The Institutional Shareholder Services have launched for public comment a number of proposed voting policies for 2016. Comments are due by 9 November and the revised policies will be released on 18 November and will apply to shareholder meetings taking place on or after 1 February 2016.
The relevant UK policies are over-boarding; auditors’ fees in smaller companies and authorities to disapply pre-emption rights.
It’s very important that directors have sufficient time to devote to their roles. The UK Corporate Governance Code specifies a recommended limit for executive directors of no more than one FTSE 100 non-executive directorship. Currently, there is no stated limit in the Code for board chairmen or for other non-executive directors.
The current ISS policy refers to directors’ time commitments but does not specify a maximum number of board positions they should hold. ISS are therefore proposing the following changes to their policy:
- Executive directors are not expected to hold other executive or chairmanship positions. They may, however, hold up to two other non-executive directorships.
- A board chairman is not expected to hold an executive position elsewhere, or more than one other chairmanship position. The chairman may, however, hold up to three other non-executive directorships.
- A non-executive director who does not hold executive or chairmanship positions may hold up to four other non-executive directorships.
In assessing outside directorships and board positions, only publicly-listed companies will be counted.
The proposed policy also states that a stricter view may apply (case by case) for directors who serve on the boards of complex companies, or those in highly regulated sectors, or who chair a significant number of board committees. When applying this policy, ISS will consider the nature and scope of the various appointments and the companies concerned, and if any exceptional circumstances exist, thereby ensuring a degree of flexibility.
Auditors’ Fees, Smaller Companies
The current policy is to recommend voting against proposals relating to auditors’ fees when the ratio of non-audit fees to audit fees has been over 100% for more than one year without adequate explanation. However, this only applies generally to main listed companies.
ISS are now proposing to extend the policy to smaller companies with the proviso that the company also appears unwilling to address the issue. Smaller companies are defined as companies which are members of the FTSE Fledgling index, those listed on AIM and other companies which are not widely held.
General Authorities to Issue Shares Without Pre-Emptive Rights
The Pre-Emption Group, a body which includes representatives of companies and investors, had well established guidelines which recommended that a general authority to disapply pre-emption rights should be limited to no more than 5% of the issued share capital. However, in March, those guidelines were changed to permit companies to seek shareholder approval for an extra 5% disapplication in addition to the standard 5%, provided that the additional 5% is used only in connection with either an acquisition or a specified capital investment. These revised guidelines have been endorsed by key UK investor trade bodies.
ISS are now proposing to update their policy to reflect the change in acceptable practice. However, ISS are also proposing to include a statement to the effect that if a company abuses the authority during the year (e.g by issuing shares without pre-emptive rights up to 10% for purposes other than set out in the revised guidelines) it may receive a negative recommendation on the authority at the following AGM.