Annual director elections may get more difficult due to some new factors being considered by one of the most influential proxy advisory services, Institutional Shareholder Services (ISS).

U.S. public companies differ on the particulars of how to run their director elections. Some companies take the position that a plurality of the votes will suffice (which is what counts in most U.S. congressional elections, by way of example). ISS has been instrumental in moving public company director elections to a majority-of the-votes-cast standard in uncontested elections, arguing that a win isn’t “real” with a lower threshold.

As it turns out, per data provided by researchers like ProxyPulse, most directors are elected by between 80 percent to over 90 percent of shareholders voting in their favor. Only a very small percentage of directors fail to receive a majority vote. The fact that this does happen, however, shows that shareholders do in fact have a way to express their displeasure when they want to do so.

Nevertheless, one of ISS’ updates to its grading system, ISS QuickScore 2.0, addresses director election percentages. ISS has said that it will review directors who receive less than industry average levels of approval, and directors who receive less than 95 percent shareholder approval. This is a non-weighted factor for now.

Why this new threshold? It’s not at all clear what problem ISS is trying to solve with this new factor. There’s been no rush of research to suggest that 95 percent, or even the industry average, correlates to a better run company that provides the best possible returns to its shareholders. Nor is there robust research that shows that companies whose directors win by a mere majority (or plurality) are somehow more likely to fail or perform sub-optimally. Thus, it’s hard to avoid the conclusion that ISS is doing anything other than arbitrarily setting a standard for director election.

Consider too that ISS’ standard is potentially harmful. When companies face tough challenges, it’s unlikely that 95 percent or more of any group will agree on what to do. Situations wouldn’t actually be challenges if everyone agreed on what to do. Unfortunately, ISS’ new standard is unlikely to encourage the kind of bold leadership that challenged companies need.

Although the new method is currently a non-weighted factor, now is the time to: 1) inform yourself of this and other changes to the major proxy advisory services’ grading systems; 2) research the historical director election percentages for your industry and your company’s directors; and, 3) if falling below historical percentages or 95 percent is a potential issue for your directors, get proactive about planning a communication strategy with your major shareholders.

It’s hard to believe that management’s time and effort (which is, of course, an asset of the shareholders) is best spent moving the dial on director elections from 75 percent to a higher number. Unfortunately, this might be the superior choice to having to defend directors to ISS and others because an election percentage number was 5 percent to 10 percent or so away from perfection.

An interesting side-note: Proxy advisory services have definitely drawn the scrutiny of the SEC. In a recent meeting, SEC Chair Mary Jo White both praised the role that proxy advisory services played and acknowledged that some concerns have been raised about them.