ISS announced today that:
Calls for independent board chairs were the most prevalent type of shareholder proposal offered for consideration at U.S. companies’ annual meetings in 2014. As of Oct. 31, 63 of these proposals came to a shareholder vote, up from 59 resolutions over the same time period in 2013. ...
ISS' current policy is to generally recommend for independent chair shareholder proposals unless the company satisfies all of the following criteria:
The company designates a lead director, who is elected by and from the independent board members with clearly delineated and comprehensive duties.
The board is at least two-thirds independent.
The key board committees are fully independent.
The company has disclosed governance guidelines.
The company has not exhibited sustained poor TSR performance (defined as one- and three-year TSR in the bottom half of the company's four digit industry group, unless there has been a change in the CEO position within that time).
The company does not have any problematic governance issues.
This "Generally For" policy is updated by adding new governance, board leadership, and performance factors to the analytical framework and to look at all of the factors in a holistic manner. New factors (not explicitly considered under the current policy) include the absence/presence of an executive chair, recent board and executive leadership transitions at the company, director/CEO tenure, and a longer (five-year) TSR performance period.
ISS believes that a more holistic review of each company's board leadership structure, governance practices, and financial performance will strengthen the application of this policy. Under the proposed revisions, any single factor that may have previously resulted in a "For" or "Against" recommendation may be mitigated by other positive or negative aspects, respectively.
ISS did this despite the fact that the evidence clearly does not support any sort of presumption in favor of independent board chairmen:
Comment on the 2015 ISS Benchmark Policy Consultation re ... The solution is to adopt bylaws that allow the independent boardmembers to call special meetings, require them to meet periodically outside ...Davis Polk on ISS Policy re Combined CEO and Chairman of the ... on the 2015 ISS Benchmark Policy Consultation re Independent Chair ... on what the board believes to be optimal under the circumstances.
5 days ago ... Randi Val Morrison makes a good argument for "tolerance of multiple ... Academic bias against conservatives is so real even The New Yorker ...
ISS also did this despite having allowed only only seven business days to pass after comments are due before making the announcement. Clearly, ISS' comment period was a sham and fig leaf. There is no way they processed and gave serious consideration to comments ion one week. No way.
Finally, the new policy is especially pernicious. By definition "holistic" approaches to anything vests essentially unreviewable discretion in the decision maker. And therein lies the problem.
ISS advises institutional investors how to vote proxies and provides consulting services to corporations seeking to improve their corporate governance. Critics contend that corporations could feel obligated to retain ISS’s consulting services in order to obtain favorable vote recommendations.
"Holistic" review thus could work like this: Acme Corp. receives a shareholder proposal for an independent board chairman. Most if not all of the factors ISS identifies as relevant point towards a "FOR" recommendation. But Acme suddenly hires ISS as a governance advisor. So ISS "holistically" decides on an "AGAINST" recommendation.
Or it could be even worse: Ajax Inc. receives a shareholder proposal for an independent board chairman. Most if not all of the factors ISS identifies as relevant point towards an "AGAINST" recommendation. But because Ajax does not use ISS as a governance advisor, ISS "holistically" decides on a "FOR" recommendation. The proposal fails but narrowly. Ajax wises up and hires ISS as a governance advisor. The following year Ajax gets a similar proposal, but now ISS "holistically" decides on an "AGAINST" recommendation.
Put proxy advisory reform on the agenda of the new GOP majorities in Congress. Today.