On November 21st, Institutional Shareholder Services (ISS) will complete its annual governance ratings update, including changing the name to ISS QualityScore. As a reminder, companies use QualityScore to benchmark practices relative to peers and as an information resource to support shareholder engagement. Institutional investors turn to QualityScore to help screen and weigh portfolio companies based on governance practices, and to prioritize portfolio companies for engagement.
Action items for you over the next two weeks:
- Familiarize yourself with the new governance quality measures that ISS has incorporated into its methodology
- Ensure you have a working login to Governance Analytics, a free platform available to all companies that you can use to verify your QualityScore data, receive historical copies of your ISS research reports, and more
- Verify ISS’ data on these new measures in the Governance Analytics platform, before scores are published to institutional investors for the first time
- Prepare for the first publishing of ISS QualityScore ratings on November 21st
QualityScore profiles and premium tools for subscribers will again become available on November 21st. Additionally, QualityScore alert emails will not be sent (including monthly score change emails) and ISS Research reports will not contain QualityScore ratings during this time. QualityScore premium tools and inclusion in ISS Research reports will resume on the morning of November 21st.
What you need to know:
ISS opened Data Verification covering updated methodology; companies may verify data on new governance factors as well as all legacy factors
At each QualityScore update, ISS offers companies the ability to preview and verify the corporate governance data used to construct the QualityScore governance ratings. In particular, ISS offers companies the opportunity to review ISS’ data on new factors incorporated into QualityScore to ensure that scores are calculated upon the right data from the outset.
Beginning October 31st and lasting through 8pm ET November 11th, you may verify ISS’s data via the data verification site on Governance Analytics. Data Verification will become available again on November 21st, and will continue to be open year-round, with the exception of between your company’s proxy filing and the issuance of the ISS proxy research report.
If you need an account to log into the Governance Analytics platform, please email contactus@isscorporatesolutions.com. Please note, if you already have a login to the Governance Analytics platform, your current login will allow you to participate in Data Verification.
New factors cover all pillars, focusing on board structure and shareholder rights
On October 31st, ISS published its updated ISS QualityScore Technical Document, which contains details on the new factors incorporated into the methodology this year. In that document, you will find more detail on the fifteen new governance factors:
Board Structure
- What proportion of non-executive directors has been on the board less than 6 years?
- Does the board have any mechanisms to encourage director refreshment? (Non-scored)
- Does the company disclose the existence of a formal CEO and key executive officer succession plan?
- What is the proportion of women on the board?
- Has the board adequately responded to low support for a management proposal?
Shareholder Rights and Takeover Defenses
- Does the company have a fee shifting provision?
- Does the company have an exclusive venue/forum provision?
- Does the company have a representative claim limitation or other significant litigation rights limitations?
- Can the board materially modify the company's capital structure without shareholder approval?
- What is the ownership threshold for proxy access?
- What is the ownership duration threshold for proxy access?
- What is the cap on shareholder nominees to fill board seats from proxy access?
- What is the aggregation limit on shareholders to form a nominating group for proxy access?
Compensation
- Does the company employ at least one metric that compares its performance to a benchmark or peer group (relative performance)?
Audit and Risk Oversight
- What is the tenure of the external auditor?
QualityScore factor weighting and answer scoring have been selectively updated
Based on feedback from companies, institutional investors, and others, ISS has made selected adjustments to the scoring methodology. A small number of questions in each pillar have been adjusted to address evolving corporate governance expectations.
Further information will be provided in the coming weeks outlining additional information regarding the data preview and validation period and the QualityScore methodology enhancements.
