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November 01, 2011
ISS Seeks Investor Input for Revised Proxy Voting Policies
    by Robert Kropp

Institutional Shareholder Services says the comment period for the 2012 update of its proxy voting policies will run through November 7th.

The contribution of proxy advisory services is credited as a factor in the marked increases in shareowner support for environmental, social, and corporate governance (ESG) proposals over the past two proxy seasons. For years, proxy advisors automatically advised against voting in favor of ESG-related proposals, particularly those addressing environmental and social issues; however, in 2011, Institutional Shareholder Services (ISS) supported 70% of them.

Each year, ISS revises its proxy voting policies, in advance of which it seeks input from institutional investors, corporate issuers, and governance market participants. This year's comment period will run through November 7th. ISS plans to release its policy updates during the week of November 14th.

One area in which ISS plans to hone its voting policy is hydraulic fracturing, or fracking. Shareowner resolutions addressing the controversial practice of natural gas extraction gained more than 40% of votes in 2011. Coordinated by Green Century Capital Management and the Investor Environmental Health Network (IEHN), the proposals requested greater disclosure from companies on issues of water resources and toxic chemicals used in the practice.

Also, the Securities and Exchange Commission (SEC) has asked companies to provide it with information regarding toxic chemicals and other environmental impacts, while the Environmental Protection Agency (EPA) is continuing its study of the potential impacts of the practice on drinking water and groundwater.

At present, ISS does not have a voting policy specifically addressing hydraulic fracturing, but instead uses its General Environmental Proposals and Community Impact Assessments policy to guide its evaluations. For 2012, however, ISS proposes a policy according to which it will generally vote in favor of proposals calling for greater disclosure.

Another area in which ISS is considering a change in its voting policy is corporate political contributions. Especially with national elections scheduled for next year, the impact of the Supreme Court's Citizens United decision has raised concerns among investors that companies could incur considerable risk associated with political spending.

An investor-driven initiative led by the Center for Political Accountability (CPA) has engaged with 200 companies on the issue since 2003. Currently, 88 companies have responded with disclosure of policies relating to political contributions, including 57 listed in the S&P 100.

The ISS voting policy on resolutions addressing greater disclosure of a company's political contributions and trade association spending policies and activities considers each proposal on a case-by-case basis. However, ISS now proposes to generally vote for such proposals.

"More than half of the investor respondents consider the various types of contributions of corporate funds for political purposes including direct contributions, contributions to trade associations, or payments made for grassroots lobbying as either 'critical' or 'important' to their organization," ISS stated. "Furthermore, more than half of investor respondents also indicated that political spending-related disclosure, policies, and practices are either 'critical' or 'important'."

On the issue of proxy access, ISS proposes to continue its policy of evaluating proposals on a case-by-case basis, but to consider additional information while doing so. ISS has also proposed changes to its evaluation of proposals on executive compensation.


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