& Securities

Institutional Shareholder Services (ISS) has released its 2017 U.S. Board Practices Study. In the study, ISS indicates that it is particularly focused on the role of the board of directors as a representative of a company’s shareholders and how the board’s structure and practices enable the board to act as such. The study also highlights trends among S&P 1500 companies in key governance practices such as board and committee structure, size, meetings and composition, board leadership, director independence, director elections, proxy access, board diversity, tenure and age, and director compensation. The study is based primarily on ISS’s review of proxy statements for annual meetings held between July 1, 2015 and June 30, 2016.

Key highlights of the study include:

• Proxy Access. More than half of S&P 500 companies have adopted proxy access in the last two years, with pressure to adopt proxy access beginning to build at MidCap and SmallCap companies.
• Board Diversity. Gender diversity on boards is showing a modest increase. The number of board seats held by women has increased by two points since 2015 to 18% of all board seats in the S&P 1500. Other measures of board diversity are showing little or no progress.
• Board Leadership. 88% of S&P 1500 companies have independent leadership in the form of an independent chair or a lead independent director. Investors appear to be comfortable with independent leadership in the form of a lead independent director with meaningful duties and responsibilities that are typically held by board chairs. Notably, separate CEO and Chair positions are more prevalent at MidCap and SmallCap companies than at S&P 500 companies.
• Majority Voting and Annual Director Elections. While most S&P 500 companies had adopted majority voting in director elections in 2009 when ISS began tracking these issues, majority voting has now been adopted at over half of the S&P 1500. Classified board structures have declined in prevalence, with 90% of the S&P 500 and 65% of the S&P 1500 now electing their boards annually.
• Director Compensation. Median director compensation grew across each of the S&P 500, MidCap and SmallCap companies. Among the S&P 500, median compensation rose 17% between 2012 and 2016.
• Board Membership and Composition. The survey identifies individual directors who hold six or more board seats, who sit on four or more compensation committees, and who represent the youngest and oldest board members. The survey also lists companies that have non-independent directors serving on the compensation committee, and those with at least four female directors, at least four minority directors, and with a female or minority CEO.