Earlier this month, Institutional Shareholder Services ("ISS") released its annual global benchmark policy survey (the "ISS Survey"). The ISS Survey includes questions on "hot topics" in corporate governance, and its results will inform changes to ISS's benchmark voting policies for 2023. The ISS Survey may be completed on a voluntary basis by any interested issuer, board member of an issuer, institutional investor or advisor to an issuer or institutional investor. While respondents must disclose their identity in the survey, ISS will not share individual survey responses or respondent details with anyone outside of ISS or use the responses other than for policy development purposes. As a reminder, the deadline to complete the ISS Survey, available here, is Wednesday, August 31 at 5 PM ET. The ISS Survey covers the below topics of potential interest to issuers.
- Climate Change Risk Management (US Issuers and Issuers in Various Other Markets): In the last two years, ISS overhauled its US, Continental Europe and UK & Ireland benchmark voting policies to address climate change risk management and disclosure by issuers.1 The ISS Survey allows participants to weigh in on (i) what should be considered a "material governance failure" for significant greenhouse gas ("GHG") emitters, justifying a recommendation for shareholders to vote "against" directors at such issuers,2 (ii) whether ISS should extend its policy on Climate 100+ companies to markets other than those mentioned above, (iii) what factors ISS should use to assess the adequacy of an issuer's climate change transition plan when reviewing "say on climate" proposals, (iv) whether climate risk considerations should be a critical audit matter in audit reports, and (v) what investors should reasonably expect from issuers in the finance sector on GHG emissions associated with their lending, investment and underwriting portfolios.
- Dual-Class Stock (US Issuers): In 2021, ISS expanded its policy on dual-class capital structures to recommend, beginning in 2023, a vote against directors on boards of newly public companies with such structures, regardless of when they went public.3 The ISS Survey asks participants to identify the circumstances when ISS should make exceptions to this policy, including, among other things, where super-voting shares make up only a small percentage of total voting power.4
- Problematic Governance Structures (US Issuers): ISS will generally recommend a vote against directors at newly public companies with problematic governance structures, including a classified board and/or supermajority requirements to amend the bylaws or charter, taking into account, as one mitigating factor, a "reasonable" sunset provision. The ISS Survey gives participants the opportunity to weigh in on (i) what amount of time constitutes a "reasonable" sunset provision, (ii) whether smaller issuers should be exempt from the policy, and (iii) what threshold for a supermajority vote requirement should be considered "problematic."
- Racial Equity Audits (US Issuers): ISS will recommend voting on independent racial equity and/or civil rights audit shareholder proposals on a case-by-case basis.5 The ISS Survey seeks input on the factors that should be considered in this analysis.
- Share Issuance Mandates ("Cross-Market" Companies): The ISS Survey allows participants to weigh in on how ISS should treat share issuance proposals by issuers incorporated outside the US but deemed "domestic" issuers under US Securities and Exchange Commission rules, as well as foreign private issuers.6 ISS seeks input on whether it should continue to apply its policies for the issuer's market of incorporation or develop US-specific policies for these issuers.
As in prior years, ISS will solicit more input over the summer through regionally based, topic-specific roundtable discussions. In addition, as in prior years, after analysis and consideration of the survey results and other key inputs, ISS will open a public comment period in October 2022 on key proposed policy changes before releasing its final 2023 policy updates in late 2022. More information on ISS's policy development process is available here.
1 For more information, see our prior alerts from 2020 and 2021.
2 ISS currently considers issuers in the Climate 100+ Focus Group to be significant GHG emitters.
3 For more information, see our prior alert from 2021.
4 In the ISS Survey, ISS states that it "plans to apply a 'de minimis' exception in cases where the capital structure is not deemed to meaningfully disenfranchise public shareholders."
5 For more information, see our prior alert from 2021.
6 ISS policies on share issuance mandates generally are based on local codes of best practice that may not otherwise be applicable to companies without a local stock market listing.
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2022 White & Case LLP