2011 Proxy Season News: ISS Releases U.S. Corporate Governance Policy Update–Changes Address Executive Compensation, Shareholder Rights and More

Institutional Shareholder Services Inc. (ISS), a leading provider of corporate governance solutions to the global financial community, recently released its annual U.S. Corporate Governance Policy Update for the 2011 proxy season, announcing changes to the policies that the firm will use in formulating its voting recommendations.

The 2011 Policy Update is effective for annual meetings of shareholders held on or after February 1, 2011. This year’s update is important for public companies because it addresses the new advisory shareholder votes related to executive compensation that are required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. The 2011 Policy Update also outlines changes in ISS’s policies with respect to voting on director nominees in uncontested elections and proposals relating to certain shareholder rights and defenses.

The most significant changes contained in the 2011 Policy Update include the following:

• ISS will recommend annual (rather than biennial or triennial) advisory voting for future advisory shareholder votes on executive compensation;

• ISS will evaluate advisory vote proposals to approve a company’s “golden parachute” or change-in-control compensation packages on a case-by-case basis;

• ISS has revised its list of egregious executive pay practices that could give rise to negative vote recommendations, and has indicated that it will no longer accept future commitments on problematic pay practices as a way of precluding or reversing a negative vote recommendation;

• ISS will recommend against reelection of director nominees who attend fewer than 75 percent of their board and applicable committee meetings unless they have a valid publicly disclosed excuse under ISS’s revised policy guidelines;

• ISS generally will continue to recommend voting in favor of management and shareholder proposals to allow shareholders to act by written consent, but it will now consider shareholder proposals on a case-by-case basis if the company has certain other shareholder rights provisions in place; and

• ISS will recommend against proposals to adopt poison pills or charter amendments designed to protect a company’s net operating losses (“NOLs”) if their term of application exceeds three years or the exhaustion of the NOLs.

To view the full text of the 2011 Policy Update go to http://www.issgovernance.com/files/ISS2011USPolicyUpdates20101119.pdf ..

In addition ISS has also released Frequently Asked Questions (FAQs) providing additional guidance on its positions related to certain executive compensation and shareholder advisory vote issues. To view the FAQs, please see: http://www.issgovernance.com/policy/2011/USCompensationFAQ .