& Securities

Intensifying the pressure on all male boards of directors, yesterday ISS announced a proposed new voting policy on board gender diversity in the U.S. The proposed policy provides that beginning in 2020, ISS may recommend voting against the nominating committee chair (or on a case-by-case basis, the election of other directors who are responsible for the board nomination process) where the board has no female directors. The new policy would apply to Russell 3000 or S&P 1500 companies, effective for meetings on or after February 1, 2020. ISS’s current policy is to flag, in its proxy voting reports, companies with no female directors.

Glass Lewis, however, has already adopted a policy that beginning in 2019 it will recommend voting against the chair of a nominating committee with no female directors at Russell 3000 companies. In formulating its voting recommendation, Glass Lewis will take into account the company’s disclosure on its diversity considerations, rationale for not having any female board members, and disclosed plan to address the lack of diversity on the board.

ISS is seeking public comment on its proposed policy, which would allow ISS to take into consideration mitigating factors that may temporarily excuse the absence of a female director, such as:

• A commitment in the proxy statement and/or other SEC filings to appoint at least one female director to the board in the near term (before the next annual meeting);
• The presence of at least one female director on the board at the immediately preceding annual meeting; and/or
• Any other compelling factors considered relevant on a case-by-case basis.

ISS is specifically seeking feedback on the following:

• Under what circumstances should ISS consider recommending against directors other than the nominating committee chair (i.e. full nominating committee, full board, board chair, controlling shareholder)?
• What mitigating factors would temporarily excuse the absence of a female director on a company’s board? What weight should be given to those factors?
• What should be considered an appropriate time commitment to appoint a female director to an all-male board? Why?
• Views on the one-year transition period to implement the proposed policy.

In addition to the proposed policy update on board gender diversity in the U.S., ISS is also seeking comments on additional policies in various jurisdictions, including a separate gender diversity policy in Canada. In the U.S. and Canada, ISS is seeking comment on a proposed update to the financial performance assessment, or FPA, secondary screen. As an enhancement to the FPA screen, ISS is seeking to replace unadjusted GAAP measures with economic value added (EVA) as an enhancement to the FPA screen.

The comment period closes at 5:00 p.m. ET on November 1, 2018. ISS expects to announce its final 2019 benchmark voting policy changes during the middle of November.