Yesterday, ISS released the results from its annual global benchmark policy survey. There were a number of key differences between investor and corporate/non-investor respondents on a number of issues – including on director tenure, semiannual reporting, discretionary bonuses and climate disclosure.
Here are a dozen things we learned:
- Investors Want Director Tenure to Matter for Independence: One of the clearest divides involves long-tenured U.S. directors. 64% of investors believe tenure should be a factor in determining independence, while 74% of non-investors say tenure – regardless of length – should not be a factor and generally defer to the board’s independence determination. Among investors who believe tenure can matter, 10 and 12 years were the most popular thresholds.
Importantly, respondents generally preferred a multifactor assessment involving tenure, board refreshment and overlap with the CEO/chair rather than an automatic tenure cutoff.
- Slate Elections May Be a Concern But Local Market Practice Matters: About 40% of investors believe slate elections should be considered problematic when they are not prevalent in the relevant market, while another 32% consider them a governance concern regardless of local practice.
Non-investors were split: roughly 40% favored the market-specific approach – and 40% said slate elections alone shouldn’t justify opposition to directors. - Investors Favor Continuing Director Accountability for Problematic Governance Provisions: 76% of investors believe ISS should continue adverse director recommendations for as long as problematic provisions – such as multi-class structures, supermajority requirements or shareholder-right restrictions – remain in place.
Non-investors were much less supportive. Investors also favored an escalating accountability model, beginning with the governance committee chair and potentially expanding to other committee members. - Investors Are Skeptical of Semiannual Reporting: About 50% of investors view a shift from quarterly to semiannual financial reporting negatively, citing the potential for greater volatility and an information advantage for investors with access to nonpublic information or sophisticated analytics.
Only 10% of non-investors agreed. Instead, 54% of non-investors said boards should be trusted to decide whether semiannual reporting is appropriate for their companies. - For Reincorporations, Investors Place Greater Emphasis on Protecting Shareholder Rights: 44% of investors – and 48% of non-investors – believe that all significant changes, including company benefits and impacts on shareholder rights, should be considered when assessing re-incorporations.
However, 49% of investors favor giving greater weight to changes affecting shareholder rights, particularly those weakening accountability. In contrast, 26% of non-investors favor placing greater weight on significant benefits identified by the company. - Financial-Services Discretionary Bonuses Produce Another Big Divide: 71% of investors believe fully discretionary annual bonus programs at large U.S. financial institutions should continue to be identified as a structural concern in ISS’s pay-for-performance analysis.
In contrast, 85% of non-investors say such programs should not be considered problematic in isolation given industry practice and regulation.
However, there is common ground as more than 80% of both groups said better disclosure about performance factors, weightings and payout determinations can mitigate concerns. - ISS May Target the Compensation Committee Chair Instead of the Entire Committee: If the SEC moves forward to adopt its proposal that would exempt many more companies from holding a say-on-pay vote, 50% of investors favor initially directing an adverse recommendation over compensation concerns at the compensation committee chair, escalating to other members after multiple years of concerns. Another 41% favor ISS’s current approach involving the full committee.
By contrast, 54% of non-investors say compensation committee members shouldn’t receive adverse recommendations over pay when the company isn’t required to hold a say-on-pay vote. - Investors Favor Keeping the Higher Say-on-Pay Responsiveness Threshold If Say-on-Pay Isn’t on the Ballot: If compensation committee directors receive low support when say-on-pay isn’t on the ballot, 67% of investors favor using ISS’s existing say-on-pay responsiveness thresholds.
Non-investors mostly favored the typical 50% director-election threshold. - Competitive Harm Can Justify Withholding LTI Targets Sometimes: Half of investors believe competitive harm can justify nondisclosure of forward-looking LTI performance targets, but favor a case-by-case assessment based on the company’s explanation and the circumstances.
Non-investors are more permissive: 49% believe competitive harm is a reasonable rationale for nondisclosure.
And 79% of investors believe competitive harm is a less compelling excuse for withholding relative performance goals than absolute goals. - Investors Expect Boards to Respond to Problems With Sustainability Assurance: If an assurance provider raises material concerns regarding mandatory non-financial information under Europe’s CSRD, 80% of investors believe the company should publicly respond within a reasonable period – and no later than one year.
Only 32% of non-investors agreed. The leading non-investor view was that the assurance provider’s report itself is sufficient. Both groups most commonly identified the relevant committee chair as the director who should be accountable for a failure to respond. - Climate Disclosure Has Perhaps the Starkest Divide: If regulatory changes allow companies to reduce climate disclosure, 43% of investors believe directors should remain accountable for the resulting loss of transparency – even when the company complies with applicable law.
By contrast, 85% of non-investors say directors shouldn’t be accountable so long as regulatory requirements are met. If disclosure is reduced because of company-identified legal or financial risks, investors are more accommodating if the company explains its continuing risk assessment and plans for eventually restoring disclosure. - Nature-Related Disclosure Is Moving Into the Mainstream: 68% of investors believe companies with significant nature-related risks should disclose information using a recognized framework.
Non-investors are more hesitant: 50% believe the decision should be left to each company.
Still, 75% of investors – and 63% of non-investors – have considered nature-related risks and opportunities in recent years. Among respondents using – or considering a framework – the Taskforce on Nature-related Financial Disclosures (TNFD) is clearly dominant, used or seriously considered by 76% of investors and 50% of non-investors.
Authored by
Broc Romanek