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ISS Peer Group Submission Window Is Currently Open

Each proxy season, Institutional Shareholder Services Inc. (“ISS”) constructs a peer group for each company prior to the company’s next proxy disclosure. ISS’ methodology for constructing the peer group is based in part on the company’s self-selected peer group. ISS recently invited submissions from certain U.S. and Canadian companies with annual meetings scheduled between September 16, 2020 and January 31, 2021. The submission deadline is next Friday at 8:00 PM EDT, July 17, 2020.

As one input in its peer group selection methodology, ISS will generally look to the peer group disclosed in the company’s last proxy and utilized by the company in determining CEO pay.
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COVID-19: Addressing Underwater Stock Options and Stock Appreciation Rights

The recent market volatility caused by the coronavirus (COVID-19) pandemic has caused precipitous drops in the stock prices of many companies, reducing the value of outstanding equity awards and potentially jeopardizing the effectiveness of these awards to reward and retain employees.  In particular, some companies may find that the exercise prices of their outstanding options and stock appreciations rights now substantially exceed the company’s current stock price. This memorandum sets forth key considerations for companies in this position and offers possible approaches that may enable companies to continue to retain and incentivize employees amid the ongoing market volatility, while taking into account the reaction from their shareholders and the proxy advisory firms.
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ISS Releases Policy Application Guidance For COVID-19’s Impact

On Wednesday, April 8, 2020, Institutional Shareholder Services Inc. (ISS) issued guidance on voting policies of various corporate governance-related issues that are likely to be implicated by the coronavirus (COVID-19) pandemic during the 2020 proxy season. The guidance does not introduce any new formal policies. Rather, the guidance provides ISS’s perspective on selected market developments and application of several of its existing policies relevant to the U.S. markets. Importantly, the guidance sheds some light on which company-specific and market-specific facts and circumstances are more likely to influence the proxy advisor’s determinations during and following the pandemic.

EXECUTIVE SUMMARY

The guidance makes three points relevant to the U.S.
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Glass Lewis Reports: Companies Can Now Include Unfiltered Opinions

Late yesterday, Glass Lewis (GL) announced that a company now has the option of having its opinion or position included in GL’s proxy research reports without being edited by the proxy advisor. This new service ensures that a company’s position will be delivered directly to every GL investor client and included on or accessible from the front page of the report. The option to include a statement is offered at no extra cost, but only upon purchase of the relevant GL report and satisfying other eligibility requirements. Shareholder proponents may also use the service.

A company wishing to use the new service must submit a Report Feedback Statement (RFS) within the 7-day window immediately following the publication of the GL research report, and no later than 14 days before the applicable annual or special meeting.
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Glass Lewis Outlook on COVID-19’s Impact on the Present and Future of Governance for Boards and Companies

Glass Lewis (GL) shared last Thursday more of its perspective and outlook of the effect that the coronavirus (COVID-19) pandemic may have on corporate governance for the 2020 proxy season. GL explains that it is issuing further updates because “it is important to provide the market with certainty and transparency on [GL’s] established approach” given that it believes that all governance issues and most proposal types will be impacted by the pandemic. Anticipating that the pandemic will continue for up to 18 months, GL states that the proxy advisor is monitoring the markets; the sentiments of institutional investors and shareholder proponents; disclosures by public companies; and the approaches and actions of public companies.
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ISS Releases Specialty Climate Voting Policy

On Monday, Institutional Shareholder Services Inc. (ISS) announced the launch of a new specialty proxy voting guideline focusing on climate-related issues. ISS explains that the new Climate Voting Policy aids investors in “incorporate[ing] climate-related considerations systematically into their engagement and proxy voting strategies across their portfolios.” This development is likely based on ISS’s 2019 annual policy survey results, which we shared in a prior summary. Those results show that 60% of the investor respondents believe that “all companies should be assessing and disclosing climate-related risks and taking action to mitigate them where possible.” Second to engaging with the company, both investor and non-investor survey respondents indicated that voting for a shareholder proposal seeking increased climate-related disclosure is a preferred way to respond to a company that fails to effectively report or address its climate change risk.
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Glass Lewis Is Currently Accepting Peer Group Submissions

Glass Lewis is currently accepting peer group submissions on its website until next Friday, January 31, 2020, from public companies making proxy filings through July 31, 2020. For all other companies making proxy filings through January 31, 2021, the deadline for submissions is July 31, 2020.

