ISS’ new proxy voting recommendations guidelines
28/08/2014
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ISS is the world’s most influential proxy adviser and, arguably, also in Australia. So it is important for directors to be aware of changes in the benchmark policy guidelines ISS uses to determine its Australian proxy voting recommendations. Unfortunately, the revised guidelines, released on 31 July 2014, are effective for meetings on or after 1 October 2014. Which means that again this year board directors have not been able to know exactly how proposed shareholder resolutions will be assessed before making their decisions on the relevant matters. For various reasons, the timing of new guidelines is not likely to change. So the best directors can do is be aware of the guideline changes in order to determine if any last minute engagement processes are required.

In this regard, ISS is open to engagement during the proxy season if it is warranted. At the joint Guerdon Associates and ISS Symposium for directors and investors on the new guidelines held in Sydney on 20 August, ISS reiterated that it is their policy to engage, and cited an example of how an engagement meeting with a company can result in ISS supporting a resolution they would otherwise have opposed. However, it would be easier for all concerned for companies to be as fulsome in their disclosures as possible to minimise the chances that such additional effort will be required.

The new ISS guidelines can be found HERE.

In summary, changes to ISS proxy voting guidelines (with the page reference number) include the following:

p. 5 – Addition of policy on proposals to adjourn/postpone meetings

p. 10 – Director classification – reduction of tenure/independence relationship from 20 to 12 years

p. 10 – Election of directors – there is a new requirement for a board risk committee with an expectation of good disclosure, and ISS may consider the level of disclosure related to the risk committee in its voting recommendations on the election of directors

p. 10 – Election of directors – there is a new policy on the disclosure and evaluation of a board skills matrix, and ISS may consider this information in its director election recommendations

p. 11 – Election of directors – there is a new policy to vote against audit committee members if non-audit fees are excessive. This is more aggressive than in previous years.

p. 13 – Remuneration Report – in a new and specific policy, ISS will assess the appropriateness and quality of the company’s disclosure linking identified material business risks, as required to be disclosed in the operating and financial review (OFR) under section 299A of the Corporations Act (in accordance with ASIC Regulatory Guide 247) and the predetermined key performance indicators that determine annual variable executive remuneration outcomes. As we noted in the Symposium, this is an additional focus on downside risk mitigation. It will catch many ASX 300 companies unaware. However, ISS acknowledged that there will be a ‘breaking-in period’ whereby they will be prepared to provide some leeway in the initial year. However, if in doubt, engage! 

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