On September 24, 2020, Institutional Shareholder Services, Inc. (ISS) released the results of its 2020 Global Benchmark Policy Survey. This survey aims to solicit broad feedback from institutional investors, corporate executives, board members, and other interested constituencies on potential areas of policy change for 2021 and beyond. Key takeaways from the survey include:
COVID-19 Pandemic Response
- ISS’s policy guidance issued in response to the COVID-19 pandemic: 62% of investor respondents and 87% of non-investor respondents indicated that ISS should carry this or similar guidance into 2021 and continue to apply flexible approaches where warranted through at least the 2021 main proxy seasons.
- Annual meeting formats: Absent continuing COVID-19 pandemic health and social restrictions, almost 80% of investor respondents chose “hybrid” (combined online and physical) shareholder meetings, whereas 42% of non-investor respondents indicated a preference for in-person meetings, with virtual meetings used only when there is a compelling reason (such as pandemic restrictions).
- Expectations regarding executive compensation adjustments: 70% of investor respondents indicated that the COVID-19 pandemic’s impact on the economy, employees, customers, and communities and the role of government-sponsored loans and other benefits must be considered by boards, must be incorporated thoughtfully into compensation decisions to adjust pay and performance expectations, and should be clearly disclosed to shareholders. 53% of non-investor respondents indicated that the COVID-19 pandemic is different from previous market downturns and many boards and compensation committees will need flexibility to make decisions regarding reasonable adjustments to performance expectations and related changes to executive compensation.
- Short-term/annual incentive programs: 51% of investor respondents and 54% of non-investor respondents indicated that both (1) making mid-year changes to annual incentive metrics, performance targets and/or measurement periods to reflect the changed economic realities; and (2) suspending the annual incentive program and instead making one-time awards based on committee discretion could be reasonable company responses to the COVID-19 pandemic, depending on circumstances and the justification provided.
Sustainability and Climate Change
- Director accountability to assess and mitigate climate change risk: Investor respondents indicated the following actions are appropriate for shareholders to take with respect to a company they consider to not be effectively reporting on or addressing its climate change risk: (1) engage with the board and company management about their concerns (92%); (2) consider support for shareholder proposals seeking increased disclosure related to greenhouse gas (GHG) emissions or other climate-related measures (87%); and (3) consider support for shareholder proposals seeking establishment of specific targets for reduction of GHG emissions, possibly including targets for reducing the carbon footprint associated with the company’s products and services (84%). 93% of non-investor respondents favored engagement with the board and company management as the most appropriate action, while other possible actions received significantly less support, and 75% of investor respondents indicated that they would consider a vote against directors who are deemed to be responsible for poor climate change risk management.
- United Nations’ Sustainable Development Goals framework: 44% of investor respondents and 49% of non-investor respondents indicated that the framework is an effective way for companies to measure environmental and social risks and to commit to improving environmental and social disclosures and actions.
Auditors and Audit Committees
- Auditor evaluation: 88% of investor respondents indicated significant audit controversies as the most relevant factor (other than the relative level of non-audit services and fees compared to audit-related services and fees) to the evaluation of auditor independence and performance, whereas 67% of non-investor respondents indicated significance/frequency of material restatements as most relevant.
- Audit committee evaluation: 93% of investor respondents indicated that significant controversies relating to financial reporting, financial controls, or audit should be a top consideration by shareholders when evaluating a company’s audit committee, whereas 97% of non-investor respondents chose skills and experience of audit committee members.
- Racial and ethnic diversity:
- 73% of investor respondents and 36% of non-investor respondents indicated that all boards should disclose corporate board members’ self-identified race and/or ethnicity.
- 61% of investor respondents indicated that boards should aim to reflect the company’s customer base and the broader societies in which they operate by including directors drawn from racial and ethnic minority groups. 53% of non-investors indicated that while board diversity with respect to race and ethnicity is desirable, expectations may reasonably differ based on many factors, for example local laws, company size, geographic location, and other factors.
- 85% of investor respondents and 92% of non-investor respondents favored engagement with a company’s board and management team to encourage the inclusion of racial and ethnically diverse directors.
- Independent board chair: 85% of investors indicated that an independent board chair is their preferred corporate model, while 48% of non-investor respondents indicated that there was no single preferred model for board leadership.