ISS Publishes Proposed Benchmark Policy Changes for 2022

    On November 4, 2021, Institutional Shareholder Services (ISS) opened the public comment period on its proposed benchmark policy changes for 2022. ISS expects to publish final updated policies in late November 2021, and the updated benchmark policies will apply to shareholder meetings that take place on or after February 1, 2022, except as otherwise noted. ISS will accept comments on the proposed benchmark policy changes through 5:00 p.m. Eastern Time on November 16, 2021. More information, such as how to submit comments and proposed updates for guidelines in non-U.S. jurisdictions, can be found here.

Proposed Updates to ISS’s Proxy Voting Guidelines for 2022 Proxy Season

    The following changes relate to circumstances in which ISS may recommend a vote against or withhold from one or more directors in an uncontested election:

  • Board Gender Diversity:
    • ISS policy for shareholder meetings since February 1, 2020 has been to “generally vote against or withhold from the chair of the nominating committee (or other directors on a case-by-case basis) at companies” in the Russell 3000 and S&P 1500 without at least one female director. ISS now proposes to extend this policy to all U.S. companies covered by its policies.
    • ISS provides an exception from the rule “if there was a woman on the board at the preceding annual meeting and the board makes a firm commitment to return to a gender-diverse status within a year.” ISS asked whether any other exemptions should apply to its gender diversity benchmark policy.
    • ISS also asked whether it should take board size into consideration in its benchmark policy.
  • Unequal Voting Rights:
    • ISS policy for unequal voting rights for shareholder meetings since 2015 has been to “generally vote against or withhold from the entire board [of a newly public company, defined as “companies that emerge from bankruptcy, spin-offs, direct listings, and those who complete a traditional initial public offering.” ISS proposes adding companies that emerge from SPAC transactions to this list.] … if, prior to or in connection with the company’s public offering, the company or its board implemented a multi-class capital structure in which the classes have unequal voting rights without subjecting the multi-class capital structure to a reasonable time-based sunset.” ISS assesses the reasonableness of sunset provisions on a case-by-case basis, but “[n]o sunset period of more than seven years from the date of the IPO will be considered to be reasonable.” ISS now proposes to extend this policy to all U.S. companies covered by its policies starting on February 1, 2023.
    • Unequal voting rights are defined in the proposed benchmark policy as “classes of common stock that have additional votes per share than other shares; classes of shares that are not entitled to vote on all the same ballot items or nominees; or stock with time-phased voting rights (“loyalty shares”).”
    • General exceptions to the proposed policy “will generally be limited to:
      • Newly-public companies with a sunset provision of no more than seven years from the date of going public;
      • Limited Partnerships and the Operating Partnership (OP) unit structure of REITs;
      • Situations where the unequal voting rights are considered de minimis; or
      • The company provides sufficient protections for minority shareholders, such as allowing minority shareholders a regular binding vote on whether the capital structure should be maintained.”
    • The proposed policy comes in response to what ISS views as a widening gap between what it views as a best practice for governance – equal voting rights for all shares – and the practices of companies that went public before 2015.
    • ISS notes that the proposed policy implies that, starting in 2023, ISS will likely be recommending against directors at companies like Alphabet Inc., Meta Platforms, Inc., Ford Motor Company, Berkshire Hathaway Inc., and The New York Times Company.
    • ISS asked whether:
      • It should change its vote recommendation from “against or withhold for the entire board” to “against or withhold” for only a subset of the board, such as the governance committee.
      • There should be other exceptions from the policy, such as a dual-class structure as a result of a management buy-out.
      • There are other company-specific factors it should take into account.
  • Board Accountability on Climate
    • ISS proposes a new policy applicable to “companies that are significant greenhouse gas (GHG) emitters.” Significant GHG emitters are those on the current Climate Action 100+ Focus Group list, which focuses on 167 companies that account for over 80 percent of corporate industrial GHG emissions.
    • ISS will “generally vote against or withhold from the responsible incumbent director, committee, or full board in cases where ISS determines that the company is not taking the minimum steps needed to understand, assess, and mitigate risks related to climate change to the company and the larger economy.”
    • “Minimum steps” must include (1) making detailed disclosure of climate-related risks using an established framework, such as that established by the Task Force on Climate-related Financial Disclosures (TCFD), and (2) adopting appropriate GHG emissions reduction targets. “Appropriate GHG emissions reductions targets” can be any well-defined GHG reduction targets that cover at least a significant portion of the company’s direct emissions.

    The following changes relate to circumstances in which ISS may recommend a vote in favor of or against a management proposal or a shareholder proposal:

  • Say on Climate (SoC) Proposals
    • Management Proposals – ISS will make recommendations on a case-by-case basis, considering, among other things:
      • The extent to which the company’s climate-related disclosures are in line with TCFD recommendations and meet other market standards;
      • Disclosure of its operational and supply chain GHG emissions;
      • The completeness and rigor of the company’s short-, medium-, and long-term targets for reducing operational and supply chain GHG emissions in line with Paris Agreement goals;
      • Whether the company has sought and received third-party approval that its targets are science-based;
      • Whether the company has made a commitment to be “net zero emissions” for operational and supply chain emissions by 2050;
      • Whether the company discloses a commitment to report on the implementation of its plan in subsequent years;
      • Whether the company’s climate data has received third-party assurance;
      • Disclosure of how the company’s lobbying activities and its capital expenditures align with company strategy;
      • Whether there are specific industry decarbonization challenges; and
      • The company’s related commitment, disclosure, and performance compared to its industry peers.
    • ISS asked whether any of the criteria identified above should weigh more than others.
    • Shareholder Proposals – ISS will make recommendations on a case-by-case basis, considering, among other things:
      • The completeness and rigor of the company’s climate-related disclosure;
      • The company’s actual GHG emissions performance;
      • Whether the company has been the subject to recent, significant violations, fines, litigation, or controversy related to its GHG emissions; and
      • Whether the proposal’s request is unduly burdensome (scope or timeframe) or overly prescriptive.



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