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ISS Proposes To Go Overboard In Proposed Policy Change

Institutional Shareholder Services Inc. (ISS) is a very influential purveyor of proxy advisory services.  As part of ISS' annual policy update procedure, ISS recently released a proposed policy change with respect to directors who sit on too many boards.  The following table summarizes ISS' current and proposed policy with respect to recommending votes against directors who are "overboarded":

2015 Policy


More than six public company boards More than five; or
More than four
CEO of public company sits on more than two other public company boards CEO of public company sits on more than one other public company boards

In proposing this policy change, ISS cites surveys that reflect an increase in the time commitment required for board service.  ISS also cites the result of its 2015 policy survey.  What is entirely missing from ISS' proposal is any analysis, much less empirical evidence, that service on multiple boards affects firm value either positively or negatively.  This illustrates the fundamental and pervasive flaw in most corporate governance "reforms": they are all prescription and no diagnosis.  One would expect that an organization engaged in an advisory business should be able to articulate some basis for its advice.  How does ISS know that six is too many and five or four is just right?

Amazingly, ISS' own survey results don't support its recommendation to reduce the number of board seats from six to either five or four.  While it is true that a plurality (34%) of investors preferred four total board seats, even more investors (38%) preferred more than four seats (either five or six) and nearly two-thirds (66%) preferred a limit other than four or no limit at all.  Among non-investors, a four seat limit did not even attain a plurality.  Forty one percent favored leaving the decision up to the board and another 32% favored a limit of five or six seats.  It seems that ISS either didn't understand its survey results or has intentionally chosen to ignore them.

Don't forget to comment

ISS is soliciting comments on its proposed 2016 voting policies.  The deadline for submitting comment is 6:00 p.m. ET on November 9. Comments may be submitted to the following email address:

Note on preferential voting

ISS' survey technique leaves much to be desired.  ISS would achieve more meaningful results if it instituted a preferential voting system such as the Borda count.  This would allow ISS to better understand the relative preferences of responders to all of the choices.



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30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
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