Glass Lewis utilizes its Pay-for-Performance Model with its A-F grading system (the “P4P Methodology”) to assess the degree to which a company’s executive compensation aligns with the company’s performance. In turn, these assessments inform the quantitative input for Glass Lewis’ Say-on-Pay voting recommendations. Glass Lewis advises that its new proprietary peer group methodology now drives the P4P Methodology and is critical to its Say-on-Pay recommendations.
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ISS Releases Preliminary Updates to 2020 Compensation-Related Policies

As we previously discussed, ISS recently released its U.S. Preliminary Compensation Policies FAQ, which provides interested parties an advance view of ISS’ answers to select questions posed to ISS regarding potential changes to its U.S. compensation policies.  Updated compensation-related FAQ documents and a methodological whitepaper—which will include a detailed introduction of ISS’ new Economic Value Added (EVA) metrics—will be available in mid-December.  These changes are effective for meetings held on or after February 1, 2020.  The below summarizes the key changes outlined by the preliminary FAQ.

Changes to the Quantitative Pay-for-Performance Screens for 2020 

ISS applies an initial set of quantitative screens followed by a set of qualitative screens when evaluating say-on-pay proposals. 
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ISS Releases Finalized 2020 U.S. Voting Policies, Preliminary Compensation Policies FAQ & Industry Group TSR Medians

Earlier this week, Institutional Shareholder Services Inc. (ISS) posted its U.S. Proxy Voting Guidelines, which include updates we previously discussed. The 2020 policies are effective for shareholder meetings occurring on or after February 1, 2020.

Also, ISS recently published the U.S. Preliminary Compensation Policies FAQ that is designed to address questions that have been posed to ISS regarding potential changes to its compensation-related policies. Unless the document states otherwise, the methodologies contained in this preliminary FAQ will apply to shareholder meetings occurring on or after February 1, 2020. ISS anticipates publishing the finalized compensation-related policies and FAQ as well as a methodological whitepaper in December 2019.
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ISS Releases Final Changes to Its Voting Policies for 2020 Proxy Season – Newly Public Companies, Independent Chair and Share Buyback Proposals, Board Gender Diversity, EVA and More

Today, Institutional Shareholder Services Inc. (ISS) released its 2020 global proxy voting policy updates, which will generally be applicable for shareholder meetings on or after February 1, 2020. Consistent with the preview offered in its proposed 2020 voting policy changes (covered on our blog here), the updates to ISS’ U.S. proxy voting policies apply primarily to the proxy advisory firm’s treatment of (1) certain governance structures at newly public companies, including multi-class shares; and (2) annual meeting proposals calling for independent board chairs and share buybacks.

The updates released today confirm that ISS will include Economic Value Added (or EVA) metrics in its pay-for-performance model’s secondary Financial Performance Assessment (or FPA) screen.
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Glass Lewis 2020 Guidelines Include Director Negative Recommendations Depending on SEC Staff’s Response Under Recently Updated Staff Shareholder Proposal No-Action Letter Policy

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).
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Key Findings of ISS 2019 Benchmarking Policy Survey

Yesterday, Institutional Shareholder Services Inc. (ISS) announced the results of its 2019 Global Policy Survey (a.k.a. ISS 2019 Benchmark Policy Survey) based on respondents including investors, public company executives and company advisors. ISS will use these results to inform its policies for shareholder meetings occurring on or after February 1, 2020. ISS expects to solicit comments in the latter half of October 2019 on its draft policy updates and release its final policies in mid-November 2019.

