More Information on ISS’ 2019 Surveys

Early this week ISS opened up its annual policy survey, the results of which will influence the new ISS policies and changes to existing policies for the 2019 proxy season (i.e., impacting shareholder meetings on or after February 1, 2019). Today, we will look a bit closer at the two surveys that ISS launched: the 2019 Governance Principles Survey, and the 2019 Policy Application Survey.

2019 Governance Principles Survey

There are five issues ISS is seeking input in on this survey:

  • Auditor Independence: What factors should be considered in addition to non-audit services and fees as a percentage of total fees when evaluating independence of auditors?
  • Audit Committee: What factors are important in evaluating the effectiveness of the Audit Committee?
  • Director Accountability: Is it relevant for ISS to examine directors’ controversies on other boards when evaluating directors? If so, what would be relevant and what length of look-back period should be used?
  • Board Gender Diversity: ISS here is repeating questions it asked last year on gender diversity to gauge whether it is concerning if there are no female directors on a board?
  • One-Share, One-Vote Principle: Should ISS adjust vote results to show the results if all shares had equal voting rights? If so, should these adjusted results inform ISS’s board responsiveness review? What is the appropriate time period for a sunset provision on unequal voting rights?

2019 Policy Application Survey

The questions in this survey applicable to the U.S. are:

  • Independent Chair: What factors are important when ISS determines its vote recommendation with respect to a shareholder proposal for an independent chair?
  • Minimum Stock Ownership Requirements for Bylaw Amendments: Asks what the minimum ownership thresholds above the required SEC Rule 14a-8’s $2,000 stock holding requirement should be, and should multiple shareholder be able to aggregate holding to meet such threshold?
  • Quantitative Pay-for-Performance Screens: ISS is considering supplementing or replacing the four (4) GAAP financial metrics used in its P4P analysis with Economic Value Added (EVA) for purposes of the Financial Performance Assessment. ISS is asking if the survey participant supports the use of EVA in the P4P analysis, and, if so, how it should be incorporated.
  • Non-employee Director Pay: In 2018 ISS identified non-employee director (NED) pay outliers and will begin to recommend against compensation committees where elevated NED pay persists over multiple years without compelling justification. ISS is asking survey participants what should constitute a compelling justification.
  • Board Qualifications Matrix: The New York City Pension Funds has advocated for the disclosure of a director matrix to help shareholders assess director fit and the mix of skills among all directors. ISS is asking survey participants what level of disclosure on directors skills they find most useful.

For links to these ISS surveys, please see my prior post:

ISS Releases Global Policy Survey

Survey Closing Times

  • 2019 ISS Governance Principles Survey closes on August 24, 2018 at 5 pm Eastern, and the
  • 2019 ISS Policy Application Survey closes on September 21, 2018 at 5 pm Eastern.
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ISS Releases Global Policy Survey

On July 30, 2018, ISS released its Global Policy Survey.  The responses ISS receives to this survey will help shape its policy updates for the 2019 proxy season.

As it did last year, ISS has broken the survey down into two parts:

  • High-level ISS Governance Principles Survey covering a small number of high-profile governance topics, which will close on August 24, 2018 at 5 pm Eastern, and
  • ISS Policy Application Survey a more expansive and detailed set of questions, which will close on September 21, 2018 at 5 pm Eastern.

In the Governance Principles Survey, ISS is asking about a number of topics including director accountability for oversights, and how it should report results in light of the one-share, one-vote principle for companies with multiple classes of voting shares.

ISS Press Release announcing the opening of the survey: https://www.issgovernance.com/iss-launches-annual-global-policy-survey/

PDF of the Governance Principles Survey: https://www.issgovernance.com/file/policy/ISSPolicySurvey.pdf

ISS’s Governance Survey web page: https://www.surveymonkey.com/r/ISSPolicySurvey

 

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Changes Coming to GICS

Back in January 2018, S&P Dow Jones Indices and MSCI announced that certain changes would be made to GICS on September 28, 2018 (the press release can be found here). Those changes are almost upon us.

Summary of Key GICS Changes:

  • The Telecommunications Sector will be broadened and renamed Communication Services. This group will now include telecommunication companies, as well as companies selected from the Consumer DIscretionary Sector currently classified under the Media Industry Group, select companies from the Internet & Direct Marketing Retail Sub-Industry along with certain companies currently classified in the Information Technology Sector.
  • The Internet & Direct Marketing Retail Sub-Industry under Consumer Discretionary Sector will be revised to include all online marketplaces for consumer products and services.
  • Companies currently classified in the Internet Software & Services Sub-Industry (e.g., data centers, cloud networking, storage infrastructure, and web hosting services) will be moved to a new Sub-Industry called Internet Services & Infrastructure under the IT Services Industry.
  • Cloud-based software companies currently classified as Internet Software & Services will be re-classified as Application Software.

While this is interesting to note and generally something folks in business should know will happen, it may have implications for the peer groups developed by ISS and Glass Lewis for the 2019 Proxy Season. ISS does use the GICS codes as a starting point when constructing its peer groups. So, this change in GICS should be reflected in the peer groups it uses for shareholder meetings after February 1, 2019. Companies may want to simulate how their ISS peer groups may change once the ISS system has been updated to accommodate these GICS changes to ensure they have an idea of how their ISS peer group  in 2019 might change.

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ISS Opens Peer Group Submission Window July 9, 2018

For companies having annual meetings between September 16, 2018 and January 31, 2019, ISS will open its peer group submission window next Monday, July 9th at 9 am Eastern, and the window will remain open until 8 pm Eastern on Friday, July 20, 2018. Companies that will be disclosing a change in their peer group in their upcoming proxy should seriously consider providing the updated peer group to ISS during this peer group submission window.  ISS uses the peer group submitted when it creates its peer group for companies, so ensuring ISS has your latest peers should help ensure ISS is using the latest and greatest peer group your company used for its last fiscal year. Failure to submit your peer group could cause ISS to not accurately reflect your company’s peer group when constructing its own peer group.

Companies simply need to log into their Governance Analytics account (or request an account) and submit the requested information under My Company > Peer Submission:

https://login.isscorporatesolutions.com/galp/login

Companies that have not had a change in their peer group that will be reflected in their next proxy statement, do not need to submit a peer group to ISS.

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