October 23, 2021

Volume XI, Number 296

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ISS Issues COVID-19 Guidance on Benchmark and Voting Policies

On April 8, Institutional Shareholder Services (ISS) published policy guidance reflecting certain adjustments due to the impacts of the COVID-19 pandemic. The guidance addresses how ISS’s benchmark and voting policies may be applied in this new era of uncertainty. In many cases, the guidance merely reiterates that ISS will respond to corporate actions on a case-by-case basis, but there are a few specific areas where ISS has changed or relaxed its existing policies. Below is a high-level summary of that guidance.

  • Effects on Annual Meetings. ISS recognizes that in the current environment it may be unsafe to hold in-person shareholder meetings. Therefore, ISS (i) will positively note when companies and boards who have postponed meetings use electronic communications such as webcasts or conference calls to engage with shareholders and investors, and (ii) will not make an adverse vote recommendation regarding a company’s desire to hold virtual-only meetings until in-person meetings may be held safely. Where companies hold virtual-only meetings, ISS believes they should explain the rationale for doing so, give shareholders a meaningful opportunity to participate, and commit to return to holding meetings with an in-person option as soon as it is safe to do so.

  • Poison Pills. ISS believes that its existing policy regarding short-term poison pills addressing active threats—to consider them on a case-by-case basis—remains appropriate. However, ISS says that “[a] severe stock price decline as a result of the COVID-19 pandemic is likely to be considered valid justification in most cases for adopting a pill of less than one year in duration.”

  • Director Attendance. ISS recognizes that in these times director in-person participation may flag due to health and safety concerns. Where electronic participation is not uniformly counted as being “present” (which is not the case in the United States), ISS will take into account company disclosures regarding the reasons behind directors’ electronic attendance.

  • Changes to Boards, Senior Management. ISS says that companies should have broad discretion during the crisis to change directors and senior management to respond to the crisis, and ISS will adjust the application of its policies as appropriate. This includes situations in which a director assumes an executive position on an interim basis due to the disability or incapacity of an existing officer.

  • Compensation and Stock Options. ISS understands that companies are likely to seek changes to short-term compensation plans due to the pandemic, and ISS encourages companies to provide contemporaneous disclosure to shareholders regarding such changes even though stockholders typically would not express their opinions on compensation (e.g., say-on-pay vote) until 2021. ISS suggests that its existing policies regarding long-term compensation plans and stock option plans will not be adjusted for the pandemic. ISS further stated that it is generally “not supportive of changes to mid-stream or in-flight long-term awards since they cover multi-year periods” and, therefore, any changes to performance metrics will be reviewed on a case-by-case basis. Finally, ISS cautions against repricing any underwater stock options without shareholder approval.

  • Dividends. ISS says that while in ordinary circumstances dividend payment ratios would be expected to fall within a certain range based on earnings, this year ISS will allow for broader discretion in issuing dividends (but will also scrutinize companies’ plans for using any cash preserved from reductions in dividends). ISS notes that it “will look at whether boards disclose plans to use any preserved cash from dividend reductions to support and protect their business and workforce.”

  • Share Repurchases. ISS notes that share repurchases are being scrutinized and may cause reputational damage. ISS will continue to recommend in favor of repurchase authorities within customary limits and if they do not raise serious concerns, but ISS will review a company’s actions related to repurchases in 2020 in preparation for 2021 annual meetings to gauge whether they represent responsible risk management.

  • Capital Raisings. ISS will continue to apply its existing benchmark and voting policies to assess a company’s financing activities such as share issuances and private placements. Those policies generally call for case-by-case determinations. ISS will adapt any of its policies to take any regulatory changes into account. Furthermore, ISS acknowledges that the pandemic and the resulting economic crisis constitute “exceptional circumstances” that would allow ISS to issue “for” recommendations even where the proposed financing goes beyond ISS’s customary limits

The full guidance can be found here (https://www.issgovernance.com/file/policy/active/americas/ISSPolicy-Guidance-for-Impacts-of-the-Coronavirus-Pandemic.pdf).

Copyright © 2021, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume X, Number 104
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About this Author

Anthony Eppert, Andrews Kurth Law Firm, Labor and Employment Attorney
Partner

Tony's legal practice focuses on executive compensation and employee benefit arrangements (including their related tax, accounting, securities and corporate governance issues) in the United States and abroad. Before entering private practice, he served as a judicial clerk to the Hon. Richard F. Suhrheinrich of the United States Court of Appeals for the Sixth Circuit.

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Staven Haas Mergers & Acquisitions Attorney Hunton Andrews Kurth Law Firm
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Steven’s practice focuses on mergers and acquisitions, corporate law and corporate governance.

Steven is co-head of the firm’s mergers and acquisitions team. He represents clients on a wide variety of M&A transactions, including change-of-control transactions, public company sales, strategic acquisitions and divestitures. He also regularly advises companies and boards of directors in connection with corporate governance, shareholder activism and other fiduciary duty matters.

Steven has been recognized nationally for his M&A and corporate governance practices. He is...

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Scott H. Kimpel Capital Markets and Securities Practice Hunton Andrews Kurth Washington, DC
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Scott brings in-depth knowledge of SEC policies, procedures and enforcement philosophy to each representation.

Scott regularly advises clients across a broad sector of the economy facing sensitive reporting, compliance and enforcement matters before the Securities and Exchange Commission and other capital markets regulators. His practice encompasses a wide range of matters involving the securities laws, mergers and acquisitions, corporate governance, regulatory enforcement, administrative law and public policy. Scott also leads the firm’s working group on blockchain and distributed...

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Lawton B. Way Corporate Governance Practice Hunton Andrews Kurth Richmond, VA
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Lawton focuses his practice on securities law, corporate finance, corporate governance and general corporate law.

Lawton represents public and private clients on mergers and acquisitions and corporate governance matters – including shareholder activism, related party transactions and fiduciary duty matters. He has significant experience advising clients on ongoing reporting and disclosure requirements under US securities laws and Nasdaq and NYSE rules. Additionally, Lawton advises clients on public and private capital market transactions, including securities offerings and tender...

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Richard P. Massony Corporate Finance Practice Hunton Andrews Kurth Richmond, VA
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As a member of the firm’s corporate finance and mergers and acquisitions practice, Richard helps guide clients through difficult and complex negotiations over corporate transactions and commercial contracts. His focus is on delivering effective and practical solutions for his clients.

Richard has experience representing public and private companies in domestic and international mergers, as well as stock and asset acquisitions and dispositions, private equity investments, public and private offerings of debt and equity securities, corporate restructurings and general corporate...

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