On November 21, 2016, Institutional Shareholder Services (ISS) released final changes to its voting policies for 2017. One of ISS’s changes is the adoption of a new policy to recommend against the election of Nominating & Corporate Governance (NCG) committee members of any company that eliminates or imposes “undue restrictions” on its stockholders’ ability to unilaterally amend its bylaws (i.e., submit a binding stockholder proposal to amend the company’s bylaws under Rule 14a-8). This change had previously been included among ISS’s proposed changes for 2017 that were released in October. As noted in our prior Alert regarding the proposed change, many REITs that are incorporated in Maryland have provisions in their charter and/or bylaws stating that the bylaws may only be amended by the board of directors. ISS’s new voting policy will result in recommendations against NCG committee members at these REITs unless and until they take action to change these provisions. The updates to ISS’s voting policies for 2017 may be found on ISS’s website.
As a result of this new voting policy, REITs that currently do not permit stockholders to unilaterally amend their bylaws should ensure that their board members are aware of expected ISS recommendations based on this issue and consider what, if any, action to take prior to their 2017 annual meeting. Among other things, REITs may consider engaging in informal outreach to their largest stockholders regarding this issue, amending their bylaws (and/or proposing amendments to their charter, if required) to eliminate or modify the provision requiring board approval for bylaw amendments, submitting binding or non-binding proposals to its stockholders regarding these provisions or taking a wait-and-see approach based on the outcome of their annual meetings.
ISS also adopted other changes to its voting policies that will be of interest to REITs, including the formalization of its voting policy with respect to non-employee director compensation programs and a change in how it evaluates equity-based compensation plans to specifically take into account whether the plan permits payment of dividends with respect to unvested equity awards. REITs planning to submit a non-employee director compensation program or equity-based compensation plan to stockholders at their 2017 annual meetings should consider the potential impact of these changes in ISS’s voting policies.