Last month, I blogged several times about what ISS changed in its proxy voting guidelines for this proxy season. Now, ISS has updated its three sets of FAQs – consisting of Non-Compensation FAQs; Executive Compensation FAQs; and Equity Plan Compensation FAQs – to align with those changes and provide more color. Three of the non-compensation FAQs, 15 of the compensation FAQs; and 8 of the equity plan FAQs have been changed (all of which are highlighted in yellow within the FAQs), with the three most significant FAQs dealing with the topics of:
- Executive security – #54 of Executive Compensation FAQs indicating that ISS is unlikely to raise major concerns for “relatively high security-related perquisite values” so long as there’s a reasonable rationale for the costs).
- Management proposals for stock option repricings – see the Equity Plan Compensation FAQs.
- How ISS views the exclusion of shareholder proposals without no-action relief – ISS says may be permitted if there is good disclosure as #91 of the Non-Compensation FAQs addresses the question of “What is ISS’ approach when a company excludes a shareholder proposal from its ballot?” as follows:
“The ability of qualifying shareholders to include their properly presented and legally-compliant proposals in a company’s proxy materials is a fundamental right of share ownership, which is deeply rooted in state law and the federal securities statutes. Shareholder proposals can promote engagement and debate in an efficient and cost-effective fashion.
Over the course of the past eight decades, the SEC has played the role of referee in resolving corporate challenges to the inclusion of shareholder proposals in company proxy materials. While courts provide an additional level of review, the vast majority of shareholder proposal challenges have been resolved without the need to resort to costly and cumbersome litigation. While individual proponents and issuers have often disagreed with the SEC’s determinations, the governance community has widely recognized the Commission’s important role as an impartial arbiter of these disputes.
However, the SEC has for the time being determined to no longer play such a role. ISS does not substitute its judgment for that of the SEC in determining whether a proposal is properly excludable under Rule 14a-8. There is extensive precedent with respect to numerous shareholder proposal topics and types establishing whether or not they are appropriate and legal subjects to be presented for a shareholder vote.
Companies choosing to exclude a proposal on “ordinary business” grounds should clearly explain why they believe that to be the case, and when there is precedent from the SEC or a court that appears relevant to the proposal in question, why they believe such a precedent does or does not apply. Companies choosing to exclude a proposal on the basis that it has been substantially implemented or that it conflicts with a proposal being put forward by the company should clearly explain their reason(s) for any significant deviations of the company’s relevant implemented practice from the terms of the shareholder proposal, or how it conflicts with the relevant proposal being put forward by the company.
In certain cases, failure to present a clear and compelling argument for the exclusion of a proposal could be viewed as a governance failure, leading to ISS highlighting the exclusion for our clients’ information through direct reference in the report, contentious flag at the proposal level, or, in rare cases based on case-specific facts and circumstances, a recommendation to vote against one or more agenda items (which may be individual directors, certain committee members or the entire board).”
Authored by
Broc Romanek