Glass Lewis (GL) has recently released its 2020 U.S. proxy season voting guidelines, which contain a few notable developments to consider in preparation for the upcoming proxy season. These updates include changes related to the exclusion of shareholder proposals and company responsiveness to say-on-pay opposition, among other amendments, all of which are described in the sections that follow.
Exclusion of Shareholder Proposals
In September 2019, the SEC staff announced that it may sometimes respond orally, rather than in writing, to company requests to exclude a shareholder proposal from a proxy statement, and may also decline to state a view altogether (discussed in a Davis Polk Client Alert).
Responding to this development, GL has added that it will generally recommend voting against all governance committee members when a company has omitted a shareholder proposal from its proxy and:
- The SEC staff verbally permitted the exclusion, but there is no “written record” of this determination provided by the SEC and the company failed to provide disclosure regarding the no-action relief; or
- The SEC staff declined to state a view.
GL’s position is surprising given that the Staff announcement advises the parties not to interpret its failure to take a view “as indicating that the proposal must be included” and companies may have a valid reason to exclude the proposal. With respect to companies that receive verbal permission to exclude without a “written record” (not defined), they may ultimately decide to include some limited proxy disclosure regarding the proposal if only to avoid an unnecessary negative recommendation against its governance committee members.
Company Responsiveness to Say-on-Pay Opposition
GL further outlined what it considers adequate company responsiveness following significant (at least 20%) shareholder opposition to a say-on-pay proposal. In general, and in alignment with its 2019 guidelines, GL expects that companies provide “robust” disclosure of their engagement activities and changes made in response to shareholder feedback on say-on-pay.
However, while the 2019 voting guidelines simply described that company responsiveness includes “engaging with large shareholders to identify their concerns,” the 2020 guidelines state that responses GL considers appropriate also include addressing shareholder concerns by implementing changes, where reasonable, in the company’s compensation program. In addition, GL has added that minimum appropriate levels of company responsiveness will be determined:
- Based on the magnitude of shareholder opposition in a single year; and
- By considering the persistence of shareholder disapproval over time.
If a company fails to sufficiently respond to low shareholder support, GL will recommend voting against a say-on-pay proposal.
Additional Instances Where Glass Lewis May Vote Against Directors in Uncontested Elections
- Audit Committee: GL will generally recommend against the audit committee chair when the fees paid to the external auditor are not disclosed.
- Nominating and Governance Committee: GL will generally recommend against the governance committee chair when there is no disclosure of directors’ attendance records at board and committee meetings or when a director’s attendance is less than 75% but the disclosure is too vague to determine which director’s attendance was lacking.
- Compensation Committee: GL will generally recommend against the members of the compensation committee when “the board adopts a frequency for its advisory vote on executive compensation other than the frequency approved by a plurality of shareholders.”
Contractual Payments and Arrangements
GL disfavors contractual provisions and payments that it believes are excessively restrictive in favor of executives, such as excessive severance payments and excise tax gross-ups. Starting in 2020, GL’s revised approach includes looking to see whether new, renewed or revised agreements have these types of provisions.
GL’s 2019 guidelines provided that GL will generally vote against the governance committee chair when in the prior year the board adopted a forum selection clause without shareholder approval. The updated guidelines state that GL may make an exception when the forum selection clause is narrowly crafted to suit the particular circumstances and/or has a reasonable sunset or termination provision included.
Unlike ISS’s proposed 2020 voting policies that we previously discussed, GL’s updated policies make no changes to the policies on multi-class structures, independent board chairs or share buybacks. In addition, the GL updates do not alter the proxy advisory firm’s stance on ESG-related shareholder proposals, which is to evaluate such issues on a case-by-case basis, despite increasing shareholder interest in these issues.
Legal assistant Sarah Foster contributed to this post.