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Highlights of Institutional Shareholder Services 2016–2017 Policy Survey

On September 29, Institutional Shareholder Services Inc. (ISS) released the results of its annual policy survey, providing insight into potential updates to the ISS benchmark voting guidelines for the 2017 proxy season. Later this month, ISS will publish draft policy updates and open a comment period to give institutional investors and other market participants an opportunity to offer input on the proposed policy changes’ implementation. ISS expects to issue its final benchmark policy update for the 2017 proxy season in mid-November to take effect February 1, 2017.

This year, ISS received 439 survey responses from 417 organizations (largely institutional investors and corporate issuers), a slight increase from last year’s survey. A majority of responses came from organizations based in the United States, but groups based in Canada, Europe, the Asia-Pacific, and developing markets, many with a global focus, also responded. Approximately one-third of investor responses came from institutions that own or manage at least $100 billion in assets, with fewer responses from small investors compared to last year.

The survey’s goal is to provide feedback to ISS on various compensation-related topics. A few key survey findings that may be useful to public companies preparing for the 2017 proxy season are summarized below.

Say-On-Pay Frequency

Under the Dodd-Frank rules adopted in 2011, US companies are required to hold say-on-pay frequency votes at least every six years, and many will hold these votes at their 2017 annual shareholder meetings. In response to whether survey participants favored annual or less frequent (biennial or triennial) say-on-pay votes, two-thirds of institutional investor respondents favored annual say-on-pay votes, with one survey respondent commenting that annual say-on-pay is the “governance norm.” Another 11% of investor respondents favored biennial votes, while 7% favored triennial votes. The remaining 17% felt that say-on-pay frequency should depend on company-specific factors, such as financial performance and problematic pay practices.

Of the noninvestor respondents, 42% favored annual say-on-pay votes, while 7% and 19% favored biennial and triennial votes, respectively. The remainder felt that the frequency should depend on company-specific factors, such as financial performance, the level of shareholder support for say-on-pay at prior meetings, and problematic pay practices.

Board Refreshment

Board refreshment is a key issue for institutional investors, many of whom are focused on adding new skill sets and diversity to their boards and ensuring that directors with lengthy tenure remain independent. For 53% of investor respondents, the lack of newly appointed independent directors in recent years raised concerns about a board’s nominating and refreshment processes. For 51% of respondents, lengthy average board tenure (average tenure greater than 10 or 15 years) is a concern, and 68% indicated that a high proportion of long-tenured directors (three-fourths of the board having tenure of 10 years or more) would also be problematic. Board tenure is not a concern for 11% of investor respondents. The comments highlighted other areas of concern, such as lengthy average director tenure combined with underperformance.

Noninvestors were also potentially concerned about a lack of newly appointed independent directors (26%), lengthy average director tenure (19%), and a high proportion of directors with lengthy tenure (31%). Another 34% of noninvestors indicated that lengthy tenure alone is not a concern but also indicated that a lack of board refreshment would be problematic. A number of commenters noted that lengthy director tenure could be advantageous to a board by giving directors the “confidence and stature to challenge management” and the ability to offer historical perspective, suggesting that a lack of relevant skills and experience could possibly be of greater concern than long tenure.


The survey also solicited feedback on the appropriate “overboarding” standard for an executive chair who is not the company’s CEO. Currently, an executive chair is considered overboarded if he or she serves on more than five total boards (the same policy that applies to nonexecutive directors). Another alternative would be to evaluate an executive chair who is not the company’s CEO under the same overboarding standard that applies to the CEO. Under the current ISS benchmark policy, a CEO who serves on more than three boards (including the CEO’s home company board) will be deemed to be overboarded, possibly triggering an adverse vote recommendation.

A majority of investor respondents (64%) favored applying the stricter CEO standard, thereby limiting the total number of boards on which an executive chair may serve to three (including the home company board). The remainder of investors (36%) favored the more lenient standard that applies to nonexecutive directors (limiting service to a maximum of five boards). In contrast, the majority of noninvestors (62%) preferred the more lenient standard, while 38% responded that the stricter CEO standard should apply.

Some investors expressed support for even stricter limits on board service, while others felt that these determinations should be left to the board. One respondent indicated that because similar compensation levels for CEOs and executive chairs imply similar responsibilities, the same standard should apply to both. However, others noted that an executive chair’s role differs among companies and therefore it would be difficult for shareholders to determine the appropriate number of outside boards on which an executive chair should serve. Some noninvestors suggested that an executive chair might have the flexibility to serve on more outside boards depending on his or her role in the company’s day-to-day management, while others opposed fixed limits on board service and indicated that overboarding determinations should be made on a case-by-case basis.


As is typical with this annual policy survey process, it is uncertain at this point which, if any, policy changes or updates ISS may ultimately adopt for the 2017 proxy season. We will continue to monitor developments in this area and post summaries of draft and final ISS benchmark policy updates. Although company directors and management will want to take ISS recommendations into account on executive compensation and governance matters, companies will need to evaluate their own specific circumstances when implementing any policy changes.

Copyright © 2022 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume VI, Number 298

About this Author

Jill Weintraub, Morgan Lewis,labor and employment lawyer
Of Counsel

Jill L. Weintraub focuses her practice on a variety of employee benefits and executive compensation matters, including the design, implementation and administration of equity and incentive compensation plans, nonqualified deferred compensation plans, tax-qualified retirement plans, employment agreements, and severance programs. She also advises domestic and multinational companies on employee benefits and compensation-related aspects of mergers, acquisitions, financings, and other corporate transactions and on a broad range of legal, regulatory, and governance issues...

Laurie Cerveny, Morgan Lewis, Securities Attorney

Laurie A. Cerveny is an accomplished corporate, M&A, and securities lawyer. She has extensive experience counseling US and foreign issuers and their boards on mergers and acquisitions and the ongoing disclosure and reporting requirements of public companies, corporate governance matters, annual meeting and proxy-related issues, securities laws, SEC rules, stock exchange listing requirements, executive compensation, and various other matters affecting public companies and their officers and directors. Laurie is a deputy practice leader of the M&A...