Looking ahead to the 2019 proxy season, Institutional Shareholder Services (ISS) has its eyes on four areas: external auditor ratification, appointment, disclosure and rotation (and audit committee assessments); director accountability, board gender diversity, and the “one-share, one-vote” principle.

Those observations are based on the proxy advisor’s 2018-2019 Annual Global Policy Survey questions, which were released July 30. The survey is a part of their annual development process, addressing potential policy changes for 2019. They are asking institutional investors, companies, corporate directors and other market constituents to respond to the survey.

The survey is given in two parts: Governance Principles (this section closes August 24 at 5pm ET) and Policy Application, a more in-depth survey broken down by region about specific voting issues (this section will close September 21 at 5pm ET).

Governance principles questions

The following survey questions and descriptions are included in the governance principles section:

Auditors and audit committees

ISS is looking for additional indicators of audit quality, seemingly to expand policy as they mentioned other developed markets have done.

1. ISS voting guidelines often consider non-audit services and fees as one factor when assessing the independence of the external auditor. In principle, what other audit-related factors could be considered in evaluation of the independence and performance of the external auditor?
2. What information should be considered by shareholders in evaluating the company’s Audit Committee?

Director accountability

Some institutional investors are interested in tracking individual directors who have been involved in controversies with respect to one or more of their past or present directorships, particularly where concerns have been raised about shortfalls in oversight. Where identified, such concerns about oversight shortfalls may trigger negative recommendations under current ISS policy.

1. If ISS assesses that an individual director has failed in his or her oversight responsibilities at one company and this has resulted in a negative ISS vote recommendation, do you consider it appropriate and useful for shareholders for ISS to note this in the proxy research of other companies where that director serves on the board?
2. What types of oversight shortfalls would you consider to be relevant to the assessment in such a situation?
3. What do you consider is an appropriate look-back period for such oversight shortfalls?

Board gender diversity

Globally, gender diversity in boardrooms has increasingly become a topic of interest. After stating that the percentage of Russell 3000 companies with no female board member has decreased by 5 percent in 6 months in the US, ISS is asking surveyors if they are still concerned about the lack of female board members.

1. Does your organization consider it to be problematic if there are zero female directors on a public company board?
2. If your organization answered "Yes" or "Maybe" to the preceding question, what actions do you consider may be appropriate for shareholders to take at a company that lacks any gender diversity on the board, and/or has not disclosed a policy on the issue?

“One-share, one-vote principle”

In the survey, ISS defines the “"one-share, one-vote principle" – the idea that shareholders and long-term shareholder value is best protected by a capital structure in which voting power corresponds to each shareholder's ownership stake and at-risk capital commitment. ISS is considering whether to provide in the future an adjusted analysis of shareholder vote results to show what the results would have been if all votes had been counted under the principle.”

1. At companies with multi-class capital structures with unequal voting rights, should ISS in the future provide such adjusted vote results where possible to do so?