April 22, 2019

April 19, 2019

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Society Warns ISS That Overboarding Policy Change Will Hurt Women And Minority Directors

Recently, I criticized ISS’ proposed changes to its policy on “overboarding”.  Therefore, I was pleased to see that I wasn’t a lone voice crying in the wilderness.  The Society of Corporate Secretaries and Governance Professionals also submitted a comment letter to ISS.  The Society echoed my observation that ISS had provided no evidentiary support for its proposed changes:

First, there is no evidence to support the argument that CEOs who sit on two outside boards or directors who sit on six boards are less effective directors. To the contrary, the experience of our members demonstrates otherwise.

The Society also pointed out that the rules of the Securities and Exchange Commission already requires disclosure of board attendance.  Item 407(b) of Regulation S-K.  The Society noted there is considerable evidence of “self regulation”:

According to the 2014 Spencer Stuart Board Index, 75% of S&P 500 boards have established some restriction on additional board service, compared to just 67% of boards in 2009 and 55% in 2006 who had such restrictions.

Finally, and perhaps most interestingly, the Society commented that the proposed changes could undermine efforts at increasing board diversity:

[W]e believe this change could have a disproportionate impact on women and minority directors who are already serving as board members. These individuals, particularly current or retired CEOs, are in high demand and already bumping up against the existing ISS thresholds and turning down other board seats.  While there is an abundance of qualified diverse board candidates who are not CEOs, it will take some time for search firms and boards to identify them and nominate them for election.  ISS’s proposed change could have the unintended consequence of, in the short term, decreasing diversity on boards.

Glass Lewis 

Meanwhile, Glass Lewis released its 2016 voting guidelines.  For 2016, Glass Lewis will continue to apply its existing thresholds of three total boards for a director who serves as an executive of a public company and six total boards for directors who are not public company executives. However, in 2017 it will generally recommend voting against a director who serves as an executive officer of any public company while serving on a total of more than two public company boards and any other director who serves on a total of more than five public company boards.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...