ISS voting policy changes: increased focus on board diversity

Yesterday, Institutional Shareholder Services (ISS), a leading proxy advisory firm, announced a number of proposed voting policy changes for 2021 (see https://www.issgovernance.com/iss-launches-open-comment-period-for-2021-iss-benchmark-voting-policy-changes/). ISS is asking for feedback on these proposed changes by Monday 26 October 2020.

The key proposed changes are set out below:

• ISS will generally recommend voting against the chair of the nomination committee (or other directors on a case-by-case basis) if the company is a constituent of the FTSE 350 index (excluding investment trusts) and the board does not comprise at least 33 per cent representation of women, in line with the recommendation of the Hampton-Alexander Review.
• ISS will generally recommend against the chair of the nomination committee (or other directors on a case-by-case basis) where there is not at least one woman on the board and the company is:
  • a constituent of the FTSE SmallCap index;
  • a constituent of the ISEQ 20 index; or
  • quoted on the AIM market of the London Stock Exchange with a market capitalisation of over £500 million.

For smaller companies, ISS believes that this "acknowledges developments in market practice and expands minimum board diversity expectations to a significant proportion of the companies covered by ISS within the UK and Ireland."  We understand that the proposed  approach is broadly supported by ISS’ institutional investor clients.

• demonstrably poor risk oversight of environmental and social issues, including climate change will also be added as examples of material failures of governance, which will trigger recommendations against directors individually, committee members or the entire board.

Issuers likely to be affected by these policy changes should provide comments to ISS by the deadline requested.