Photo of Joe BrennanBy Joe BrennanNovember 24 2015
Business Law

How Many Boards Are You On?

ISS Changes “Overboarded” Definition for 2016 Proxy Season

Directors of public companies need to be aware that Institutional Shareholder Services (ISS) has changed its definition of “overboarded” for the 2016 proxy season and that could affect how they will advise their institutional clients to vote regarding the proposed election of certain director nominees.

Director Time Commitment

ISS cited the following facts in its recently released 2016 Proxy Voting Guidelines Updates:

  • Directors need sufficient time and energy in order to be effective representatives of shareholders' interests.
  • A 2014 study conducted by Korn Perry found that the average annual time commitment per board for a Canadian director was 304 hours (increasing to 335 hours for those with a market cap between $1 billion and $5 billion; and to 388 hours for companies with a market cap over $5 billion).
Overboarded Definition

Consequently ISS revised its definition of “overboarded” to include situations where:

  • a CEO of a public company sits on more than 1 (previously two) outside public company board in addition to the company of which he/she is CEO (withholds would only apply on outside boards these directors sit on); OR
  • the director is not a CEO of a public company and sits on more than 4 (previously 6) public company boards in total.
Voting Recommendation

ISS stated that it will generally recommend that is clients “withhold” their vote for individual director nominees if:

  • the director is overboarded; AND
  • the individual director has attended less than 75 percent of his/her respective board and committee meetings held within the past year without a valid reason for these absences.

Notwithstanding the foregoing, ISS added that cautionary language will be included in ISS reports where directors are overboarded regardless of attendance.

Further, while not explicitly stated, public companies that propose “overboarded” nominees for election to the board run the risk that ISS may also recommend withholding votes from directors that serve on the nominating and governance committee of the company.

Invitation for Discussion:

If you would like to discuss the topics raised herein or any other business law matter, please do not hesitate to contact one of the lawyers in the Business Law group at Shea Nerland LLP.

Disclaimer:

Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

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