ISS to stop considering diversity in director vote recommendations 

Proxy advisor Institutional Shareholder Services (ISS) announced Feb. 11 that it will no longer consider gender and racial/ethnic diversity in making vote recommendations for the election of directors at US companies beginning with proxy statement reports published on or after Feb. 25, 2025. Recommendations will still be based on other criteria outlined in their voting guidelines, such as independence, accountability and responsiveness.

ISS took the unusual step of updating its guidelines after the proxy season has begun on an “exceptional basis… in light of legal and regulatory changes and emerging issues affecting investors and companies” – specifically, the recent increase in attention on diversity, equity, and inclusion (DEI) practices, including Executive Orders issued by the President last month. ISS noted that investors and companies have a range of perspectives on DEI, including whether and how companies can or should adapt their specific policies and practices to the evolving market and governmental activity.

This development is one of many in the rapidly evolving DEI space. With respect to board diversity, the SEC approved the removal of the Nasdaq listing standard requiring board diversity and disclosure of a diversity matrix and the agency no longer intends to propose its own disclosure rule. Also, some investors have already softened their stance. For example, BlackRock is no longer seeking 30% diversity on boards and Vanguard removed references to board diversity in gender, race, and ethnicity from its guidelines in favor of emphasizing the importance of “cognitive diversity.”

The Feb. 25 effective date is later than that of the modest policy updates ISS originally published in December 2024 as part of its typical annual process (see Preparing for 2025: Ten tips for compensation committees and HR teams for more information on the December updates), which apply to meetings held on or after Feb. 1.