March 28, 2023

Volume XIII, Number 87


March 28, 2023

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March 27, 2023

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ISS Issues Its 2021 Proxy Season Updates

On November 12, Institutional Shareholder Services (ISS) issued updates to its 2021 US benchmark proxy voting policies. ISS will apply the updated policies to shareholder meetings occurring on or after February 1, 2021.

Proxy advisory firms, such as ISS, review proposals to be voted on at public company shareholder meetings and make voting recommendations to their clients based on the firm’s voting policies and standards.

Certain significant changes that ISS announced to its voting policies for 2021 are summarized below.

Gender Diversity

ISS recommends shareholders vote against or withhold votes from nominating committee chairs at companies where there are no women on the board of directors. For 2021, ISS has reduced the mitigating factors that provide an exception to situations where the company had both a woman on the board at the prior annual meeting and the board makes a firm commitment to return to a gender-diverse status within one year. Previously, ISS provided an exception in the case of either one of the two foregoing factors.

Racial and Ethnic Diversity

For shareholder meetings in 2021, ISS will identify in reports, but not recommend specific action with respect to, boards with no apparent racial and/or ethnic diversity. Starting in 2022, ISS will recommend a vote against or withhold vote for the nominating committee chair where there is no apparent racial and/or ethnic diversity on the board. ISS will provide an exception where the company had racial and/or ethnic diversity at the prior shareholder meeting and the board makes a firm commitment to appoint at least one racial and/or ethnic diverse member within one year. This follows California’s new law requiring that, by the end of 2021, any public company with a principal executive office in California must have at least one director on its board from an “underrepresented community.”

Poison Pills

 ISS is maintaining its existing policy to recommend votes against or withhold votes from all director nominees where the company has a poison pill that was not approved by shareholders or the company makes a material adverse modification to an existing poison pill without obtaining shareholder approval. For 2021, ISS will now also recommend a vote against or withhold vote where a company has a poison pill with a “deadhand” or “slowhand” feature. These features, part of a “continuing director” requirement, generally limit or delay the ability of a board to redeem or terminate a poison pill when members of the board are replaced, including as a result of a proxy contest.

Director Term Limits

ISS policy had been to recommend against proposals that limit the tenure of outside directors through term limits. Going forward, this blanket recommendation will be replaced by a case-by-case analysis.

Federal Forum Selection Provisions

In the absence of serious concerns about corporate governance or board responsiveness to shareholders, ISS will generally recommend a vote in favor of a federal forum selection provision in a company’s charter or bylaws that specifies the “district courts of the United States” as the exclusive forum for federal securities law litigation. Relatedly, the Delaware Supreme Court ruled in 2020 that federal forum selection clauses requiring that claims under the Securities Act of 1933 be brought in federal court are valid under Delaware law. ISS will recommend a vote against provisions that restrict the forum to a particular federal court.

State Law Forum Selection Provisions

ISS will recommend a vote in favor of exclusive forum provisions in charters or bylaws that specify Delaware courts as the exclusive forum for corporate law matters for Delaware corporations, in the absence of serious concerns about corporate governance or board responsiveness to shareholders, replacing the prior policy of reviewing such provisions on a case-by-case basis. For companies incorporated in states other than Delaware, ISS will maintain a case-by-case analysis for forum selection provisions. Going forward, ISS generally will recommend a vote against any provision that specifies a state other than a company’s state of incorporation as the exclusive forum for corporate law matters.

Virtual Shareholder Meetings

ISS will generally recommend a vote for proposals allowing for shareholder meetings to be held by electronic means, so long as they do not preclude in-person meetings.

ISS’s policy encourages companies to disclose the circumstances under which virtual-only meetings would be held and further encourages companies to allow for comparable rights and opportunities for shareholders to participate in electronic meetings as they would during in-person meetings.

In the case of shareholder proposals concerning virtual-only meetings (completely in lieu of any in-person meetings), ISS will make a case-by-case recommendation, taking into consideration the scope and rationale of the proposal and the concerns identified with the company’s prior meeting practices.

Mandatory Arbitration/Sexual Harassment

ISS has issued new guidance on shareholder proposals requesting “reports” on a company’s use of mandatory arbitration on employment-related claims and “reports” on company actions to strengthen policies and oversight to prevent workplace sexual harassment or risks posed by a failure to prevent workplace sexual harassment. ISS will consider these items on a case-by-case basis, taking into account the company’s current polices and disclosures, and whether the company has been the subject of a recent controversy, litigation or regulatory action related to these matters.

The ISS’s 2021 benchmark policy updates are available here.

©2023 Katten Muchin Rosenman LLPNational Law Review, Volume X, Number 325

About this Author

Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and...

Mark Reyes Securities Lawyer Katten Muchin law firm Chicago office

Mark J. Reyes concentrates his practice in corporate and securities matters, including representing issuers and investors in public offerings and private placements of equity and debt securities and advising clients in complex corporate transactions such as mergers, acquisitions, private investments in public equity (PIPEs), private equity investments and joint ventures. He also counsels public companies on securities law compliance, disclosures and corporate governance matters.

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Brian Hecht Corporate Lawyer Katten

Brian Hecht is a Corporate partner in Katten's New York office. He offers broad transactional experience in capital markets transactions, mergers and acquisitions and corporate governance matters. Within capital markets, Brian's practice focuses on initial public offerings, high yield offerings, spin-offs, tender offers and investment grade debt offerings. Within mergers and acquisitions, he represents private equity funds and public companies in both public and private acquisitions and divestitures.

Prior to joining Katten, Brian was a...