While the survey included questions targeting both global and designated geographic markets, the key questions affecting the U.S. markets fell into the following categories: (1) board composition/accountability, including gender diversity, mitigating factors for zero women on boards and overboarding; (2) board/capital structure, including sunsets on multi-class shares and the combined CEO/chair role; (3) compensation; and (4) climate change risk oversight and disclosure.
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Next Week SEC Will Consider Issuing Guidance on the Use and Responsibilities of Proxy Advisors

Yesterday, the Securities and Exchange Commission (SEC or Commission) announced that the agenda for the Open Meeting, next Wednesday, August 21, 2019 at 10:00 a.m. E.T., will include consideration by the Division of Corporation Finance on whether to publish an interpretation and related guidance regarding the utilization of proxy advice in the proxy voting process.

In addition, the Division of Investment Management will consider whether to publish guidance on the proxy voting responsibilities of investment advisers under Rule 206(4)-6 of the Investment Advisers Act of 1940.  These regulatory responsibilities include advisers’ adopting policies and procedures that are reasonably designed to ensure that the advisers vote client securities in the best interests of their clients and disclosing how advisers resolve conflicts of interest.
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ISS Launches Annual Benchmarking Policy Survey

Yesterday, Institutional Shareholder Services Inc. (ISS) announced its annual Benchmarking Policy survey. ISS will use survey responses to inform its policies governing 2020 shareholder meetings. Institutional investors, public companies, board directors, corporate advisors and other market participants are welcome to participate. Participants can make survey submissions until 5:00 PM ET on August 9, 2019.  ISS typically publishes the survey results a few weeks thereafter.

While the survey includes questions targeting both global and designated geographic markets, the key questions affecting the U.S. markets fall into the following categories: (1) board composition/accountability, including gender diversity and overboarding, (2) board/capital structure, including dual or multi-class shares and combined CEO/chairs, (3) compensation and (4) climate change risk oversight and disclosure.
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ISS Opens Window Today for Peer Group Submissions

Today begins the window where certain public companies in the U.S. and Canada have the option of submitting changes to their respective peer groups to Institutional Shareholder Services Inc. (“ISS”). The submission window closes next Friday at 8:00 PM EDT, July 19, 2019.

ISS’ invitation is directed to companies with annual meetings scheduled between September 16, 2019 and January 31, 2020 that have changed or anticipate changing their respective peer group from their last proxy disclosures. ISS advises that “[s]ubmissions should reflect peer companies used (or to be used) by the submitting company for pay-setting for the fiscal year ending prior to the company’s next upcoming annual meeting.”
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New U.K. Rules for Proxy Advisory Firms

The Proxy Advisors (Shareholders’ Rights) Regulations 2019 (“Regulations”) in the United Kingdom went into effect this past Monday. Proxy advisory services typically include research reports on public companies as well as proxy voting recommendations on how the proxy advisors’ clients, namely shareholders, should vote on all shareholder proposals, including those that are submitted by the public company’s management.

General Overview. The new U.K. regulations are “intended to make sure that proxy advisors’ clients will be able to better understand what standards of conduct the proxy advisor adheres to, how the proxy advisor ensures an adequate standard of quality in its advice and how it manages conflicts of interest, in order to help the market for proxy advisor services to function effectively.”
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Is an Eventual Negative Say-on-Pay Recommendation Almost Inevitable?

Results of a study published in April 2019 by the executive compensation consulting firm Pearl Meyer suggest that Russell 3000 companies which have not yet received an “Against” Say-on-Pay (SOP) recommendation will likely receive one down the road. The firm states that “it’s reasonable to expect that at some point in the future, more than 80% of companies will have fallen victim to a negative vote recommendation at least once.”

Relevance. Management’s SOP proposals give shareholders a precatory or nonbinding vote on compensation packages for the company’s top executives. While the underlying regulation permits some leeway on the frequency of holding these votes, many companies opt to do so annually.
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Sustainalytics ESG Ratings Publicly Available on Company Yahoo Finance Page

Some companies may not be aware that since February, their Yahoo Finance web page includes a separate tab with the ESG scores from Sustainalytics.  The Sustainalytics quote page shows a company’s numerical rating for three categories, environment, social and governance, along with the overall ESG score.  Scores range from 1 to 100.

There is also a graphic representation of the score that, according to the press release from Sustainalytics, will be tracked against the average in each category and plotted over time.  The graph, currently reflecting data from 2014 to now, is intended to display trends of how a company ranks against industry peers.
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