Earlier today, Institutional Shareholder Services Inc. ("ISS") released its proposed changes to its "Proxy Voting Guidelines" that may become effective for 2020 annual meetings. Three proposed policy changes would affect U.S. public companies.
First, ISS proposes to clarify its director-voting policy for newly public companies with dual-class voting structures. Previously, ISS would generally recommend against directors of such companies but consider sunset provisions as a mitigating factor. ISS now explicitly proposes to recommend against directors if the sunset period is longer than seven years after the IPO.
Second, ISS proposes to clarify its policy on its support for stockholder proposals to implement an independent chairman of the board. While ISS states that it will still review the company's governance and performance holistically, it now lists several factors that will increase the likelihood of ISS's support of the stockholder proposal, including (a) a weak or poorly defined lead independent director role, (b) a non-independent chair and (c) a recent departure from an independent chair structure. With regard to (a), ISS has previously set forth its expectations for the responsibilities of the lead director and many companies have now included them in their corporate governance guidelines.
Finally, ISS proposes to add a policy for management proposals for approval of a stock repurchase program. ISS says it would generally recommend in favor of such a proposal, unless there are concerns regarding, among other things, the company's long-term viability or manipulation of incentive compensation metrics. This likely will have little impact on Maryland companies because the board of a Maryland corporation can approve a stock repurchase program without prior stockholder approval.
Interested parties may submit responses to ISS's proposals during its "open comment" period ending at 5:00 p.m., Eastern Time, on October 18, 2019. We are available, as in prior years, to assist in preparing responses to ISS, including for clients wanting to remain anonymous. While we often disagree with ISS's policies, we applaud it for again soliciting the views of market players. ISS typically releases its final policy changes for the following proxy season in late November.
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As always, our colleagues and we are available at any time to discuss these or other matters of Maryland law.