Proxy Season

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ISS Issues 2021 Governance QualityScore Methodology Updates

On February 8, 2021, ISS announced the updated methodology guide the firm uses to determine a company’s Governance QualityScore (GQS), its proprietary rating system designed to help institutional investors assess companies for governance quality and risk. Seventeen new factors have been added, which ISS states is the largest GQS methodology release in recent years.

What GQS Measures

GQS is a decile-based score meant to indicate the corporate governance risk relative to other companies in a respective index or region.
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State Street’s 2021 Proxy Voting Agenda

State Street Global Advisors (SSGA) released its eagerly awaited 2021 proxy voting agenda earlier this week and, unsurprisingly, climate change risk and the lack of racial and ethnic diversity are among the investor’s top priorities. In the annual letter from the President and CEO Cyrus Taraporevala (CEO’s Letter), companies are urged to increase their transparency around racial and ethnic diversity.
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ISS Releases Its Compensation-Related Policy FAQs for 2021

On December 21, 2020, ISS released its updated compensation-related FAQs for 2021.  For U.S. companies, this set of guidance consists of ISS’ Compensation Policies FAQ, Equity Compensation Plans FAQ, Pay-for-Performance Mechanics and Peer Group FAQ. As we previously discussed, ISS released its 2021 U.S. Proxy Voting Benchmark Policy Recommendations in November. The updated policies and FAQs are effective for shareholder meetings occurring on or after February 1, 2021.
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ISS Releases Preliminary FAQs on U.S. Compensation Policies and the COVID-19 Pandemic

On October 15, 2020, ISS released a series of preliminary FAQs on its approach to analyzing pay decisions relating to the COVID-19 pandemic. These FAQs provide general guidance on how ISS Research may approach COVID-related pay decisions in the context of ISS’ pay-for-performance qualitative evaluation. ISS makes clear that the responses to the FAQs should not be construed as a guarantee as to how ISS will consider any particular situation.
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Glass Lewis Shares Recommendation Rates for 2020 Proposals

On October 8, 2020, Glass Lewis (GL) released reports providing its overview of the 2020 proxy season. These reports cover selected shareholder vote results and trends, market and regulatory developments, and whether GL was supportive of proposals on various topics submitted to shareholder votes during the 2020 proxy season. On a selected basis, the reports also provide GL’s rationale for its 2020 voting recommendations on company-specific proposals.
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NYSE Rule Temporarily Extends Deadline for Brokers to Send Physical Proxy Materials

On April 23, 2020, the New York Stock Exchange (NYSE) proposed a temporary rule change of NYSE Rule 451(b)(1) with immediate effectiveness that extends the deadline by which NYSE member organizations (typically broker/dealers) under selected circumstances must send physical copies of proxy materials to beneficial owners. In light of delays related to the novel coronavirus (COVID-19) pandemic, the NYSE designed the modification with the intention of helping issuers meet their quorum requirements at shareholder meetings and possibly alleviating the need for adjournments or postponements.
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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.
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SEC Staff Updates Its Guidance on Shareholder Meetings & COVID-19

The SEC Staff updated today its prior March 13, 2020 guidance relating to shareholder meetings, including virtual meetings. You may recall that the Staff’s March guidance provided welcome clarity to issuers that previously mailed and filed their proxy materials, but who wish to change the date, time or location of their meetings, allowing them to essentially issue a press release and file that on EDGAR without needing to remail all materials.
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BlackRock Releases Its Quarterly Engagement and Voting Numbers

BlackRock has released its Investment Stewardship Report for the Americas region (United States, Canada and Latin America) for the second quarter of 2019.  The majority of the investor’s stewardship activities during this quarter entail voting and direct engagements to inform its voting decisions given that a majority of its portfolio companies’ shareholder meetings are scheduled in this time period.
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A Say-on-Pay Update — Plus Strategies for Responding to a Negative Recommendation by a Proxy Advisory Firm

The proxy season is just around the corner for calendar year public companies. Ahead of the season, two major proxy advisory firms, Institutional Shareholder Services (ISS) and Glass Lewis, recently released their 2019 policy updates to provide guidance on how they will make recommendations on companies’ “say-on-pay” vote. Although a non-binding vote, performing poorly on a say-on-pay vote is not only disheartening, but can impact shareholder votes on election of directors (particularly compensation committee members), result in greater scrutiny of CEO performance, and require management and compensation committee members to expend significant time and resources to address concerns reflected by the vote.
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How Do Retail Shareholders Vote?

Retail shareholders own about 30% of public companies, a fairly consistent level over the past five years, but only about 28% of those shares are voted, according to the latest issue of ProxyPulse from Broadridge and PwC.  In comparison, 91% of institutional shares vote.

During the 2018 proxy season, support for the 21,855 directors up for election was 96% from institutional investors and 95% from retail investors, on average.  
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Report Finds Shareholder Activism Evolving from Niche Strategy to Acceptance Across Investors

With 371 public campaigns against U.S. companies, according to a recent J.P. Morgan report on the new normal in shareholder activism, the 2017 proxy season proved to be fairly active. Although only 19 of the 54 actual contests that were completed by June went to vote, while the same number settled and the remainder were withdrawn, activists were able to obtain at least one board seat 46% of the time, compared to 41% last year.
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Criticism of Governance Provisions in Proxy Contest Leads to Reincorporation

Among the settlement terms in the proxy contest between Arconic Inc. and Elliot Management is an agreement to reincorporate to Delaware due to the corporate governance provisions in the company’s charter.

As the surviving company of Alcoa Inc., which spun off parts of its business into a new entity called Alcoa Corp., the renamed Arconic was governed under a charter that staggered board elections and required 80% of outstanding shares to amend the terms for fair price protection, change the classified board or remove its directors.
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Two Quick Reminders for the Proxy Season

As many of you prepare to file your proxy statements this month, two quick reminders on new developments to keep in mind:

  • There is no longer a requirement to send the SEC hard copies of the company’s annual report that accompanies the proxy statement if you post the report on the company’s website, and keep the report on the website for at least a year. 

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2017 Proxy Statement Reminders

While several major SEC disclosure requirements remain in the proposal stage and the pay ratio disclosure does not come into play until the proxy statement for 2018 meetings, companies should be aware of a few new items for the 2017 proxy statement:

  • Audit Committee Communications with Auditors.  Item 407 of Regulation S-K requires the audit committee report to state whether the committee has discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No.

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A Look at Retail Shareholders and Other Results from the 2016 Proxy Season

73% of the shareholders at large-cap companies and 77% of those at mid-cap companies are institutional investors, according to the latest edition of ProxyPulse, a joint publication by Broadridge and PwC that examined 4,200 annual meetings held between January 1 and June 30, 2016. But retail investors play an important role in contested issues, and they tend to side with the company.
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