional investors, corporate issuers and other interested parties to inform the ISS 2023 voting policy, which is typically published in November each year. The ISS press release (which contains links to the surveys) can be found here.
While most large institutional investors rely on their own policies and procedures, proxy advisor policies can influence voting decisions and signal broader areas of focus by institutional investors. For this reason, stakeholders are encouraged to respond. The survey will close to participation on August 31, 2022 (5:00 p.m. ET).
Climate change risk management continues to be a high-priority issue for many investors and companies, an area in which ISS notes “there is a widely held view that directors should be held accountable for overseeing disclosure and actions to put companies on a footing to manage their various risks related to climate change.” ISS originally sought feedback on climate-related matters in the 2020 policy survey and during the 2021 comment period to proposed policy updates (see our WTW Executive Pay Memo article ISS launches comment period for draft 2022 policy changes, November 11, 2021).
On the topic of diversity, equity and inclusion (DEI), ISS solicits feedback around racial equity and/or civil rights audits. ISS began a policy in 2022 that assessed shareholder proposals covering these issues on a case-by-case basis. Given the increasing prevalence of this type of proposal during 2022, ISS is asking for updated viewpoints around third-party racial equity or civil rights audits and whether companies would benefit from such audits. ISS also seeks to understand if there are specific factors that should be considered when determining the need for audits, to include such things as significant diversity-related controversies, lack of workforce diversity statistics and no initiatives undertaken to enhance workforce diversity.
Originally announced in 2021 for initiation in 2023, ISS will recommend votes against directors at companies with multi-class structures with unequal voting rights, to include those that were previously grandfathered. ISS is again asking for views on a de minimis exception (e.g., total voting power of 5%, 10%, 20%), which it plans to implement, and what other factors should influence ISS voting recommendations. In addition ISS asks for feedback on the appropriate targets for adverse vote recommendations, to include any director holding super-voting rights, governance committee chair or members, and all directors.
Companies domiciled in the U.S. generally do not need to seek additional shareholder approval for share issuances beyond the approval of authorized capital. Certain other markets may be required by laws of the country of incorporation to seek approval for all share issuances, to include those U.S. domestic issuers. On the topic of share issuance mandates and preemptive rights, for which ISS currently does not have a U.S. specific benchmark, ISS solicits feedback. Questions include whether the policy of the market of incorporation should continue to be applied or whether a U.S.-specific policy should be developed. ISS further asks what dilution levels would be considered acceptable for issuance without preemptive rights (e.g., 20%, 33% of shares outstanding), how often should shareholder approval be required, and should the same policy be applied to dual-listed companies and foreign private issuers as to those in the U.S.
The survey is open for participation until the close of business (5:00 p.m. ET) on Wednesday, August 31, 2022. Results are typically released approximately three weeks after the survey closes. An open public comment period will occur after the final proposed policy changes are released.
It’s too early to predict which, if any, changes or updates will ultimately be adopted for 2023. It should also be noted that ISS does not always include potential policy updates in the survey. Final policy updates are typically released in November followed by an FAQ release in December. The final policies become effective for shareholder meetings taking place on February 1, 2023, or later.
We encourage companies to stay current on evolving policies for shareholder voting on executive compensation and to weigh in via the ISS policy survey and the broader policy formation process.
