ISS Announces 2019 Benchmark Policy Updates

ISS GovernanceInstitutional Shareholder Services Inc. (ISS), the leading provider of end-to-end governance and responsible investment solutions to the global financial community, today released updates to its 2019 benchmark proxy voting

policies for the Americas, EMEA, and Asia-Pacific regions. The updated policies will generally be applied for shareholder meetings on or after Feb. 1, 2019.

To ensure its voting policies take into consideration the changing views and needs of its institutional investor clients and the perspectives of companies and the broader corporate governance community, ISS gathers input each year from institutional investors, companies, and other market constituents worldwide through a variety of channels and over many months. The updates announced today have been informed by the careful consideration of the many inputs received.

Among the updates, ISS is announcing a new voting policy with respect to U.S. companies with no female directors serving on their boards, with a year’s grace period before implementation. The new policy will be effective for meetings on or after Feb. 1, 2020, and will be applicable for companies in either the Russell 3000 or S&P 1500 indices. After the year-long grace period, which will allow boards who wish to do so time to recruit qualified female candidates, adverse voting recommendations may be issued against nominating committee chairs at boards with no gender diversity. Under the policy as it will be implemented in 2020, ISS will generally issue recommendations against the election of the chair of the nominating committee, but on a case-by-case basis, the election of other directors who are responsible for the board nomination process may be impacted (for example, at companies with no formal nominating committee). ISS will also consider case by case any exceptional circumstances explaining the absence of board gender diversity.

During the 2019 annual meeting season, ISS research reports on companies in the U.S. and Canada will feature Economic Value Added (EVA) data as a supplement to GAAP-based measures. Moving into 2020, ISS will consider the inclusion of EVA-based measurements as part of its Financial Performance Assessment methodology.

“We are pleased to have received much thoughtful feedback and inputs from a broad range of institutional investors, companies and other interested market constituents as part of our annual policy development process this year, and on a wide variety of topics,” Georgina Marshall, Global Head of Research and Chair of the ISS Global Policy Board. “The policy changes we are announcing today have been carefully considered and are designed to underpin the needs of our institutional investor clients for informed and relevant research and recommendations based on widely recognized good standards of, and approaches to, corporate governance.”

For its UK/Ireland and Continental European policies, in 2019, ISS will track significant audit quality issues, with a focus on accounting controversies, at the lead engagement partner level, wherever such information is available. Where the information is available, ISS research reports will note any lead audit partners who have been linked with significant auditing controversies and, where they are also identified as being engaged in the audit for other public companies, this connection will be raised for investor attention. A negative vote recommendation on auditor ratification may be applied in the most serious cases, e.g. where the lead audit partner has previously been linked with a corporate failure scenario or other material destruction of shareholder value arising from fraud or other accounting issues.

In Japan, ISS is implementing a new independence criterion for Japanese company directors and statutory auditors. ISS will classify both directors and statutory auditors who work (or worked) at companies whose shares are held by the company in question as “cross-shareholding shares,” as non-independent directors.

The ISS benchmark policies as updated heading into 2019 also cover board gender diversity in Canada, director independence and tenure in Latin American markets, audit committee independence across Europe, board independence & disclosure in Taiwan, and both auditor fees and audit committees in the India and Asia Pacific regions.

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