Georgeson suggests companies consider these general steps in response to the Investor Stewardship Group's call on companies (reported here) to articulate how their governance practices are aligned with - and how and why they differ from - the ISG Governance Principles adopted in January 2017 (reported here) and effective as of January 1, 2018:
- Understand how the company’s corporate governance structure and practices relate to the six ISG Governance Principles.
- Review the company’s public disclosure regarding corporate governance structure and practices; consider enhancements to be responsive to the ISG’s request that companies disclose how their governance aligns or differs from the ISG Governance Principles.
- As with other corporate governance benchmarking exercises, companies should be particularly cognizant of how and why their practices may differ from the ISG Governance Principles and whether these differences are adequately explained in public disclosures. As investors screen their portfolio companies’ governance practices, they will often consider valid explanations, but in the absence of effective disclosure the company may be unnecessarily penalized.
- Management and the board should be informed and prepared to respond to questions about the company’s alignment with the ISG Governance Principles during shareholder engagements. Companies can also consider proactively addressing the issue in written materials or prepared remarks during investor presentations.
- In preparing for shareholder engagements with ISG signatories, understand how and if they are explicitly incorporating the ISG Governance Principles into engagement and voting priorities and continue to screen their individual voting and engagement policies.
In March, the ISG announced its establishment of three new committees (Steering, Governance, and Marketing & Communications) and an amendment process to support the US Stewardship and Governance Framework over the long-term.
See also our prior reports: "SSGA To Companies: Evaluate & Disclose Compliance with ISG Governance Principles - Potential "No" Vote Implications for Directors" and "Investor Stewardship Principles: How Companies/Boards Should Prepare, this WSJ article: "State Street’s ‘Fearless’ Advocacy for Board Diversity," and additional resources here and here.