ISS Proxy Voting Survey Due Friday at 5:00 pm ET

ISS Proxy Voting Survey – Hall of Mirrors

Attention everyone who thinks ISS has too much say over how proxies are voted. It might be a good time for you to see how those policies are actually developed. No, ISS doesn’t develop its policies by reviewing all the academic research to determine which types of proxy proposals create value or are correlated with value creation (Do ISS Voting Recommendations Create Shareholder Value?, David F. Larcker, Brian Tayan) Instead, the ISS proxy voting survey essentially asks subscribers to tell ISS how it should advise their subscribers to vote.

When I first heard about this years ago, it felt like looking down a never ending hall of mirrors. You ask me how shareholders should vote; then, when voting time comes, you remind me what I said. Of course, not all ISS clients will have anything to say about every issue and a large number probably do not have the staff to be researching proxy voting issues and policies. It is a little like one of those Lost on the Moon exercises you may have taken in one of your classes on group dynamics. In most cases, the group will be smarter than the individual participants. The same principles apply in creating a proxy voting policy. 

Some of the issues are complex and are likely to be skipped over by individuals and funds with little research capability. Therefore, I suspect that large fund subscribers such as BlackRock and CalPERS, with lots of resources, have disproportionate say.

ISS Proxy Voting Survey: Stinson Leonard Street

Here’s how Jill Radloff summarized the event for clients of Stinson Leonard Street. 

ISS has commenced its 2016 proxy voting policy survey. Some of the issues ISS seeks comment on include:

• Is it appropriate to use non-GAAP or adjusted GAAP metrics for compensation programs?

• What types of equity compensation are appropriate for non-executive directors?

• When should a net operating loss poison pill be opposed?

• What types of unilateral charter or by-law amendments warrant holding directors accountable on a long-term basis?

• If a board adopts a proxy access by-law that has material restrictions not included in a successful shareholder proposal, what restrictions are problematic enough to warrant a “withhold” or “against” vote for directors?

• When is a director considered “overboarded”?

• What should be considered when determining whether a former executive, other than a CEO, is considered independent?

• What metrics, if included in the ISS report, would be helpful in assessing capital allocation decisions, share buybacks and the efficacy of board stewardship?

ISS Proxy Voting Survey: Sidley Austin LLP

Even more complete guidance is provided by Holly J. Gregory a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. See her post on the Harvard corporate governance blog at ISS 2016 Proxy Voting Policy. 

ISS Proxy Voting Survey: Concluding Advice

I took the survey myself. One series of questions that I have to think more about involved enhanced voting rights for long-term shareholders in Europe. See Dallas, Lynne and Barry, Jordan M., Long-Term Shareholders and Time-Phased Voting (July 2, 2015); EU lawmakers back rewards for long-term shareholders, and Revision of the shareholders rights directive: it’s a long way home. I’m also wondering about applicability to companies in the US and would love to hear from readers.

If you are planning to take the survey, I suggest you download the questions first so that you can study them and come up with your responses before completing it online. Remember, the deadline is this Friday at 5 pm, Eastern Time.