The following issues are among those addressed in ISS' non-compensation-related FAQs:
U.S. Research Procedures
U.S. proxy analyses are generally issued 13-25 calendar days before the shareholder meeting, depending on, among other factors, the volume of meetings requiring coverage. Proxy contest or contested merger analyses are often issued closer to the meeting than these general guidelines.
Drafts of Proxy Analyses
Drafts are generally available to S&P 500 companies that have elected to receive a draft for fact-checking purposes. However, ISS generally does not issue a draft of any analysis relating to any special meeting or any meeting where the agenda includes a merger or acquisition proposal, proxy fight, or any item which ISS considers to be of a controversial nature.
Companies added to the S&P 500 list after January 31 that hold their meetings prior to June 30 will be eligible for draft review beginning the following year.
Voting on Director Nominees in Uncontested Elections
Under ISS' classified board structure policy, if ISS would normally recommend a withhold vote against all members of a committee but no member of the committee is a nominee on the ballot due to the company's classified board structure, then ISS will recommend a withhold on all appropriate nominees. The classified board structure policy is not generally applied against directors with governance issues related only to individual directors, unless the issue is considered egregious.
A poison pill that has a dead hand or slow hand provision may not receive an against recommendation if the pill is approved by a broad base of the company's shareholders. The term of a poison pill should be no longer than three years. Newly public companies will receive a withhold recommendation against the entire board if a pill adopted prior to going public is not put to a vote at the first annual meeting of shareholders after going public or if the board does not commit to putting the pill to shareholder vote within 12 months of going public. This recommendation will continue for each subsequent annual meeting so long as the pill exists and is not put to a vote of the shareholders.
ISS does not consider any amount of pledged stock as a responsible use of company equity. ISS recommends that any pledged shares be reduced over time, and that companies adopt policies prohibiting future pledging activity and disclose such policies in the next proxy statement.
ISS will start applying its new one-year look-back policy beginning with proposals received in 2013. Under this policy, ISS will look for a response to a shareholder proposal that received the vote of a majority of shares cast in only the previous year (and thus look for the company's response in 2014). The current policy will continue to apply for proposals received in 2012.
In determining whether a company is responsive to a shareholder proposal, ISS only considers the proposal received and the company's response — not whether or not the proponent is individually satisfied with the company's response.
ISS considers phased-in declassification of boards as a sufficient response to shareholder proposals requesting board declassification in one year. This approach allows current directors to continue serving their full elected terms.
For proposals requesting an independent chair, ISS considers full implementation as separating the chair and CEO positions, with an independent director filling the role of chair. However, a statement that the company will adopt this policy upon the resignation of the current CEO would also be highly responsive. Lesser responses will be evaluated case by case.
For proposals regarding shareholder rights to call special meetings, a company proposal for a higher threshold than that requested by the proponent is generally not an adequate response unless the company has an equity structure justifying such a threshold. Additionally, company proposals limiting agenda items are considered the least palatable of restrictions placed on rights to call special meetings.
The right for shareholders to act by written consent may be reasonably restricted by the following:
ownership threshold of no greater than 10 percent
restrictions on agenda items
total review and solicitation period of no more than 90 days
prohibition on use of such action within 30 days after meeting has been held or within 90 days prior to next scheduled meeting
best efforts shareholder solicitation requirement
The FAQs provide sample disclosure related to director independence and affiliated directors, as well as examples of the types of services which would qualify as professional or transactional in nature.
Although the attendance requirements of Item 407(b) apply to exchange-listed companies, institutional investors expect similar attendance disclosure for non-listed companies as for listed companies. For all companies, attendance disclosure is only required if a director attended less than 75 percent of the aggregate of his/her board and committee meetings for the period he/she served.
For purposes of determining overboarding, mutual funds rolled up into one mutual fund family count as one board at the family level. Required service on other boards as part of an officer's duties will not be counted. Beginning in 2013, ISS will not count publicly traded subsidiaries owned more than 20 percent by the parent as one board with the parent company. Subsidiaries that only issue debt, however, will not be separately counted.
Shareholder Rights and Defenses
For poison pills, ISS lists attributes of qualifying offer clauses that would strengthen or weaken its effectiveness as a tool for shareholders. Weakening factors include:
provisions allowing the company to reject offers on the basis of inadequacy opinions procured by the company
reverse due diligence requirements
requirements specifying the level of premium
ISS will recommend a vote for issuing stock for general corporate purposes at a maximum of 25 percent for companies that (a) have less than 50 percent of existing authorized shares outstanding or reserved for issuance and (b) have one- and three-year total shareholder returns in the bottom 10 percent of the U.S. market as of the end of the calendar quarter closest to their most recent fiscal year end (the FAQs provide the one- and three-year TSR breakpoints for the bottom 10 percent of the U.S. market as of each of the most recent six quarters ending on and prior to August 14, 2012). Companies with only one of these factors may issue up to 50 percent of existing authorized shares. If there is a transaction on the ballot, the allowable issuance will be limited by the greater of (i) twice the amount needed to support the transaction on the ballot, and (ii) the allowable increase as calculated above.
Companies should disclose any risks associated with shareholders' failure to approve a capitalization proposal in the proxy statement. The following are considered "specific and severe" risk factors that may influence a vote recommendation if disclosed in the proxy statement:
in or subsequent to the most recent Form 10-K filing, the company's auditor raised substantial doubts about the company's ability to continue as a going concern
the company states there is a risk of imminent bankruptcy or imminent liquidation if shareholders do not approve the increase in authorized capital
a government body has in the past year required the company to increase its capital ratios