ISS Announces Results of Global Benchmark Policy Survey

ROCKVILLE, Md. (Sept. 11, 2019) – Institutional Shareholder Services Inc. (ISS), a leading provider of corporate governance and responsible investment solutions to financial market participants, today released the results of its annual global benchmark policy survey. In total, ISS received 396 responses to this year’s survey, including from 128 institutional investor representatives and 227 corporate executives. Corporate directors, corporate consultants, academics, trade associations, and other non-investor entities made up the rest.

Questions covered a broad range of topics, including: questions on the global perspective on board gender diversity, director overboarding, and director accountability relating to climate change risk; combined chairman and CEO roles and the sun-setting of multi-class capital structures in the U.S.; discharge of directors and board responsiveness to low support for remuneration proposals in Europe; and the display of GAAP metrics in one part of the ISS pay-for-performance quantitative model as a point of comparison to EVA (Economic Value Added) for companies in the U.S. and Canada.

Key findings from this year’s survey include:

• Board Gender Diversity (Global): Responses to ISS’ question about views on the importance of gender diversity on boards showed that majorities of both investors (61 percent) and non-investors (55 percent) agreed that board gender diversity is an essential attribute of effective board governance regardless of the company or its market. Among those who did not agree with that view, investors tended to favor a market-by-market approach and non-investors tended to favor an analysis conducted at the company level.
• Director Overboarding (Global): Investors and non-investors diverged on the question of measurement of how many boards is too many for an individual director. A plurality (42 percent) of investor respondents selected four public-company boards as the appropriate maximum limit for non-executive directors. A plurality of investor respondents (45 percent) also responded that two total board seats is an appropriate maximum limit for CEOs (i.e., the CEO’s “home” board plus one other). A plurality of non-investors responded that a general board seat limit should not be applied to either non-executives (39 percent) or CEOs (36 percent), and that each board should consider what is appropriate and act accordingly.
• Climate Change Risk Oversight (Global): A majority (60 percent) of investor respondents answered that all companies should be assessing and disclosing climate-related risks and taking actions to mitigate them where possible. 35 percent of investor respondents answered “Maybe” to the following statement about how companies should approach this issue: each company’s appropriate level of disclosure and action will depend on a variety of factors including its own business model, its industry sector, where and how it operates, and other company-specific factors and board members. Only 5 percent of investors indicated that the possible risks related to climate change are often too uncertain to incorporate into a company-specific risk assessment model. Non-investor responses to those same three issues were 21 percent, 68 percent and 11 percent respectively. The actions that investors considered most appropriate for shareholders to take at companies assessed to not be effectively reporting on or addressing their climate-related risks were engagement with the company (96 responses), and considering supporting shareholder proposals on the topic (94 responses). Based on the number of non-investor responses, these two options were also ranked first and second in popularity by non-investors.
• Mitigating Factors for Companies with Zero Women on Boards (U.S.): ISS announced in 2018 that it is introducing a new U.S. Benchmark Voting Policy for 2020 to generally vote against or withhold from the chair of the nominating committee (or other directors on a case-by-case basis) at companies when there are no women on the company’s board, but with some mitigating factors that may be taken into account. Respondents this year were asked whether ISS should consider other mitigating factors, beyond a firm commitment to appoint a woman in the near-term and having recently had a woman director on the board, when assessing such companies. Investor respondents were less likely than non-investor respondents to say that other mitigating factors (such as adopting an inclusive Rooney Rule-style procedure for candidate searches or maintaining an active recruitment process despite the absence of a boardroom vacancy) should be considered and may be sufficient to avoid a negative recommendation on directors.
• Approval of Discharge of Directors (Europe): When asked about the vote to approve the discharge of directors in Europe (proposals seen in some but not all European markets), there was strong support from both investor and non-investor respondents for ISS maintaining its current approach which is to recommend against discharge resolutions only in exceptional cases. Sixty-eight percent of investors and 79 percent of non-investors responded that ISS should maintain its current approach.
• Combined CEO/Chair (U.S.): Investor respondents cited poor company responsiveness to shareholder concerns as the most commonly chosen factor that strongly suggested the need for an independent board chair. This was followed by governance practices that weaken or reduce board accountability to shareholders (such as a classified board, plurality vote standard, lack of ability to call special meetings and lack of a proxy access right). For non-investors, the most commonly chosen factor was a poorly-defined lead director role, followed by poor company responsiveness to shareholder concerns.

Geographically and as in past years, the majority (60 percent) of the respondents to the online survey– 234 in all – represented organizations based in the United States. Eighty-six respondents were based in Continental Europe or the U.K. and 29 respondents were based in Canada. Responses came in from at least 20 organizations based in Asia. Most investor respondents had a market focus that goes beyond their own home country.

Download a copy of this year’s survey results report here. ISS’ survey is part of its annual benchmark policy development process.  During the second half of October, ISS will release draft policy updates for a public comment period before they are finalized.  The process will culminate in mid-November with the release of final policies applicable to shareholder meetings occurring on or after Feb. 1 of 2020.