ISS releases annual report on top governance and stewardship issues

Institutional Shareholder Services Inc. (ISS), one of the leading proxy advisory firms, has released its annual outlook report entitled Top Governance & Stewardship Issues in 2021 (‘the Report’). Consistent with ISS’s core focus, the target audience for the Report is the institutional investment community. However, the findings contained therein are likely to be of interest and relevance to corporate boards, IROs and their advisors.

Drawing on proprietary data and in-house research, the Report identifies several key areas of focus this year including diversity and inclusion, climate change, executive compensation, SPAC transactions and shareholder activism. According to Georgina Marshall, Managing Director, Global Head of Research at ISS: “The Top Governance and Stewardship Issues in 2021 Report provides value-added insight into key areas of concern for many investors this year and for the upcoming main proxy seasons globally. Some reflect continued uncertainty and setbacks from 2020 and the pandemic, while others are longer-standing areas of investor stewardship focus.”

Key takeaways identified by ISS:

  • Protests in 2020 that swept across the US have cast a spotlight on levels of racial and ethnic diversity of corporate directors, C-suite executives and corporate workforces. ISS data shows glacial progress on racial and ethnic diversity on US corporate boards while the gap within C-suites is even more pronounced.
  • The continuing COVID-19 pandemic will continue to require holding many shareholder meetings via electronic means. Given ongoing health and safety concerns, a majority of US and a significant number of other companies around the world are expected to continue to hold virtual-only meetings for at least the first half of 2021. Although many investors are understanding of temporary COVID-19-related practical constraints faced by companies globally, they are likely to be less understanding of meeting practices in 2021 that limit meaningful participation.
  • Changes to executive compensation programs in response to the impact of the COVID-19 pandemic will be top of mind for many investors. While many investors have shown an openness to mid-year changes to annual incentive programs that might be justified given the pandemic, they expect the rationale for the altered program to be clearly explained and the resulting awards to be reasonable.
  • Climate change risk is expected to remain a hot topic. Momentum on climate change is expected to escalate as some large investors have indicated their intention to support more shareholder proposals on the topic and to consider voting against directors who fail to provide meaningful oversight of climate change-related material risks.
  • When will the SPAC bubble burst? The number of US SPAC IPOs ballooned in 2020 and the pace does not appear to be slowing down for 2021. There are also signs that this trend will catch on in Europe this year, with half a dozen transactions having been voted on in 2020 already.
  • Is deal activism primed for a rebound? Hedge fund activism was undoubtedly dampened by the global pandemic. However, there were still more than 50 proxy contests that made it to ballots worldwide in 2020 despite the economic disruption.

The full report can be downloaded here.

Published 18 March, 2021

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