ISS Releases 2015 Proxy Voting Guidelines

ISS (Institutional Shareholder Services) has released its annual 2015 Proxy Voting Guidelines Updates (available here). These guidelines apply to annual meetings to be held on or after February 1, 2015. Many of our clients have investors who do not routinely follow ISS guidelines, while others do. Regardless of your company's investor profile and how closely they follow the recommendations of ISS, it's a good idea to review and consider your position with respect to these matters as a general matter of good corporate governance.

Among the key points for consideration in the ISS guidelines this year are the following:

Unilateral Bylaw or Charter Amendments. ISS has adopted a stand-alone policy (as opposed to the prior policy, in which this topic was included as part of an overall "governance failures" topic) that it will generally recommend voting against or withholding votes from individual directors, committee members, or the entire board (except new nominees, who will be considered on a case-by-case basis) if the board amends the company's bylaws or charter without shareholder approval in a manner that materially diminishes shareholders' rights or that could adversely impact shareholders. ISS does not specify what kinds of amendments would qualify as "materially diminishing" or "adversely impacting" shareholders' rights, but we can surmise that these would include provisions such as raising the voting threshold necessary to approve certain actions, or taking away the right to act by written consent of shareholders. ISS notes that it will consider the following factors in deciding whether to recommend a negative vote in this context:

The board's rationale for adopting the bylaw/charter amendment without shareholder ratification; Disclosure by the company of any significant engagement with shareholders regarding the amendment; The level of impairment of shareholders' rights caused by the amendment to the bylaws/charter; The board's track record with regard to unilateral board action on bylaw/charter amendments or other entrenchment provisions; The company's ownership structure; The company's existing governance provisions; Whether the amendment was made prior to or in connection with the company's initial public offering; The timing of the board's amendment to the bylaws/charter in connection with a significant business development; and Other factors, as deemed appropriate, that may be relevant to determine the impact of the amendment on...