ISS Issues COVID-19 Policy Guidance
On April 8, Institutional Shareholder Services Inc. (ISS) issued new policy guidance regarding the impact of COVID-19 on ISS’s application of its benchmark and specialty proxy voting policies. This guidance touches on several key areas:
Annual Shareholder Meetings
For those companies that may be shifting from in-person or hybrid meetings to virtual-only meetings, ISS encourages boards to clearly state the reason for their decision (i.e., due to the public health concerns of COVID-19) and to provide shareholders with a meaningful opportunity to participate in the meeting, including being able to ask questions and engage in dialogue with the board and senior management. ISS also recommends that boards commit to returning to in-person or hybrid meetings as soon as practicable.
ISS’s current benchmark policy encourages boards to put poison pills to a shareholder vote, but companies do have some flexibility to adopt reasonable, short-term (less than one year) poison pills in response to active threats. ISS noted that it is likely to view the current market volatility as a valid justification for adopting a reasonable, short-term poison pill, provided that boards provide detailed disclosure about the reasons for adopting a poison pill, including the choice of duration and triggers, the plans for putting the poison pill to a shareholder vote and the imminent threat that the board sees.
Directors and Officers
ISS understands that boards need broad discretion during the COVID-19 outbreak to ensure that company management and the board have appropriate skills and expertise to continue to operate the business. As such, ISS will evaluate compliance with guidelines related to director independence, overboarding, board diversity and other attributes, as well as directors temporarily serving as executive officers, on a case-by-case basis, provided that appropriate explanation of any actions taken is given by the board.
Boards may be evaluating changes to the goals or metrics used in various short-term compensation programs in effect for 2020 and, while many of these will not be evaluated by shareholders until the 2021 proxy season, ISS encourages boards to provide contemporaneous disclosure to shareholders when the goals or metrics are changed. ISS emphasized the need to provide shareholders with insights into the board’s decision-making process and the rationale for making such changes.
Capital Structure and Payouts
ISS will generally support broad discretion for boards in setting dividend payout ratios that may be lower than expected or historic levels, provided that the board discloses the plans to use preserved cash for the benefit of the business and the workforce. Additionally, while ISS will continue to recommend in favor of most standard repurchase authorizations, absent serious concerns about the company, ISS will scrutinize the use of any authorizations during the lead up to the 2021 proxy season to consider if directors were appropriately managing risks for any repurchases conducted under the authorization. Finally, ISS will continue to use its case-by-case benchmark policies to evaluate any proposed increases to authorized common stock or preferred stock or to evaluate any private placements.