Institutional Shareholder Services Inc. (ISS) recently released its Annual Benchmark Policy Survey (the "Policy Survey"). In keeping with its prior practice, ISS seeks responses from institutional shareholders, issuers, directors, and other market constituents on a wide range of corporate governance matters. The Policy Survey is generally a good indicator of the areas in which ISS is considering a policy change for its voting recommendations in the forthcoming proxy season, especially with respect to director elections. While we often disagree with ISS's policies, we applaud ISS for soliciting the views of market players. Below is a brief summary of some subjects on which ISS is seeking input.

Benchmark Policy Survey

1. Shareholder Rights Plans. ISS acknowledges that most shareholder rights plans are adopted for a duration of one year or less and, as such, are generally not initially put to a stockholder vote. ISS generally recommends against directors whenever a board unilaterally approves a rights plan with a term longer than one year. However, even if the term is less than one year, ISS evaluates unilaterally adopted shareholder rights plans for reasonableness, and ISS may deem the adoption of such plans a "material governance failure," which would result in negative director recommendations at the following annual meeting. The Policy Survey asks several questions about what respondents consider normal for a shareholder rights plan. Specifically, the Policy Survey asks whether (a) it is ever acceptable to set a trigger threshold at less than 15%, (b) plans adopted at pre-IPO companies should be given more leeway, (c) "qualifying offer" clauses should be considered a mitigating factor for a lower trigger, and (d) it is acceptable to adopt a rights plan in direct response to an "activist campaign."
2. Executive Compensation. Currently, ISS prefers that long-term equity awards vest primarily on performance-based factors, as opposed to time-based vesting. ISS has acknowledged criticisms of this approach, namely, that public companies frequently establish "non-rigorous performance goals" that "often result in vesting of significantly more than the target value." The Policy Survey asks whether, as a change, ISS should view time-based and performance-based equity awards more equally, especially if time-based awards vest over five or more years.
3. Scope 3 Greenhouse Gas Emission Targets. The Policy Survey asks whether respondents believe that public companies should be disclosing "Scope 3" greenhouse gas emission targets (i.e., targets that include emissions related to a company's supply chain).
4. Climate-Related Shareholder Proposals. ISS's current policy is to evaluate climate-related shareholder proposals case by case. ISS is assessing which factors are relevant when making this determination. The Policy Survey asks whether investors are less likely to support climate change proposals if, inter alia, such proposals (a) explicitly "align with the Paris Agreement's 1.5 degree Celsius goal," (b) include "target requirements for supply chain emissions," (c) have "short- or medium-term" targets, or (d) call for the "adoption of a target rather than reporting on the adoption of targets."
5. Workplace Diversity. The Policy Survey asks which types of human capital management disclosures investors should support if requested in a shareholder proposal. Options include, inter alia, diversity representation by positions, promotions, and retention and hiring rates.

Conclusion

The release of the Policy Survey is the first step in ISS's annual policy update process. The next steps for the 2025 proxy season are likely to occur as follows:

• Policy Survey Closes – September 5, 2024
• Policy Survey Results Released – September
• Proposed Updates to Proxy Voting Guidelines Released – October
• Open Comment Period for Proposed Guidelines – October
• Final Updates to Proxy Voting Guidelines Released – November

We urge interested companies to review the Policy Survey. We would be happy to review it and ISS's policies with you as they relate to your company's current corporate governance. Glass Lewis & Co. LLC, the other major proxy advisory service, generally updates its policies for the next proxy season in late November of each year.