December 8, 2015

ISS Policy Changes for the 2016 Proxy Season

ISS recently updated its proxy voting policy guidelines for 2016, which will be effective for shareholder meetings held on or after February 1, 2016. The principal changes in the ISS 2016 updates are summarized here, together with two other recent ISS developments that may be of interest to public companies.

Proxy Access

ISS has determined not to alter its basic approach to management and shareholder proxy access proposals for 2016. However, ISS has stated that it expects to release a FAQ in December 2015 that will provide more information on which additional provisions in proxy access proposals ISS considers to be overly restrictive. The FAQ will also clarify the analytical framework that ISS will use in developing its policies for analyzing proxy access nominations. ISS has stated that it expects that this framework will be conceptually similar to the analytic framework that ISS uses to analyze proxy contests, but will be tailored to the factors that might lead a shareholder to pursue change through proxy access nominations rather than a contested solicitation.


Current ISS policy considers a director “overboarded” if the director sits on more than six public company boards (or, if the director is also a CEO, more than three public company boards including the CEO’s “home board”). For 2016, ISS has adopted policy changes on overboarding that will phase in over a two-year transition period. 

  • 2016. For 2016, ISS will issue cautionary language in its research reports if a director is serving on more than five public company boards, and will issue a negative recommendation for any individual director who serves on more than six public company boards.
  • 2017. Starting in February 2017, ISS will issue negative recommendations for a director who serves on more than five public company boards. 
  • CEO Directors. ISS considered – but did not adopt – changes to its current policy on CEOs who serve as directors of other public companies.  For 2016, ISS will continue to recommend a withhold vote for a CEO’s director positions on outside boards in cases where the CEO serves as a director of more than two public companies in addition to the director’s own company.

Unilateral Bylaw and Charter Amendments

Current ISS policy provides for adverse vote recommendations on individual directors or the full board at the next annual meeting when a unilateral board amendment of the bylaws or charter adversely affects shareholder rights. Current ISS policy takes into consideration a large number of factors, including the board’s rationale for adopting the amendment without shareholder ratification, disclosure of any significant shareholder engagement about the amendment and the extent to which an amendment impairs shareholders’ rights, among other factors, in determining whether to make a negative recommendation on director elections.

For 2016, ISS has modified its policy on unilateral bylaw and charter amendments to distinguish provisions adopted prior to or in connection with an IPO from provisions adopted by companies that are already public. ISS will consider these actions in determining voting recommendations for director nominees until the board of directors reverses the action or submits the action to a binding vote of public shareholders, with the following differences between IPO companies and existing public companies:

  • IPO Companies. For newly public companies that have taken action that diminishes shareholder rights prior to or in connection with the IPO, the updated policy calls for a case-by-case approach in subsequent years, with significant weight given to the ability of shareholders (1) to change the governance structure in the future through a simple majority vote and (2) to hold directors accountable through annual director elections.
  • Current Public Companies. For existing public companies, the updated policy generally calls for ISS to continue to recommend withhold votes from directors who have unilaterally adopted a classified board structure or implemented supermajority vote requirements to amend the bylaws or charter.

Compensation of Externally Managed Issuers

In a change from current policy, failure by an externally managed issuer to provide sufficient disclosure for shareholders to reasonably assess compensation for the named executive officers will be deemed a problematic pay practice. As a result, ISS will generally recommend a vote against the externally managed issuer’s say-on-pay proposal.

Other Recent ISS Developments

  • Peer Groups. Companies that have updated their self-selected peer group since their 2015 proxy statement should submit this information to ISS before December 11, 2015 at 8 p.m. ET. Information and the submission form are available on the ISS web site.
  • Updated Equity Plan Scorecard. ISS has revised its U.S. Equity Plan Scorecard Frequently Asked Questions. The new revision, which is effective for meetings on or after February 1, 2016, principally changes various scoring and name elements. The revised scorecard FAQ  is available on the ISS web site.