ISS Launches Open Comment Period for 2023 Proposed Benchmark Voting Policy Changes

ROCKVILLE, Md. (November 4, 2022) – Institutional Shareholder Services Inc. (“ISS”), a leading provider of corporate governance and responsible investment solutions to the global financial community, today announced the launch of its open comment period on proposed changes to its benchmark voting policies. The open comment period elicits views from governance stakeholders globally with regard to a number of ISS’ proposed voting policy changes for 2023 and beyond, and will run through 5:00 p.m. ET on November 16, 2022.

To ensure ISS’ benchmark voting policy changes take into consideration a broad range of perspectives, including the views of institutional investors globally and those of the broader corporate governance community, ISS gathers input each year from institutional investors, companies, and other market constituents through a variety of channels and mediums. Following the recent release of the results of our 2022 Global Benchmark Policy Survey, we now make available for public comment a number of proposed changes to ISS’ benchmark voting policies for 2023. Feedback is invited from all interested parties on 17 proposed policy changes, including on the following topics:

• Climate Board Accountability For 2023, for the limited universe of high emitting companies, proposed to be continued to be identified as those in the Climate Action 100+ Focus Group, ISS proposes to extend globally the policy on climate board accountability first announced last year and introduced in selective markets for 2022, and to update the factors considered under the policy. Under the proposed change, the same analysis framework will be used for all Climate Action 100+ Focus Group companies globally, but with differentiated implementation of any negative vote recommendations depending on relevant market and company factors (for example, voting item availability).

• Board Diversity – Canada and U.S. Board diversity remains an important issue for many investors, and policy changes are proposed to reflect this. After a one-year grace period, in 2024 Canadian S&P/TSX Composite Index constituents will be expected under the proposed updated policy to have at least one racially/ethnically diverse director. In the U.S.  and as previously announced in 2021, the existing policy expecting at least one woman on the board for Russell 3000 and S&P1500 companies will apply to all U.S. companies from 2023. The board gender diversity policy for U.S. Foreign Private Issuers (FPIs) previously applicable only to Russell 3000 and S&P 1500 FPIs will similarly be expanded for 2023 to all FPIs covered under the policy. 

• Board Accountability, Problematic Governance Structures – U.S. Continental Europe and Sub-Saharan Africa For the U.S. policy on companies with unequal voting rights capital structures, the one-year transition period applied for 2022 delaying adverse vote recommendations for companies previously exempted will end from 2023. So from 2023, ISS proposes to start recommending “against” directors at all companies with unequal voting right structures, including at companies that were previously grandfathered under existing policy. A de minimis exemption for unequal voting rights is proposed as 5 percent of total voting power. For the Continental European policy, a similar policy for companies  with unequal voting rights capital structures is proposed for all widely-held companies, with any adverse vote recommendations under the proposed policy to be either “against” individual director elections or the approvals for discharge of  directors, depending on the market. This would apply from 2024 after a one-year transition period. For the U.S. policy on companies that go public with other problematic governance structures (such as classified boards and supermajority vote requirements), a policy change is proposed to set the definition of a “reasonable sunset period” to be no more than 7 years from the date of going public for full implementation. For Sub-Saharan Africa, there is a proposed policy change to recommend “against” bundled slate board elections, as a separate ballot item for each director is now an established market practice in the region and viewed as a good governance practice. 

• Board-Related Proposals, Officer Exculpation – U.S. In the U.S., Delaware General Corporation Law was amended in August 2022 to permit corporations to limit or eliminate the personal liability of officers for claims of breach of the fiduciary duty of care. For the U.S. policy, ISS is proposing to generally recommend “for” proposals providing for officer exculpation provisions in a company’s charter. As with director exculpation already permitted under Delaware law and covered under existing ISS policy, officer exculpation would not apply in cases of breach of the duty of loyalty, acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law, or any transaction in which the officer derived an improper personal benefit.

• Capitalization For U.S. domestic issuers incorporated outside the U.S. and listed solely on a U.S. exchange, we are proposing to introduce a policy to generally recommend a vote “for” resolutions to authorize the issuance of common shares up to 20 percent of currently issued common share capital, where not tied to a specific transaction or financing proposal, to better reflect the expectations and concerns of investors in the U.S. market.

• Social & Environmental Shareholder Proposals – U.S. In the U.S., ISS is proposing to introduce a new specific policy on shareholder proposals that request company transparency on the congruency of political contributions and lobbying with the company’s public commitments and policies, including lobbying related to its climate goals. These types of proposals have been growing in number in recent years and current ISS policy related to transparency of political contributions and lobbying expenditures does not cover political spending and lobbying congruency directly. The proposed new policy will provide more transparency to the market about how such shareholder proposals are assessed, and codify previous practices implemented in the 2022 proxy season. 

Access all 17 proposed policy changes for comment here.

Comments received will be considered as ISS finalizes the updates to its 2023 benchmark voting policies.

ISS expects to announce its final 2023 benchmark policy changes in or around the first week of December 2022.

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About ISS

Founded in 1985, Institutional Shareholder Services group of companies (ISS) empowers investors and companies to build for long-term and sustainable growth by providing high-quality data, analytics and insight. ISS, which is majority owned by Deutsche Börse Group, along with Genstar Capital and ISS management, is a leading provider of corporate governance and responsible investment solutions, market intelligence, fund services, and events and editorial content for institutional investors and corporation globally. ISS operates on an arm’s-length basis and Deutsche Börse has adopted Principles protecting the independence and integrity of ISS’ research offerings. ISS’ 2,600 employees operate worldwide across 29 global offices in 15 countries. Its approximately 3,400 clients include many of the world’s leading institutional investors who rely on ISS’ objective and impartial ESG and governance research, market intelligence and fund services and data and analytics, as well as public companies focused on ESG and governance risk mitigation as a shareholder value enhancing measure. Clients rely on ISS’ expertise to help them make informed investment decisions.

Media Contact:
Sarah Ball, Executive Director, Communications
+44-203-192-5728
sarah.ball@issgovernance.com