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Article | Executive Pay Memo North America

ISS launches comment period for draft 2021 policy changes

Governance Advisory Services |Executive Compensation

By Laura Elmore and Ming Young | October 21, 2020

Institutional Shareholder Services seeks comments from issuers, investors, and the broader governance community on draft proposals for 2021.

On October 14, Institutional Shareholder Services (ISS) released details of draft policy proposals and policy changes for 2021 and are currently soliciting feedback from the governance community through October 26. As it relates to the U.S. market, the focus is primarily on environmental, social and governance (ESG) issues rather than typical executive compensation-related topics.

Draft policy proposal: Board diversity, race and ethnicity (U.S.)

In response to the current social environment in the U.S. and the results from ISS’ 2020 Global Policy Survey, ISS is proposing a new policy aimed at improving board diversity among companies in the Russell 3000 and S&P 1500. The proposed policy would recommend an against or withhold vote for the chair of the Nominating Committee at companies with “no apparent racially or ethnically diverse” directors on the board. The proposal would be effective February 1, 2022, to allow time for companies to begin transitioning board members, and ISS will start flagging lack of diversity in its research reports in 2021 even though it will not affect voting recommendations yet.

This proposal is expected to help address the dearth of minority representation on boards of public companies.

According to ISS data as of Sept. 21, 2020, 1,260 of the Russell 3000 companies, 492 of the S&P 1500 and 71 of the S&P 500 do not have minority ethnic and/or racial board representation.

Questions posed by ISS for public comment:
  • “Please comment on the proposed policy application universe (Russell 3000 and S&P 1500 companies). Do you consider a different (smaller or larger) universe of U.S. companies to be better or more appropriate? If so, please explain.
  • Are you in agreement with the proposed one-year transition period, with any adverse ISS voting recommendations coming into effect starting in 2022? If not, do you consider the transition period too short or too long?”

Draft policy proposal: Board gender diversity (Canada)

In response to feedback from Canadian institutional investors, particularly those that are signatories of the 30% Club Statement of Intent (which calls for a minimum of 30% women on boards and at the executive management level of S&P/TSX Composite Index companies by 2022), ISS is proposing to revise its Gender Diversity Policy to encourage greater diversity on boards. Currently, ISS assesses whether a widely held company has either one woman on the board or a formal gender diversity policy, including goals and defined targets to attain representation of women on the board to avoid adverse voting recommendations (e.g., vote withhold for the chair of the Nominating Committee).

Effective for the 2022 proxy season, the proposed policy will set a higher minimum threshold for woman on boards of S&P/TSX Composite issuers: either a percentage or number constituting 30% of the board instead of a single board member. In addition, it is being made explicit that where such minimum threshold has not been met, the company's commitment to gender diversity must include a reasonable timetable to comply with the policy to avoid an adverse voting recommendation.

The proposed policy change would not apply to the following non-S&P/TSX Composite companies:

  • Newly publicly listed companies within the current or prior fiscal year
  • Companies that have transitioned from the TSX Venture exchange within the current or prior fiscal year
  • Companies with four or fewer directors

Draft policy proposal: Director accountability (Global)

ISS currently has a governance failure policy stating it may recommend an against or withhold vote for board members in the event of “material failures of governance, stewardship, risk oversight, or fiduciary responsibilities.” The proposed change for 2021 is to expand the stated examples of risk oversight failures to include issues related to the environment (e.g., climate change) and social concerns. Though this proposed change is not expected to impact many companies, it serves as yet another instance of the increased importance of ESG concerns.

Questions posed by ISS for public comment:
  • “What factors would your organization consider as evidence that the board has demonstrated poor risk oversight of environmental and social concerns?
  • In the past, ISS has generally applied the material governance failures policy in a retrospective fashion. Would your organization support establishment of criteria that would allow ISS benchmark policies to proactively identify boards that fail to prepare for foreseeable future risks?”

ISS is accepting comments on its draft policy updates until Monday, October 26 (5:00 p.m. ET). Comments can be submitted by emailing The draft policies can be found here. Final policy updates, which may include changes beyond those in the draft release, are typically released in November and unless otherwise noted are effective for annual shareholder meetings beginning February 1, 2021.


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