January 28, 2022

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ISS (Institutional Shareholder Services) Releases QuickScore 2.0 Ratings

ISS has released a modified governance ratings methodology called QuickScore 2.0.  QuickScore analyzes and quantifies corporate governance under four pillars: board structure; shareholder rights; executive compensation; and audit.  Companies are assessed a numerical rating from one to ten among each of the four pillars and are also given a comprehensive numerical rating.  A score of one indicates lower governance risk, and a score of ten indicates higher governance risk.  QuickScore reports are included in ISS proxy reports and are available on Yahoo! Finance.  In a change from its past practice, ISS is now updating company governance ratings on an ongoing basis based on company disclosure.

QuickScore 2.0 includes a number of new governance factors, listed below:

  1. Director Tenure: QuickScore now considers tenure of more than nine years to be excessive because, in ISS’s view, extended tenure may compromise a director’s independence from management.

  2. Director Approval Rates: QuickScore considers the percentage of directors who received less than 95% shareholder approval.

  3. Director Compensation: QuickScore collects data on the prior year’s average outside director’s pay (based on total compensation reported for each director in the proxy statement) as a multiple of median pay of an ISS-determined comparison group for the same period.

  4. Pay for Performance: QuickScore considers the relative degree of alignment between a company’s annualized three-year pay percentile rank, relative to peers, and its three-year annualized total shareholder return rank, relative to peers.

  5. Say-on-Pay: QuickScore considers the level of shareholder support on a company’s most recent say-on-pay proposal as compared to an industry level index.

ISS is also collecting data on the number of directors on the board, the number and percentage of women on the board and the number of audit committee financial experts, although these factors do not impact the governance scoring model and are included for informational purposes only.

QuickScore covers 4,100 companies worldwide, including companies in the U.S. Russell 3000 and in certain global markets.  Companies covered by QuickScore can review, verify and provide feedback on the information underlying their numerical ratings through ISS’s online platform.  It is important to note that data verification is not available during the period between the filing of a company’s proxy statement and ISS’s publication of its proxy analysis for a company’s annual meeting, so data should be verified at least annually as part of a company’s preparation for its annual meeting and before filing its proxy statement.  In addition, companies may consider evaluating their governance practices, particularly in areas where they are ranked a higher governance risk, to determine whether changes may be desirable to conform to best practices or whether enhanced disclosure would be helpful to highlight existing governance practices.

© 2022 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume IV, Number 88
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About this Author

Kimberly Rubel, Securities lawyer, Drinker Biddle
Partner

Kimberly K. Rubel advises clients on securities and capital raising transactions, as well as a wide range of public company, board and committee matters. She is a firm managing partner and a vice chair of the firm’s Corporate and Securities Group.

Kim has counseled issuers in public and private offerings of equity, debt and convertible securities. She has also advised investment banks and underwriters in public securities offerings and as financial advisors.

A considerable part of Kim’s practice involves advising public reporting companies...

(312) 569-1133
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