ISS Announces QuickScore 3.0

ISS Announces QuickScore 3.0

October 30 2014

PDFISS recently announced QuickScore 3.0, the proxy advisory firm’s governance risk model, and released the QuickScore 3.0 technical document detailing the changes from QuickScore 2.0.

For companies covered under the US QuickScore methodology:

  • There are four new factors that will impact a company’s governance risk rating
  • Two factors that will no longer be zero-weighted and will now impact your firm’s rating
  • Several other key methodology changes

While there are no major compensation-related changes being made this year, there is a minor change to the way ISS reviews the previous year’s Say-on-Pay result.  ISS will no longer use an index/industry average when comparing the previous Say-on-Pay result, instead all companies will be subject to a universal 70% benchmark.  From the QuickScore 3.0 technical document:

Did the most recent Say-on-Pay proposal receive shareholders’ support below 70%? (Q328)

  • QuickScore will consider the level of shareholder support on the most recent Say-on-Pay proposal at the last annual meeting where the say on pay proposal was up for vote. Company meeting results are compared to 70% of votes cast, which is a shift from the previous comparison to the industry/index average. The 70% threshold is in line with when ISS’ policies initiate a review of the Board’s responsiveness to the low shareholder support.
  • From the date of publication of the ISS proxy research report until the meeting results are available, this question will be pending and the result will indicate “meeting results in progress” for this factor.

Companies within the ISS Governance QuickScore 3.0 coverage universe can review, verify and provide feedback on the data used to determine their scores through ISS’ data verification portal. Submissions of corrected or updated data factors can be made online through the platform.  The data verification portal will be open between November 3rd and November 14th.  If you wish to discuss further, please don’t hesitate to contact us.  If you need a log-in ID to the free data verification site, you may contact ISS directly at: support@isscorporateservices.com.

Below is a summary of the changes being made for companies covered under the US QuickScore methodology.

New factors in the US QuickScore 3.0 methodology:

  • Has ISS’ review found that the Board of Directors recently took action that materially reduces shareholder rights?
    • This includes, but isn’t limited to: diminishing shareholder rights to call a special meeting/act by written consent, classifying the board, increasing authorized capital, and lowering quorum requirements, without shareholder approval.
  • Does the company disclose a policy requiring an annual performance evaluation of the board?
  • Is there a sunset provision on the company’s unequal voting structure?
  • Does the company have a controlling shareholder?

Former “zero-weight” questions that will now be scored under QuickScore 3.0:

  • How many women are on the board?
  • How many financial experts serve on the audit committee?

Key methodology changes in QuickScore 3.0:

  • For say-on-pay vote results, ISS Research will no longer use an index/industry average methodology and, instead, will apply a universal 70% benchmark.
  • For director election results, instead of ISS flagging directors with less than 95% vote support, ISS will only flag directors receiving less than 80% shareholder support
  • Investigations, covered under the Audit and Risk Oversight pillar, will now be evaluated as “routine” or “non-routine.”  Routine investigations will be captured and noted on your QuickScore report, but will be differentiated in scoring from non-routine items
    • Examples of “routine” investigations include civil investigation demands; billing/false claims investigations; promotion, marketing or sale of products investigations; and accounting & tax practices investigations
    • Examples of “non-routine” investigations include the receipt of Wells notices, FCPA-related investigations, investigations which raise serious ethical concerns, and investigations into matters that pose potential risk to the broader financial system.
    • There is a potential for any example “routine” investigation to be classified as “non-routine” if warranted by the scale and scope of the investigation
  • To determine director independence for directors brought onto the board outside of the normal annual meeting, ISS will employ a shorter list of criteria. Those criteria include:
    • Current position;
    • The company’s determination of whether the director is independent under its listing standards;
    • Any previous employment at the company;
    • Any familial relationships with the company’s executives or directors;
    • Any transactions (per Item 404a of Regulation S-K) between the director, the director’s employer, or the director’s immediate family member’s current employer, and the company in the last fiscal year.

There are three key dates related to the QuickScore 3.0 release that you should take note of:
November 3rd:     Data verification begins for QuickScore 3.0.
November 14th:    Final pre-launch data verification day for QuickScore 3.0 data.
November 24th:    QuickScore 3.0 launches.  Data verification re-opens.

ISS Links
QuickScore 3.0
QuickScore 3.0 technical document