Updated institutional investor voting guidelines

Institutional Shareholder Services (ISS) published its proxy voting guidelines for 2020 and Glass Lewis published its 2020 proxy paper guidelines for the UK in November 2019.

ISS Proxy Voting Guidelines

Changes in the 2020 edition of ISS’s proxy voting policies (which apply to shareholder meetings taking place on or after 1 February 2020) include:

  • Board gender diversity – ISS will generally recommend voting against the chair of the nomination committee (or other directors on a case-by-case basis) when there are no female directors on the board.
  • Remuneration report – The remuneration committee should disclose how it has taken into account any relevant environment, social and governance (ESG) matters when determining remuneration outcomes.

Glass Lewis Proxy Paper Guidelines

The key changes to the Glass Lewis guidelines this year include:

  • Board composition – Glass Lewis will consider recommending voting against the chair of the nomination committee of any FTSE 350 company that has not met the Hampton-Alexander Review target of 33% female representation on the board, nor disclosed any cogent plan to address the issue.
  • Remuneration and pensions – There are a number of detailed changes, including that pension contributions should reflect those awarded to the wider workforce and that remuneration committees should exercise discretion to reduce bonuses or option awards where a company has suffered an exceptional negative event, even if formulaic targets have been met.

The Guidelines have also been amended to reflect the 2018 edition of the UK Corporate Governance Code, in particular to reflect the removal of certain exemptions for smaller (non-FTSE 350) companies.

Investment Association guidelines

The Investment Association (IA) published a statement and guidelines in September 2019 warning companies that they must set a credible plan to pay all executive directors the same pension contributions as the majority of their workforce by the end of 2022 or risk further shareholder dissent.

The IA also published its annual letter to Remuneration Committee Chairs and its updated Principles of Remuneration in November 2019.

From the start of the 2020 AGM season, for companies with year-ends starting on or after 31 December 2019, the IA’s Institutional Voting Information Service (IVIS) will:

  • ‘Red top’ (indicating the strongest level of concern) any company which:
    • appoints a new executive director, or appoints a director to a new role, with a pension contribution out of line with the majority of the workforce;
    • seeks approval for a new remuneration policy which does not explicitly state that any new director will have their pension contribution set in line with the majority of the workforce; or
    • has an existing director with a pension contribution 25% of salary or more, and has not set out a credible plan to reduce that contribution to the level of the majority of the workforce by the end of 2022; and
  • ‘Amber top’ any company with an existing director who has a pension contribution 25% of salary or more, but has set out a credible plan to reduce that pension to the level of the majority of the workforce by the end of 2022.
Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Alex Kay
Alex Kay
+44 20 7466 2447

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Caroline Rae
Caroline Rae
+44 20 7466 2916

Ben Ward
Ben Ward
+44 20 7466 2093

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038

Updated Best Practice Principles for Providers of Shareholder Voting Research & Analysis

In July 2019, the Best Practice Principles Group published its 2019 Best Practice Principles for Providers of Shareholder Voting Research & Analysis.

The 2019 Principles have been updated to reflect the European Securities and Markets Authority (ESMA) 2015 Follow-Up Report on the Development of the Best Practice Principles for Providers of shareholder voting research and analysis, the proxy advisor requirements under the EU Shareholder Rights Amending Directive (SRD II) and the latest updated stewardship codes globally.

The three main principles, which are supplemented by additional guidance, are:

  • Service quality – Services should be provided to a set standard agreed with clients and research methodologies and “house” voting policies should be publicly available.
  • Conflicts of interest – Proxy advisers should have and publicly disclose their conflicts of interest policy, setting out the procedures that apply in the event of a conflict arising when providing services.
  • Communications − Policies on communications with issuers, shareholder proponents and other stakeholders should also be publicly available. Clients should be informed of the nature of any dialogue with relevant parties in their research reports.

Whilst proxy advisers are not required to sign up to the Principles, SRD II introduced provisions for the regulation of proxy advisers, including requirements to disclose how they have applied a code of conduct, to disclose conflicts of interest and to publish on their websites information about the preparation of research, advice and voting recommendations. The Principles reflect these SRD II requirements.

Sarah Hawes
Sarah Hawes
+44 20 7466 2953

Alex Kay
Alex Kay
+44 20 7466 2447

Gareth Sykes
Gareth Sykes
+44 20 7466 7631

Caroline Rae
Caroline Rae
+44 20 7466 2916

Ben Ward
Ben Ward
+44 20 7466 2093

Stephen Wilkinson
Stephen Wilkinson
+44 20 7466 2038