ISS Revises Its Recommended Proxy Voting Policies

The Institutional Shareholder Services (ISS), an organization that develops recommendations and policies related to corporate governance and other topics, has issued final voting policy guidelines and governance best practice updates for the 2023 proxy season. These amendments are effective for meetings on or after February 1, 2023. Many of the ISS recommendations are consistent with the SEC’s final rules for proxy voting approved November 2, 2022.

Key changes addressed in the ISS policy changes include:

Officer exculpation. In August 2022, the Delaware General Corporation Law was amended to permit Delaware corporations to limit or eliminate the personal liability of officers for certain claims involving a breach of the duty of care. The new ISS policy recommends a case-by-case review of proposals providing for officer exculpation provisions in a company’s charter,

Board gender diversity. The ISS extended to all U.S. companies a board gender diversity policy it introduced in 2021 with a one-year grace period. It will become fully effective in 2023 and its application to Foreign Private Issuers (FPIs) will be expanded from only Russell 3000 and S&P 1500 FPIs to all FPIs beginning 2023.

Climate risk and greenhouse gas (GHG) reduction targets. In 2022, ISS introduced for U.S. companies a climate-related board accountability policy for high emitting companies – identified as those in the Climate Action 100+ Focus Group. ISS extended to all applicable markets globally the policy first introduced in 2022. Under this policy, negative vote recommendations may be made in cases where the company is not considered to have adequate disclosure or does not have quantitative GHG emission reduction targets covering at least a significant portion of the company’s direct emissions. This is consistent with recent SEC focus and comment letters.

Political Spending. This new policy applies to shareholder proposals that request company transparency on the congruency of its political expenditures, contributions and lobbying with its public commitments and policies, codifying the case-by-case approach used by ISS in the 2022 proxy season.

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