ISS Corporate Governance Measurement: New for 2014

by Smith Anderson
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Institutional Shareholder Services Inc. (ISS) has announced details concerning the newest version of its corporate governance measurement system, QuickScore 2.0, which is launching just one year after its predecessor, the initial QuickScore system. The new system’s scoring model retains its essential structure but adds several new factors, some of which will be “zero-impact” factors provided for informational purposes only. The new factors that will impact a company’s rating (though relative weightings among factors remain unclear) are as follows: 

  • Whether a director has a tenure of more than nine years, with a company’s score negatively impacted depending on the proportion of directors with such tenure; 
  • The percentage of directors who received less than 95% shareholder support for their election; 
  • A comparison of outside director compensation to the median levels of the company’s ISS peer group; 
  • A three-year timeframe as the sole component of measuring alignment between compensation and total shareholder return; and 
  • The level of shareholder support for the most recent say-on-pay proposal, as well as how such support compares to those experienced in the company’s industry index. 

“Zero-impact” factors will include the prior one-year and three-year alignment metrics between compensation and shareholder return, the proportionate number of female directors present on the company’s board, the number of financial experts serving on the company’s audit committee and the number of directors serving on the board. While these factors do not currently count toward a company’s rating, there can be no guarantee that they will not affect company scores in later versions of the measurement system.  

ISS has given companies an opportunity to preview and verify the data recorded for them before it releases company ratings on Tuesday, February 18, 2014. Companies may review their data at http://www.issgovernance.com/quickscore/dataverification and submit change requests for any inaccurate data. Under QuickScore 2.0, ISS will update company ratings on an on-going basis based on a company’s public disclosures concerning their governance practices, and companies can review and verify their data throughout the year. However, in order to have any errors corrected before the February 2014 publication of initial scores under the new system, companies should verify their data before 8:00 p.m. Eastern Time on Friday, February 7, 2014. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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