The ISS conducts an annual global review of its benchmark proxy voting guidelines, by collecting feedback from investors and companies and conducting an internal review of emerging issues, regulatory updates and notable trends across the year.

The guidelines will consider and bring together regulatory requirements, best practices and market participants’ input. For the 2023 updates, a key focus for the UK was in relation to directors’ salary increases and in particular, keeping them low and at least proportional.

On the global agenda was climate board accountability – that is, voting against relevant directors where the company is not adequately disclosing climate-related risk information.

Board diversity

The new policy includes guidance that, for standard and premium listed companies with financial years beginning on or after 1 April 2022, the ISS may recommend against the chair of the nomination committee or other directors if the company has not met the FCA Listing Rules reporting requirements.

These requirements are:

• At least 40% of the board are women;
• At least one of the senior board positions (chair, CEO, senior independent director or CFO) is a woman; and
• At least one member of the board is an individual from an ethnic minority background.

The same may apply to ISEQ 20 and AIM companies with a market capitalisation of over £500 million, but with a lower benchmark of at least one female director, and one director from a minority ethnic background by 2024.

If a company was compliant at the previous AGM and made a publicly available and firm commitment to comply with the requirements within a year, then this will be considered as a mitigating factor.

Audit committee

A new policy has been introduced requiring greater focus on the number of audit committee meetings being held during the reporting period. If four or fewer have been held by a FTSE 350 company, or if three or fewer have been held by FTSE All- Share companies (excluding investment companies), the ISS will draw attention to these companies. This guidance has been created based on existing FRC guidance, following the government’s publication of auditing recommendations and an expectation of increased scrutiny over the work of audit committees.

Remuneration

The previous ISS policy stated that annual salary increases should be low and in line with increases for the wider workforce, whereas the new ISS policy goes further and recommends that salary increases are kept low and “ideally lower proportionally than general increases across the broader workforce”. The ISS notes that this language is intended to clarify best practice and to avoid widening the gap between executives and other employees.

Next steps

The updated benchmark policies will take effect for meetings occurring on or after 1 February 2023. The ISS is planning to publish updated FAQ documents on its website by the end of January 2023. Further updates for off-cycle markets (outside of the UK) may occur later in 2023.

Further information

Click here for a copy of the Executive Summary of Key Updates and Policy Development Process.
Click here for a copy of the Europe, Middle East, and Africa Policy Updates for 2023, with UK updates from page 4.

This article was produced in association with White & Case UK’s Public Company Advisory team. Read their original alert here.