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Governance Qualityscore Governance QualityScore METHODOLOGY GUIDE Published: September 30, 2021 www.issgovernance.com © 2021 ISS | Institutional Shareholder Services and/or its affiliates September 2021 v5.4 ISS ESG Governance QualityScore Overview and Updates TABLE OF CONTENTS Overview .............................................................................................................................................................................................. 4 Coverage ............................................................................................................................................................................................... 6 Coverage Adjustments.................................................................................................................................................................... 8 Summary of Updates ....................................................................................................................................................................... 9 Scoring Methodology ........................................................................................................................................................... 12 Governance QualityScore Factor Criteria ............................................................................................................................ 13 Board Structure Category .......................................................................................................................................................... 13 Board Composition ............................................................................................................................................................... 13 Key Committee Composition ............................................................................................................................................ 19 Board Commitments ............................................................................................................................................................ 29 Board Policies.......................................................................................................................................................................... 32 Related-party Transactions ............................................................................................................................................... 35 Diversity and Inclusion ....................................................................................................................................................... 36 Board Structure Controversies ........................................................................................................................................ 41 Compensation/Remuneration Category .............................................................................................................................. 45 Pay-For-Performance .......................................................................................................................................................... 45 Non-Performance-based Pay ............................................................................................................................................ 47 Use of Equity ............................................................................................................................................................................ 49 Equity Risk Mitigation ......................................................................................................................................................... 53 Non-Executive Pay ................................................................................................................................................................ 59 Communications and Disclosure ..................................................................................................................................... 60 Termination ............................................................................................................................................................................. 65 The Global Leader in Corporate Governance & Responsible Investment 2 of 201 © 2021 ISS | Institutional Shareholder Services and/or its subsidiaries ISS ESG Governance QualityScore Overview and Updates Compensation Controversies ........................................................................................................................................... 68 Shareholder Rights & Takeover Defenses ........................................................................................................................... 71 One Share, One Vote ............................................................................................................................................................. 71 Takeover Defenses ................................................................................................................................................................ 76 Litigation Rights ..................................................................................................................................................................... 82 Meeting and Voting-related Issues ................................................................................................................................. 83 Shareholder Rights – Other Issues ................................................................................................................................. 93 Audit & Risk Oversight ................................................................................................................................................................ 95 External Auditor ..................................................................................................................................................................... 95 Audit and Accounting Controversies ............................................................................................................................. 97 Information Security Risk Oversight .......................................................................................................................... 100 Information Security Risk Management ................................................................................................................... 101 Audit - Other Issues ........................................................................................................................................................... 103 Appendix I: Event-driven Data Updates............................................................................................................................ 105 Appendix II: Governance QualityScore Factor Methodology and Region Applicability ................................ 107 Appendix III: Region-specific Factor Methodology ...................................................................................................... 125 Addendum ..................................................................................................................................................................................... 181 The Global Leader in Corporate Governance & Responsible Investment 3 of 201 © 2021 ISS | Institutional Shareholder Services and/or its subsidiaries ISS ESG Governance QualityScore Overview and Updates Overview ISS ESG Governance QualityScore (GQS) is a data-driven scoring and screening solution designed to help institutional investors monitor portfolio company governance. At both an overall company level and along topical classifications covering Board Structure, Compensation, Shareholder Rights, and Audit & Risk Oversight, scores indicate relative governance quality supported by factor-level data. That data, in turn, is critical to the scoring assessment, while historical scores and underlying reasons prompting scoring changes provide greater context and trending analysis to understand a company’s approach to governance over time. With the continued and growing focus on investor stewardship and engagement, alongside the global convergence of standards and best practices, governance plays an increasingly prominent role in investment decisions. As an extra-financial data screening solution, the Governance QualityScore methodology delivers several key benefits. Employs robust governance data and attributes. Governance attributes are categorized under four topical categories: Board Structure, Shareholder Rights & Takeover Defenses, Compensation/Remuneration, and Audit & Risk Oversight. Governance QualityScore calls upon a library of more than 230 governance factors across the coverage universe, of which up to 127 are used for any one company (defined by region). Governance QualityScore highlights both potentially shareholder-adverse practices at a company, as well as mitigating factors that help tell a more complete story. The underlying dataset is updated on an ongoing basis as company disclosures are filed, providing the most-timely data available in the marketplace.1 Incorporates Company Disclosures. Information included in Governance QualityScore includes that drawn from the annual filing of companies’ proxies, annual reports, 10-Ks, circulars, meeting notices, and other publicly disclosed materials related to a company’s annual general meeting (AGM). Those data are augmented by proprietary analytics and information stemming from ISS analyses,
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