ISS issues pandemic guidance note for proxy advice
09/04/2020
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ISS released its proxy advice Guidance Note in relation to COVID-19 on 8 April.

ISS referenced its ability to apply discretion on specific company issues, in effect echoing Glass Lewis’s pragmatic response. Some may query this, given what they see as ISS propensity to more strictly follow its written guidelines without deviation. This has been a differentiator, to the extent that ISS’s more rigid adherence to its written policy guidelines ensure reliability of assessments across companies and regions.

The matters covered by the ISS guidance note include:

  • AGM postponements. ISS acknowledges that health and safety concerns must be paramount this year. It will be positively noted when companies use webcasts, conference calls and other electronic communications to engage with investors, even if meetings have been postponed.
  • Virtual-only meetings. In markets where ISS benchmark policy discourages virtual-only meetings and their use is allowed by law without amendment of bylaws, ISS will alter its policy so as not to make adverse vote recommendations until it is safe to hold in-person meetings again. If boards opt to hold virtual-only meetings, they should disclose clearly their reasons and strive to provide shareholders with a meaningful opportunity to participate as fully as possible, including being able to ask questions of directors and senior management and engage in dialogue. Boards are encouraged to commit to return to in-person or hybrid meetings (or to put it to shareholders to decide) as soon as practicable.
  • Director attendance. While disclosures related to directors’ attendance should be sensitive to privacy concerns regarding an individual’s health, they should provide adequate information to allow shareholders to make informed judgments about absences from board and committee meetings. This will be important, we expect, given concerns that some professional directors may be over-boarded to deal with a pandemic.
  • Changes to the board or senior management. ISS states that it believes that boards should have broad discretion during this crisis to ensure that they have the right team in place and will adjust the application of its policies as appropriate for the exceptional circumstances. If boards need to fill vacancies due to the disability or incapacity of a director or need to urgently add critical expertise to their ranks to address concerns created by the pandemic, appropriate case-by-case consideration will be given, assessing any explanation provided by the company regarding the changes to the boardroom roster. ISS policies already provide flexibility in cases where board members may need to fill senior executive roles on an interim basis such as due to the disability or incapacity of an existing member of the management team.
  • Compensation issues. Boards are encouraged to provide contemporaneous disclosure to shareholders of their rationales for making any changes to performance metrics, goals or targets used in short-term compensation plans. This would be unusual for an ASX-listed company. Given we know of several ASX-listed companies adjusting in-year targets, careful consideration should be given to how and when target setting was amended. In most cases, the annual remuneration report may suffice. Regarding long-term compensation plans, ISS will look at any in-flight changes on a case-by-case basis to determine if directors exercised appropriate discretion and provided adequate explanation of the rationale; and will assess structural changes under existing benchmark policy frameworks. If boards seek shareholder approval/ratification of repricing actions at 2020 meetings, it will apply its existing policy for the market. For most ASX-listed entities, in-flight changes to LTI targets are unlikely given shareholder approvals for specific CEO grants subject to specific performance requirements.
  • Capital raisings: ISS’s existing policy framework will be applied to general authorisation and share issuance requests, adapted to take account of regulatory relaxations or new guidance as a result of the crisis.

ISS proposes to update this guidance or provide new information as needed throughout the remainder of the 2020 main proxy season.

See the ISS press release for the new guidance HERE .

See the new Guidance Note HERE.

See the Glass Lewis response HERE.

For a contrast to both the ISS and Glass Lewis response, see the UK based PIRC view HERE.

© Guerdon Associates 2021
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