On June 29, 2014 the formal relationship between the National Association of Pension Funds (NAPF) and proxy adviser ISS came to an end, prompting ISS to introduce a stand-alone policy for the UK and Ireland. The new policy was released last week and comes into effect for general meetings on or after February 1, 2015.
ISS says it intends to continue to reflect the NAPF’s Corporate Governance Policy & Voting Guidelines (updated in December 2014) in its UK and Ireland standard benchmark policy in order to ‘continue to align with what both parties consider to be best practice. It is important to emphasize that this policy is not intended to result in a materially different approach during the 2015 AGM season than was applied in 2014. However, an additional discussion of investors’ expectations with regard to good practice has been included where we feel this would be helpful.’
Issues of note
The ISS UK and Ireland 2015 Proxy Voting Guidelines do not appear to introduce significant changes compared with ISS’ approach in 2014. But the following issues may be considered worthy of note:
Audit: The recently updated NAPF Corporate Governance Policy & Voting Guidelines introduce a new policy, stating: ‘Where the tenure of the external auditor extends beyond 10 years and there has not been a recent tender process and no plans to put the audit service out to tender are disclosed, shareholders should consider voting against the re-election of the audit committee chair.’ This update is reflected in the ISS guidelines.
Balance of independence: In line with its current approach, ISS will support the election of non-independent directors as long as the overall board and committee composition is in line with the UK Corporate Governance Code requirements. For FTSE 350 companies this means at least half the board (excluding the chairman) should comprise independent directors.
Furthermore, the audit committee should comprise at least three independent directors. The remuneration committee should also comprise at least three independent directors and can include the chairman of the board if he or she was independent on appointment (but the chairman of the board cannot chair the committee). Finally, a majority of the nomination committee should be independent.
Director tenure: The UK Corporate Governance Code lists a director tenure of more than nine years as having a potential to affect independence. ISS, in line with the NAPF, takes a somewhat more lenient approach and will consider a non-executive director to be non-independent due to tenure only if his/her service was concurrent with an executive director over nine years. When this is not the case, ISS will consider that independence has been impaired only after 15 years (the NAPF does not specify).
Remuneration: In past years ISS has supplemented the NAPF Corporate Governance Policy with a UK remuneration guidance document. Its new UK and Ireland 2015 Proxy Voting Guidelines now include a thorough section on remuneration-related resolutions. This section states that in addition to relying on the NAPF policy, the guidelines are also informed by the IMA Principles of Remuneration, the GC100 and Investor Group Directors’ Remuneration Reporting Guidance and the UK Corporate Governance Code.
This article is adapted from a memo originally sent out to Georgeson clients. Daniele Vitale is corporate governance manager in the corporate advisory team at Georgeson.
