New ISS Policies: Board Diversity, Exclusive Forum Bylaws, Virtual Meetings

On November 12, 2020, Institutional Shareholder Services (ISS) released updates to its 2021 benchmark proxy voting policies, including new policy positions on board diversity, exclusive forum bylaws, and virtual shareholder meetings. The updates apply to shareholder meetings conducted after January 31, 2021.

Board Composition: Racial/Ethnic Diversity: For 2021, ISS will now highlight in its proxy research report whether a board lacks racial and/or ethnic diversity. For 2022, ISS will issue adverse vote recommendations for the chair of the nominating committee where the board has no apparently ethnically or racially diverse directors. ISS will make an exception if there was racial and/or ethnic diversity on the board at the preceding annual meeting and the board makes a firm commitment to appoint at least one racial and/or ethnically diverse member within a year. ISS provides no definitions of race or ethnicity.

Board Composition: Racial/Gender Diversity: ISS has had a policy of making adverse recommendations on the chair of the nominating committee for issuers in the S&P 1500 or Russell 3000 that have no female directors. For 2021, the only mitigating factor that ISS will accept is if an issuer had a female director at the preceding annual meeting and makes a firm commitment to having at least one female director within a year.

Shareholder Litigation Rights: Forum Selection Provisions: A ruling in 2020 by the Delaware Supreme Court allows issuers to designate the U.S. federal courts as the exclusive forum for litigation arising under federal securities laws. ISS issued a new policy in response to this ruling and will generally vote “for” management proposals to adopt a federal forum selection provision that specifies “the district courts of the United States,” but ISS will recommend “against” proposals to adopt a specific district court as the exclusive forum for such disputes. For state law matters, ISS updated its policy to generally support management proposals specific to Delaware or the Delaware Court of Chancery as the exclusive forum for corporate law matters for Delaware corporations. However, for issuers organized outside of Delaware, the issuer’s rationale, disclosure of past harm, breadth of application, and governance features will be factors ISS considers.

Virtual Shareholder Meetings: In 2021, ISS will generally recommend a vote “for” management proposals allowing for the convening of shareholder meetings by electronic means, so long as the proposals do not preclude in-person meetings. ISS noted that evolving technological capabilities could provide a virtual meeting experience that sufficiently approximates an in-person meeting. ISS encourages issuers to disclose the circumstances under which virtual-only meetings would be held, and to allow for comparable rights and opportunities for shareholders to participate electronically as they would have during an in-person meeting.

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James C. Kennedy
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F. Mark Reuter
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Allison A. Westfall
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Christopher S. Brinkman
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Brett S. Niehauser
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