Institutional Shareholder Services (“ISS”) announced that it will launch Governance QuickScore 3.0, the latest version of its corporate governance risk assessment tool for Russell 3000 companies in the United States and certain companies in other countries, in late November. QuickScore 3.0 will reflect a revised methodology for evaluating four key risk-related areas, and be automatically updated for changes to a company’s corporate governance structure based on publicly-disclosed information.
This Thoughtful Pay Alert summarizes what we currently know about the pending changes to QuickScore.
What Technology and Life Sciences Companies Should Know About QuickScore 3.0
- ISS intends to recalculate company scores in conjunction with its release of QuickScore 3.0 on November 24, 2014.
- Companies will have access to the free data verification site on ISS Governance Analytics to preview and verify their data and provide feedback. The data review and verification site will open on Monday, November 3rd, at 9:00 a.m. (EST) and will be available for two weeks through Friday, November 14, at 8:00 p.m. (EST).
- Requests for data changes (updates and corrections) may be made through ISS’ data review and verification site. All requests will be fully reviewed and responded to by ISS.
Technology and life sciences companies should consider verifying their QuickScore 3.0 information during the data verification period.
Background
“Governance QuickScore” is the corporate governance risk assessment scoring system and screening tool launched by ISS in 2013 to replace its Governance Risk Indicators (“GRId”) tool. QuickScore is used to evaluate the corporate governance risk profiles of publicly-traded companies in institutional shareholder investment portfolios.
QuickScore provides an overall company score as well as individual scores in the following four discrete areas:
- Board structure;
- Executive compensation;
- Shareholder rights; and
- Audit and risk oversight.
Numerical scores indicate a company’s rank relative to region, with a score of 1 indicating relatively lower governance risk and, conversely, a score of 10 indicating relatively higher governance risk.
Update Highlights
ISS announced that it will launch an updated version of QuickScore, entitled “QuickScore 3.0,” for the 2015 proxy season on November 24, 2014. At this time, there appear to be several new factors that are being added to the tool, including the following:
- Does the company disclose a policy requiring an annual performance evaluation of the board?
- Has ISS’ review found that the board recently took action that materially reduces shareholder rights?
Of immediate note is the new factor concerning whether the Board of Directors conducts an annual evaluation of its performance. Since many boards already conduct such evaluations, this new factor is likely to lead to specific disclosure of this fact in proxy statements so that this fact can be noted by ISS.
Further, ISS has updated several continuing factors for U.S. companies. Of particular note, it appears that the matter of gender diversity on the Board of Directors (that is, the number and percentage of women on the board), which had previously been disclosed for informational purposes only, but did not impact ratings is now expected to be scored and weighted for the first time.
ISS plans to publish a technical document (which will be posted to its website) that outlines the key changes to the methodology and the new governance factors on Friday, October 31st.
Data Validation Period
As with its prior update, ISS is providing a data validation period during which companies may verify that ISS has collected accurate and up-to-date data for the various governance factors included in QuickScore 3.0. This period will open at 9 a.m. EST on Monday, November 3rd and will close at 8 p.m. EST on Friday, November 14th. Data verification can be accessed at www.issgovernance.com.
Following the launch of QuickScore 3.0 on November 24th, companies will be able to verify their corporate governance data on an ongoing basis, as is currently permitted.
Next Steps
If your company already has a log-in for ISS Governance Analytics (user name and password), you do not need to request a new log-in and can proceed directly to the Governance Analytics website to view, and after January 27th, verify your corporate governance information. If your company does not have log-in information, North American companies can request a user name and password through the ISS Corporate Services U.S. support desk via electronic mail (support@isscorporateservices.com) or by calling 301. 556.0570.
Need Assistance?
Compensia has significant experience in helping companies understand and address ISS’ corporate governance and executive compensation policies. If you have any questions on the topics covered in this Thoughtful Pay Alert or would like assistance is assessing how the policies are likely to affect your executive compensation program, please feel free to contact us.