BoardroomDirect: Issues in brief

Update on the current board issues: October 2014

Issues in brief


ISS equity compensation, independent chair proposal recommendations may change

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Institutional Shareholder Services (ISS) recently proposed draft voting recommendation policy changes regarding equity compensation plan and independent board chair shareholder proposals. The proxy advisor expects to release its final 2015 proxy season policies on or around November 7.

The equity compensation plan draft policy change calls for a new “scorecard” approach to evaluating such proposals. The scorecard model considers a range of positive and negative factors, rather than evaluating a series of “pass/fail” tests, which is how the existing policy is structured. The scores for each equity compensation plan proposal will consider cost, plan features, and company grant practices. A company's total score will generally determine whether a “For” or “Against” recommendation is warranted.

For independent board chair proposals, the ISS proposed change updates the “Generally For” policy by adding new governance, board leadership, and performance factors to the analytical framework, and looks at all of the factors in a holistic manner. Notably, the policy update would add new factors that are not considered under the current policy, including the absence or presence of an executive chair, recent board and executive leadership transitions at the company, director/CEO tenure, and a longer (five-year) total shareholder return performance period.

ISS will consider comments on its proposal, and expects its updated voting policies to be applied for shareholder meetings taking place on or after Feb 1, 2015.


SEC plans to hold universal proxy ballot roundtable in 2015

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SEC Chair Mary Jo White recently informed the Commission’s Investor Advisory Committee that the SEC will hold a roundtable early next year on a number of proxy matters, including universal proxy ballots. The use of universal ballots and holding a related roundtable are recommendations the committee made to the SEC in 2013.

The committee recommended that companies use a single proxy card to vote for any combination of board candidates, rather than using a separate card for a dissident slate. Investors who attend the shareholder meeting in person can already vote for any combination of board candidates, regardless of whether those candidates are management’s slate of nominees or dissident nominees. However, when investors vote by proxy, their ability to support "mixed" combinations is limited. Neither the management card nor the dissident card provides a complete list of board candidates, and voting with both cards is not permitted.

In its July 2013 report, the Investor Advisory Committee said that by enabling universal ballots, the Commission can more directly improve a basic element of corporate democracy. The committee suggested that the SEC conduct one or more roundtable discussions regarding universal ballots and the challenges and opportunities for proxy modernization. Some proponents say mandatory use of universal ballots could be seen as a form of shareholder proxy access.

“As I have remarked before, this is an important issue for investors and other market participants, and is also—like so many other parts of the proxy system—tied to a range of other critical issues,” White said.

In January, the Council of Institutional Investors petitioned the SEC to amend its rules for contested corporate board elections in support of a universal proxy card. [To learn more about the CII petition, read BoardroomDirect January 2014 (Issues in brief).]


Political contribution disclosure increasing in S&P 500

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Dozens of leading American corporations have independently embraced political transparency without facing a shareholder proposal, according to a statement announcing the 2014 Center for Political Accountability-Zicklin Index of Corporate Political Disclosure and Accountability released in September.

For 2014, the Index was expanded to look at the policies and practices of the largest 300 companies in the S&P 500.

Some of the findings from this year’s index include:

  • A majority of almost 200 publicly held companies that were examined in both 2013 and 2014 received higher overall scores for political disclosure and accountability this year.
  • Forty-four percent disclosed some information on their direct contributions to candidates, parties and committees, while 17% said their policy is not to make such contributions directly.
  • Almost half of companies in the top echelons of the S&P 500 have opened up about payments made to trade associations.

The Index revealed that of the 139 companies with no history of shareholder resolutions on the issue, 34 voluntarily disclosed full or partial information on their direct political expenditures or said they do not make such expenditures.

The CPA-Zicklin Index report was produced in conjunction with the Carol and Lawrence Zicklin Center for Business Ethics Research, part of The Wharton School of the University of Pennsylvania. The index examined policies and practices published on corporate websites. The report takes no position about a company’s political spending or whether its disclosure is complete.


NACD Blue Ribbon Commission: More board engagement on strategy needed

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A recently released Blue Ribbon Commission report from the National Association of Corporate Directors (NACD) recommends that directors take a new approach to how they engage management on company strategy.

The report, which was released October 13 at NACD’s annual Board Leadership Conference, recommends that directors recognize that board engagement on strategy is a continuous process, and issues related to strategy should be the central focus of board activity year-round.

In the report, the commission decided that the board’s traditional “review and concur” role does not work anymore.

“We need to move from ‘review and concur’ to a much higher level of engagement by board members,” Ray Gilmartin, co-chair of the Blue Ribbon Commission on Strategy Development and former chair and CEO of Merck & Co., said during the conference. “An annual review of strategy is no longer enough.”

The report also provides a framework for earlier board engagement in the company’s strategy formulation, and tips for changing the rhythm of the board’s dialogue with management on strategy. It also offers 10 recommendations for directors to consider as they recalibrate the traditional dialogue on strategy between the board and management, and deepen their engagement in the strategy process. [For more information, read the NACD Directorship article, Repartee: The Board’s Role in Strategy.]