Forty percent of investors say boards should be able to exercise discretion

Oct 23, 2013
<p>Notable minority of investors say boards should be free to act as they see fit for the company</p>

Only 36 percent of investors believe company boards should implement specific actions when faced with a majority mandate, according to the annual ISS survey.

The proxy adviser introduced the question of board responsiveness to non-binding votes after implementing a controversial policy to recommend against any board that fails to respond to a proposal that wins majority support.

Surprisingly, though, 40 percent of investors responding to this year’s survey believe a board should be able to exercise its discretion freely. Almost a quarter (24 percent) say board responsiveness should ‘depend on the circumstances’, such as the level of shareholder support (or dissent) for any proposal, or taking the comply‐or‐explain approach.

On the issuer side, a less surprising 92 percent ‘indicate that the board should be free to exercise its discretion to respond in a manner it believes is in the best interest of the company and to disclose the rationale for any actions it takes’.

Elsewhere in the ISS survey, almost three quarters of investors raise concerns over lengthy director tenures, with investors most commonly citing ‘more than 10 years’ as being too long a time to sit on the board.

Just over half of investors (54 percent) also call on ISS to ‘always consider company performance when evaluating directors’, while 36 percent want the proxy adviser to take company performance into account ‘when a company has exhibited problematic governance practices the board does not appear to be addressing’.

Looking at different cap sizes and IPOs, ISS says ‘there is less appetite among investor respondents for more lenient policy guidelines for small or IPO companies.’ Just under half of investors believe ISS should apply the same guidelines across all companies, while 32 percent say the firm should take a more lenient approach with smaller companies and those only recently made public. The remaining 4 percent say ISS should actually apply more stringent policy guidelines for these firms.

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