On January 7, 2015, Institutional Shareholder Services (ISS), a US provider of proxy voting and corporate governance services, published its first standalone “UK and Ireland Proxy Voting Guidelines: 2015 Benchmark Policy Recommendations” (the Guidelines). Prior to June 2014, there was a formal relationship between ISS and the National Association of Pension Funds (NAPF) in which ISS used the NAPF Corporate Governance Policy and Voting Guidelines as its standard reference. The new Guidelines align with the NAPF Corporate Governance Policy and Voting Guidelines 2014/15 and contain recommendations for UK and Irish listed companies, as well as companies incorporated in other territories. The Guidelines have been designed to be in alignment with the four key tenets of ISS Global Voting Principles: accountability, stewardship, independence and transparency. The Guidelines are effective for meetings on or after February 1, 2015.
Points to note in relation to the Guidelines include the following:
ISS sets outs its views in relation to annual reports, articles of association, appointment of external auditors and audit fees. It states that while the NAPF Guidelines generally provide that investors will normally support changes to articles of association (provided there is not reduction in shareholder value or material reduction of shareholder rights), voting recommendations on amendments to the articles of association should be decided on a case-by-case basis.
Board of directors
Issues covered include director elections, controlling shareholders, director independence, board and committee composition and election of a former CEO as chairman. The Guidelines call for details of the relationship between a company and any controlling shareholder to be disclosed to investors.
ISS states that its approach to remuneration is aligned with the five remuneration principles for building and reinforcing long-term business success developed by the NAPF and that the Guidelines are also influenced by the Investment Association’s Principles of Remuneration and the GC100 and Investor Group’s Directors' Remuneration Reporting Guidance.
Topics covered by the Guidelines include the issue of shares and pre-emption rights, market purchases of ordinary shares, related party transactions, waivers for mandatory takeover bids and shareholder proposals in relation to social and environmental proposals.
ISS applies its smaller companies approach to companies which are members of the FTSE Fledgling index, those listed on AIM and other companies which are not widely-held. Its recommendations are based on the NAPF Corporate Policy and Voting Guidelines for smaller companies, although it adds that the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies 2013 may also be helpful in respect of AIM listed companies.
Other points to note
ISS notes that the UK Corporate Governance Code 2014 provides that when, in the opinion of the board, a significant proportion of votes have been cast against a resolution at any general meeting, the company should explain when announcing the results of voting what actions it intends to take to understand the reasons behind the vote result. It notes that the Financial Reporting Council has not set a threshold for significant dissent, adding that across other markets globally, it sees a consensus emerging, with a figure somewhere in the range 20 per cent to 30 per cent consistently seen as a threshold for significant dissent.
(ISS UK Proxy Voting Guidelines 2015, 07.01.15)