An Open Letter to Institutional Shareholder Services (ISS)

November 4, 2011



Global Policy Board
Institutional Shareholder Services Inc.
2099 Gaither Road
Rockville, Maryland 20850

Re: ISS 2012 Proxy Voting Policies – Proxy Access Proposals (US)

Dear Sir or Madam:

Thank you for this opportunity to comment as you develop policies for making shareowner voting recommendations in 2012. This letter addresses policies with regard to Rule 14a-8 proxy access proposals.

After twenty years of obstructing shareowner efforts to achieve proxy access, the SEC finally released Rule 14a-11. While ostensibly providing proxy access at public corporations, it was anti-democratic. Two particularly objectionable aspects of the rule were:

  1. A high ownership threshold of 3% of a corporation’s outstanding stock in order to nominate. This disenfranchised all individual shareowners and all but the very largest of institutional shareowners, at least at medium or large corporations.
  2. A hard cap on the total number of shareowner nominations was set equal to 25% of the number of board members, which ensured Rule 14a-11 would never have more than token impact.

The courts may have their own reasons for vacating Rule 14a-11, but we agree with their conclusion that the rule could be seen as “arbitrary and capricious.”

While we object to Rule 14a-11, we applaud the SEC for amendments to Rule 14a-8 to allow shareowners to submit their own proposals for alternative—and presumably better—forms of proxy access at individual corporations. This “private ordering” approach to proxy access would allow shareowners to experiment with different approaches to proxy access at individual firms, to see what worked.

Now that Rule 14a-11 has been vacated, prospects for private ordering experimentation are dimming. Large institutional investors that intend to submit proxy access proposals appear poised to base those proposals on Rule 14a-11, incorporating the two anti-democratic aspect of that rule, which I have already mentioned.

In formulating a policy for making voting recommendations with regard to proxy access, we encourage you to make voting recommendations as if Rule 14a-11 were never vacated. If that were the case, Rule 14a-11 would be a minimal baseline already applicable at all corporations, and the purpose of proxy access proposals would be to experiment with innovative alternatives. We see no reason that should change just because Rule 14a-11 was vacated. Vacated or not, Rule 14a-11 was a bad rule, and shareowners need to innovate and experiment with alternatives, implemented through the Rule 14a-8 proposal process, to find a means of proxy access that works.

The United States Proxy Exchange (USPX) is developing a model proxy access proposal. This will provide a reasonable—but not necessarily easy—means for most long-term shareowners to participate in nominating directors. It will impose no hard cap on the total number of shareowner proposals, although it will provide safeguards that obstruct parties seeking a change of control through proxy access.

We will encourage shareowners to submit our model proposal or to use it as a starting point to develop their own proposals. We hope that shareowners will also submit completely different proposals of their own design. The success of proxy access depends on experimentation to find what works. This entails risk, of course. Democracy always does. The USPX intends to fully support the process, and we hope ISS will too.

We will forward our model proxy access proposal to you when it is complete.


Glyn A. Holton
Executive Director

cc:  Laura Berry, ICCR
Michael Garland, Change To Win
Brandon Rees, AFL-CIO
Michael Ring, SEIU
Anne Sheehan, CalSTRS
Anne Simpson, CalPERS
Ann Yerger, CII
Michael Zucker, AFSCME

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One Response to An Open Letter to Institutional Shareholder Services (ISS)

  1. James McRitchie November 4, 2011 at 8:08 pm #

    Great letter Glyn. This is of critical importance, since ISS recommendations can drive or at least certainly influence, the proxy voting decisions of many large and medium institutional investors. Proxy access is a keystone issue. If we can open that door for shareowners, the accountability of corporate boards and officers might be substantially improved.

    I would urge all members of USPX and readers who haven’t yet joined to take a few minutes to write to ISS concerning this issue at It would come as no surprise to anyone if the policy being developed by ISS supports proxy access at thresholds proposed in the SEC’s failed Rule 14a-11. Yet, the SEC only reached that regulation after substantial lobbying by the BRT and US Chamber of Commerce. The 3% held for 3 years threshold was supposed to be an agreeable compromise for a federal rule that would apply at all companies.

    Under Rule 14a-8, we are under no such limitations. We can set the bar at whatever level is appropriate for a specific corporation. I believe the thresholds and limitations being proposed by USPX (1% or 100 14a-8 shareowners held for a year to nominate, in most cases, 1 director) will be an appropriate standard to bring new thinking, diversity and innovation to many more corporate boards than would be likely under the 14a-11 standard.

    I hope you will join with us in urging ISS to take a flexible approach, leaning in favor of proxy access proposals in a wide variety of forms that will encourage responsible involvement in corporate governance, not just by a few large institutional investors but by long-term retail shareowners as well. The sooner we get investors thinking like owners, instead of the holders of betting slips, the sooner we can get them involved in making the decisions that will bring them capital gains, dividends and will put America back to work.

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