On September 18, 2018, ISS announced the results of its 2018 Governance Principles Survey. ISS received responses from 638 different organizations, and includes the responses from 109 “investors.”
The Policy Survey questions focuses on:
- Auditors and Audit Committees
- Director Accountability and Track Records
- Gender Diversity on Boards
- One-Share, One-Vote Principle
Auditors and Audit Committees
ISS had asked what audit-related factors respondents considered in evaluating the independence and performance of external auditors. Significant for investors were regulatory fines or other penalties on the auditor for weaknesses or errors in audit practices. This was followed by significant audit controversies and then by the identity of the audit partner and any links he or she has to the company or management.
For non-investors, the most significant factors were: identity of the audit partner and any links e or she had to the company or its management; regulatory fines or other penalties on the company related to financial disclosure practices or weaknesses not identified in the audit report; and, regulatory fines or other penalties on the auditor for weaknesses or errors in audit practices.
The survey also asked what information shareholders should consider when evaluating a company’s audit committee. For investors the information included: skills and experience of audit committee members; significant financial reporting or audit controversies; and, the quality of the company’s financial reporting. For non-investors, the information included: skills and experience of audit committee members; quality of the company’s financial reporting; and, significant financial reporting or audit controversies.
Director Accountability and Track Records
The survey asks if a director failed in his or her boardroom oversight responsibilities at one company and this has resulted in a negative ISS vote recommendation, would it be considered appropriate and useful to note this information in the proxy research report of other companies where that director serves on the board. A significant number of investors (84%) indicated that such information would be useful to know and see on the ISS proxy reports. Only 41% of the non-investors indicated that such information would be helpful to see.
The survey then asked what types of oversight shortfalls would be relevant. Investor and non-investor responses were generally aligned and indicated that the most significant was risk oversight failures relating to fraud or other forms of corporate malfeasance.
When asked what would be an appropriate look-back period for such oversight shortfalls, investors indicated a longer time period (30% 5 years and 39% no time limit), while non-investors favored a shorter time period (44% 3 years, 13% 1 year).
Gender Diversity on Boards
In its 2017 Policy Survey, ISS asked if it was problematic if there were no female directors on a public company board. This year, ISS asked the same question to gauge year-over-year changes, if any.
80% of investors (up from 69% in 2017) thought it would be problematic. Among non-investors, over 60% indicated it would be problematic (compared to 54% in 2017). Of those Investors who thought it problematic, the most appropriate response was to engage with the board and/or management on the issue.
One-Share, One-Vote Principle
The survey asked if ISS should provide vote results where possible to show what the vote results would have been if all votes were counted equally. 92% of investors and 59% of non-investors responded in favor of this.
The survey also asked if ISS should use adjusted vote results to measure board responsiveness to shareholder votes. Investors were largely in favor (72%), but non-investors were split (42% thought it appropriate and 46% did not).
The survey also asked about an appropriate timeframe for sunset provisions on unequal voting rights. 46% of both investors and non-investors picked either “1 to 3 years” or “4 to 6 years.”