Update on the current board issues: December 2013

Issues in brief


NASDAQ asks for more flexible compensation committee independence standards

Back to top

NASDAQ has filed a proposed rule change with the SEC regarding the independence of compensation committee members.

Under the amended listing standard that the exchange has proposed, a board would consider any consulting or advisory fees paid to a director by a company when determining whether the individual is eligible to serve on the compensation committee. This would replace the current standard that prohibits any director who receives any such fees from being considered for the compensation committee.

According to the filing, over the past few months NASDAQ received feedback from listed companies and others that the prohibition on compensatory fees creates a burden on issuers at a time when regulatory burdens are higher than ever. It noted: “For example, there are companies in some industries where it is common to have directors who do a de minimis amount of business with the issuer and would, therefore, be ineligible to serve on the compensation committee under the NASDAQ rules.”

NASDAQ also stated these companies may have difficulty recruiting a sufficient number of eligible directors to serve on their boards, given the different requirements for board, audit committee, and compensation committee composition.

[For more information on this proposed listing standard change, read DavisPolk’s briefing or Cleary Gottlieb’s client memo.]


ISS changes voting policy on directors who don’t respond to successful shareholder proposals

Back to top

Institutional Shareholder Services (ISS) released updates to its proxy voting policies effective for shareholder meetings taking place on or after February 1, 2014.

ISS has changed its blanket policy of recommending a vote against director nominations for those boards that did not take action following a shareholder proposal that won majority support. The new policy is on a “case-by-case” basis.

In addition to a board’s failure to act on a shareholder proposal, other circumstances that could trigger a vote against a director (or the entire board) under the new ISS policy would be if:

  • The board failed to act on takeover offers where the majority of shares are tendered.
  • At the previous board election, any director received more than half withhold/against votes of the shares cast and the company failed to address the issues that caused that vote.
  • The board implements a say on pay vote less frequently than what was previously agreed to by shareholders.

Board responsiveness to shareholder proposals that had won majority support was addressed in the ISS 2014 US policy survey, which is used to determine voting policies for the upcoming proxy season. In the survey, 40% of investors indicated that the board should be free to exercise its discretion to respond in a manner that it believes is in the best interest of the company and to disclose the rationale for any actions it takes.

[To read the full ISS US Corporate Governance Policy 2014 Updates, click here.]