ISS Issues Policy Updates for 2011 Proxy Season

by Holly Gregory for the Harvard Law School Forum, December 9th, 2010.

On November 19, 2010, Institutional Shareholder Services Inc. (ISS) issued updates to its proxy voting policies applicable to shareholder meetings held on or after February 1, 2011. This Alert summarizes and discusses implications of those updates for US companies. The ISS proxy voting guidelines and the new updates are available at

ISS is generally considered the most influential proxy advisor in the US. A recent study found that a negative ISS recommendation in uncontested director elections is correlated with a 20.3% drop in favorable votes by shareholders, a far higher percentage than that of any other proxy advisor. [1] Other studies have found that ISS is able to influence shareholder votes by 6% to 19%. [2] For 2011, ISS has identified over 50 circumstances that may cause it to make a negative vote recommendation in uncontested director elections. A summary of these circumstances is included in Appendix A (available here).

While most of the ISS policy changes this year reflect a stiffening of policies related to compensation and governance matters, ISS did not adopt a proposed change to its policy on shareholder proposals seeking an independent chairman. The proposed change would have required companies to show “compelling company-specific circumstances that challenge the efficacy of appointing an independent chair” in order to avoid ISS’ support for an independent chair proposal. The proposal was not adopted in this year’s policy updates because of extensive comments against this change.

In preparing for 2011 annual meetings, corporate counsel, corporate secretaries, and directors (particularly those serving on compensation or nominating and governance committees) should review the ISS policy updates and consider how the changes may affect ISS’ evaluation of director re-elections, executive compensation matters, and other shareholder proposals. (continue reading… )


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