ISS discourages virtual-only meetings and abuse of allotment authority

ISS (Institutional Shareholder Services), the US proxy adviser, has updated its Voting Guidelines for general shareholder meetings held from February 2018 onwards.

The update includes changes relevant to UK listed companies, including on electronic meetings, non-pre-emptive share issues, overboarding, committee composition and LTIP vesting.

Fully electronic meetings

A new policy to discourage the use of “virtual-only” shareholder meetings has been added. This states that ISS will generally recommend voting for proposals allowing for the convening of hybrid shareholder meetings (i.e. meetings which can be attended by electronic means as well as in person), but against proposals allowing for the convening of virtual-only shareholder meetings, with no physical place of meeting.

Non-pre-emptive share issues

Wording has been added to clarify that using a cash-box structure to issue more than the amount approved at the previous AGM is an example of an abuse of the authority. This is in line with the position taken by the Pre-Emption Group’s current Statement of Principles. 

ISS also states that shareholders do not want to see their rights eroded as a result of the ability under the new Prospectus Directive for companies to issue shares of an amount equal to 20% of the share capital where there is no offer to the public. This is also in line with the position taken by the Pre-Emption Group in a public statement last July.

Overboarding

As before, ISS may recommend a vote against directors who appear to hold an excessive number of board roles in listed companies. The language has been updated to clarify that any person holding more than five listed company mandates will be classified as “overboarded”. 

A NED role counts as one mandate; a role as chair as two mandates and an executive position as three. In addition, holding the role of an executive director at one company while chair of another counts as “overboarded”.

Further the update now provides that for chairs, negative vote recommendations will be applied towards the chair position itself where in aggregate the individual has three or more chair positions (as well as where they are being elected as chair for the first time or if the chair holds an outside executive position).

Audit and Remuneration Committee Composition 

Changes emphasise that audit and remuneration committees should be made up of independent directors only and are intended to bring the policy in line with the UK Corporate Governance Code and PLSA guidelines.

Threshold Vesting Levels for Long-Term Incentive Plans

Updates state that a 25 per cent. vesting threshold may be considered inappropriate if LTIP grants represent large multiples of salary. When analysing LTIP award vesting levels, other issues will also be taken into account, such as how challenging the threshold targets are, the positioning of salaries and remuneration levels in general.