On December 19, 2013, ISS published its U.S. Proxy Voting Summary Guidelines that are effective for meetings of stockholders held on or after February 1, 2014. This blog post highlights ISS’ position on two social issues: board diversity and political contributions.
Consistent with its guidelines last year, ISS continues to recommend voting for stockholder requests for reports on a company’s efforts to diversify the board unless:
- the gender and racial minority representation of the company’s board is reasonably inclusive in relation to companies of similar size and business; and
- the board already reports on its nominating procedures and gender and racial minority initiatives on the board and within the company.
ISS will make recommendations on a case-by-case basis on proposals asking a company to increase the gender and racial minority representation on its board. In providing its recommendation, ISS will take into account the following factors:
- the degree of existing gender and racial minority diversity on the company’s board and among its executive officers;
- the level of gender and racial minority representation that exists at the company’s industry peers;
- the company’s established process for addressing gender and racial minority board representation;
- whether the proposal includes an overly prescriptive request to amend nominating committee charter language;
- the independence of the company’s nominating committee;
- whether the company uses an outside search firm to identify potential director nominees; and
- whether the company has had recent controversies, fines, or litigation regarding equal employment practices.
In connection with proposals related to political contributions, ISS continues to generally recommend voting for proposals requesting greater disclosure of a company’s political contributions and trade association spending policies and activities, considering:
- the company’s current disclosure of policies and oversight mechanisms related to its direct political contributions and payments to trade associations or other groups that may be used for political purposes, including information on the types of organizations supported and the business rationale for supporting these organizations; and
- recent significant controversies, fines, or litigation related to the company’s political contributions or political activities.
However, recognizing that businesses are affected by legislation at the federal, state and local level, ISS recommends voting against proposals barring a company from making political contributions. ISS is being practical and concedes that barring political contributions can put the company at a competitive disadvantage.