Institutional Shareholder Services (ISS) recently updated its corporate governance scoring tool (QuickScore) to identify and measure corporate governance risk. QuickScore 3.0) assesses a company’s attributes on Board Structure, Compensation, Shareholder Rights and Audit. ISS plans to launch QuickScore 3.0 on November 24 for the 2015 proxy season.
Through November 14 companies can verify ISS’s data and submit corrections.The link to ISS’s data verification website: http://www.issgovernance.com/governance-solutions/investment-tools-data/quickscore/
ISS has added new factors and revised some other factors. For example, a new factor (#41) asks whether the proxy discloses “a policy requiring an annual performance evaluation of the board.” While these evaluations are already in place at most public companies, its addition in QuickScore 3.0 is a good reminder for a board to review any current policy and consider if any actions (such as further development of the policy) may be appropriate. A complete list of the factors under QuickScore 3.0 is available through this link: http://www.issgovernance.com/file/products/qs3-appendix-final.pdf
How long do we have to complete the data verification?
As previously stated, the data verification period closes on November 14 (at 8:00 p.m. Eastern time), so there is only a limited time window to check ISS’s raw data on the company.
What new factors have been added in QuickScore 3.0 for U.S. public companies?
QuickScore 3.0 expanded the list of factors from QuickScore 2.0. New inquiries for U.S. companies are:
- Does the company disclose a policy requiring annual performance evaluation of the board?
- Has ISS’ review found that the Board of Directors recently took action that materially reduces shareholder rights?
- Is there a sunset provision on the company’s unequal voting structure?
- Does the company have a controlling shareholder?
What factors have been revised that may be of particular interest?
In moving from the current QuickScore 2.0 to QuickScore 3.0, ISS revised certain factors. Of particular note, ISS now asks:
- What percentage of directors received shareholder approval rates below 80%? (ISS commented that the percentage threshold is a shift from the previous 95% level.)
- Did the most recent Say-on-Pay proposal receive shareholders’ support below 70%? (ISS notes that this a shift from the previous comparison to the industry/index average.)
- What is the number of women on the Board. (This previously was a zero-weight question in the scoring.)
What should we do?
In addition to verifying the ISS data, companies should review the complete list of factors in QuickScore 3.0, particularly those that are new or have been revised. We can provide you with the list and other helpful resources. One objective would be to determine their potential effects on the company’s scoring and whether any discussion should be included in proxy disclosures. However, the focus should be on a company’s particular facts and circumstances; directors and executives should keep these in mind in examining their company’s corporate governance policies and compensation programs.
If you have any questions, please let us know. If nothing else, the appropriate person(s) should check that the data ISS may use in calculating your QuickScore is correct.