3. Independent Director
3.1. No material
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connection to the company other than a board seat.
Footnotes:
1. The definition of officer will generally follow that of a “Section 16 officer” (officers subject to Section 16 of the Securities
and Exchange Act of 1934) and includes the chief executive, operating, financial, legal, technology, and accounting officers of a
company (including the president, treasurer, secretary, controller, or any vice president in charge of a principal business unit,
division, or policy function). Current interim officers are included in this category. For private companies, the equivalent
positions are applicable. A non-employee director serving as an officer due to statutory requirements (e.g. corporate
secretary) will generally be classified as a Non-Independent Non-Executive Director under “Any material relationship with the
company.” However, if the company provides explicit disclosure that the director is not receiving additional compensation
exceeding $10,000 per year for serving in that capacity, then the director will be classified as an Independent Director.
2. “Affiliate” includes a subsidiary, sibling company, or parent company. ISS uses 50 percent control ownership by the parent
company as the standard for applying its affiliate designation. The manager/advisor of an externally managed issuer (EMI) is
considered an affiliate.
3. Includes any former CEO of the company prior to the company’s initial public offering (IPO).
4. When there is a former CEO of a special purpose acquisition company (SPAC) serving on the board of an acquired company,
ISS will generally classify such directors as independent unless determined otherwise taking into account the following factors:
the applicable listing standards determination of such director’s independence; any operating ties to the firm; and the
existence of any other conflicting relationships or related party transactions.
5.
ISS will look at the terms of the interim officer’s employment contract to determine if it contains severance pay, long-term
health and pension benefits, or other such standard provisions typically contained in contracts of permanent, non-temporary
CEOs. ISS will also consider if a formal search process was under way for a full-time officer at the time.
6.
“Immediate family member” follows the SEC’s definition of such and covers spouses, parents, children, step-parents, step-
children, siblings, in-laws, and any person (other than a tenant or employee) sharing the household of any director, nominee
for director, executive officer, or significant shareholder of the company.
7. Professional services can be characterized as advisory in nature, generally involve access to sensitive company information
or to strategic decision-making, and typically have a commission- or fee-based payment structure. Professional services
generally include but are not limited to the following: investment banking/financial advisory services, commercial banking
(beyond deposit services), investment services, insurance services, accounting/audit services, consulting services, marketing
services, legal services, property management services, realtor services, lobbying services, executive search services, and IT
consulting services. The following would generally be considered transactional relationships and not professional services:
deposit services, IT tech support services, educational services, and construction services. The case of participation in a
banking syndicate by a non-lead bank should be considered a transactional (and hence subject to the associated materiality
test) rather than a professional relationship. “Of Counsel” relationships are only considered immaterial if the individual does
not receive any form of compensation (in excess of $10,000 per year) from, or is a retired partner of, the firm providing the
professional service. The case of a company providing a professional service to one of its directors or to an entity with which
one of its directors is affiliated, will be considered a transactional rather than a professional relationship. Insurance services
and marketing services are assumed to be professional services unless the company explains why such services are not
advisory.
8. A material transactional relationship, including grants to non-profit organizations, exists if the company makes annual
payments to, or receives annual payments from, another entity, exceeding the greater of: $200,000 or 5 percent of the
recipient’s gross revenues, for a company that follows NASDAQ listing standards; or the greater of $1,000,000 or 2 percent of
the recipient’s gross revenues, for a company that follows NYSE listing standards. For a company that follows neither of the
preceding standards, ISS will apply the NASDAQ-based materiality test. (The recipient is the party receiving the financial
proceeds from the transaction).
9. Dissident directors who are parties to a voting agreement pursuant to a settlement or similar arrangement may be classified
as Independent Directors if an analysis of the following factors indicates that the voting agreement does not compromise their
alignment with all shareholders’ interests: the terms of the agreement; the duration of the standstill provision in the
agreement; the limitations and requirements of actions that are agreed upon; if the dissident director nominee(s) is subject to
the standstill; and if there any conflicting relationships or related party transactions.
10.
Interlocks include: executive officers serving as directors on each other’s compensation or similar committees (or, in the
absence of such a committee, on the board); or executive officers sitting on each other’s boards and at least one serves on the
other’s compensation or similar committees (or, in the absence of such a committee, on the board).