New Glass Lewis Policies Announce Negative Recommendations for Directors in Some Instances When Companies Exclude Special Meeting and Other Shareholder Proposals through SEC Process

By Ning Chiu on October 25, 2018 Posted in Glass Lewis

Under its 2019 updated guidelines, Glass Lewis will typically recommend against the members of the nominating and governance committee when a company is able to exclude a shareholder proposal on the right to call special meetings by presenting the ratification of an existing provision through a management proposal. That happened several times last season, with some controversy, when companies asked shareholders to ratify existing special meeting rights that had a higher ownership threshold than the shareholders had proposed.

The updated guidelines also warn that in the event Glass Lewis believes that the exclusion of any shareholder proposal that is permitted by the SEC is “detrimental to shareholders,” it may, “in very limited circumstances,” recommend against the members of a governance committee.
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In New Legal Bulletin, SEC Staff Clarifies Last Season’s Shareholder Proposal Controversies

By Ning Chiu on October 24, 2018 Posted in Shareholder Proposals

The SEC Division of Corporation Finance has issued a new Staff Legal Bulletin 14J to provide guidance on some of the issues that bedeviled us earlier this year as to when the staff would, or would not, permit companies to exclude proposals through the no-action letter process.

Discussion of Board’s Analysis in No-Action Letters. Last November, the Division issued SLB 14I, which indicated that companies could include, in their no-action letter requests arguing the “economic relevance” exception under Rule 14a-8(i)(5) and the “ordinary business” exception under Rule 14a-8 (i)(7), a discussion reflecting the board’s analysis of the particular policy issue raised by the proposal and its significance in relation to the company.
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Part I of the Key Components in the Commonsense Principles 2.0 – Issuer Responsibilities

By Ning Chiu on October 23, 2018 Posted in Board Matters

The Business Roundtable (BRT) and the Council of Institutional Investors (CII) have found common ground in supporting the revised Commonsense Principles 2.0, updated from 2016 and led once again by Warren Buffett and Jamie Dimon, along with several new CEO signatories, including some of the largest asset managers.

The open letter accompanying the principles acknowledges similar works by other groups, including the investor-led Investor Stewardship Group, the BRT’s Principles of Corporate Governance and The New Paradigm from the International Business Council of the World Economic Forum. All those frameworks are endorsed, although the letter hopes that the many sets of principles can be harmonized and consolidated.
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ISS Proposes Limited Policy Updates for 2019 Related to Board Gender Diversity and Say-on-Pay Secondary Screens

By Ning Chiu on October 19, 2018 Posted in ISS

Two key, but limited, policy changes for U.S. companies have been proposed by ISS. The open comment period will run through 5:00 p.m. ET on November 1.

Board Gender Diversity. Beginning with meetings on or after February 1, 2020 (providing a year grace period), ISS may issue adverse voting recommendations against nominating committee chairs at boards with no gender diversity. In special circumstances, the policy would allow the absence of board gender diversity to be temporarily explained and excused.

The mitigating factors that may be considered include: (a) a firm commitment, as stated in the proxy statement and/or other SEC filings to appoint at least one female director to the board in the near term (before the next annual general meeting); (b) the presence of at least one female director on the board at the immediately preceding annual meeting; and/or (c) any other compelling factors considered relevant on a case-by-case basis.
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How Do Retail Shareholders Vote?

By Ning Chiu on October 16, 2018 Posted in Investors, Proxy Season

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. About 1,408 directors (6.4%) failed to receive at least 70% favorable votes, and another 416 directors (1.9%) did not obtain support from at least a majority of shareholders. These poor results increased from prior year 2017, as 11% more directors failed to receive majority support and 14% more directors failed to surpass 70% support.
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California Imposes Climate Risk Disclosure Requirements on the U.S.’s Two Largest Pension Funds

By Betty M. Huber on October 8, 2018 Posted in Climate Action 100+, Disclosure, ESG, FSB, Governance, Greenhouse Gas, Securities Exchange, Social and Governance Matters, TCFD, United Nations Environment Programme - Finance Initiative

Citing concerns of climate change’s impact on the financial sector, California passed SB 964 last week requiring the country’s two biggest pension funds to publicly disclose and analyze their climate-related investment risks. Under the new law, The California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) must review and report “climate related financial risks” that are “material” to the stability of their public market portfolios. Such “climate-related financial risks” include “intense storms, rising sea levels, higher global temperatures, economic damages from carbon emissions, and other financial and transition risks due to public policies to address climate change, shifting consumer attitudes, changing economics of traditional carbon-intense industries.” SB 964’s obligations, which will take effect on January 1, 2020 and continue every three years until 2035, also require the funds to report on their alignment to the Paris climate agreement, California climate policy goals, and any long-term climate-related financial risks.
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CII and ISS Team Up to Oppose House Legislation on Proxy Advisory Firms, Speak for “Real Main Street” Investors

By Ning Chiu on October 4, 2018 Posted in ISS

Protect the Voice of Shareholders aims to oppose H.R. 4015, the Corporate Governance Reform and Transparency Act, that passed the House last October. While not effective, the Act is perhaps best known for requiring that the SEC withdraw the no-action letters to Egan Jones and ISS, which the SEC itself undertook recently, as we previously discussed.

The site is a joint project of ISS and CII, with ISS responsible for the content with approval from CII. The goal is to “correct the record, reveal the mistruths and double-speak of the lobbying groups trying to mislead lawmakers.” According to the site, the Act would “allow boardrooms to inhibit” the distribution of research reports when they disagree with recommendations, arguing that it is “inappropriate to permit companies to hinder the current free flow of unbiased research and information to investors.” The site provides news and resources as well as a way to reach Congress to oppose the Act.
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State Street to Hold Governance Committees Accountable for Lack of Gender Diversity

By Ning Chiu on October 3, 2018 Posted in Investors

On the heels of California becoming the first state to impose requirements mandating gender diversity on boards, which we discussed here, State Street has announced policy changes also focused on gender diversity.

Beginning in 2020, State Street will vote against the entire nominating committee if a company does not have at least one woman on its board, and has not engaged successfully with State Street for three consecutive years.

The global policy from State Street made headlines because notwithstanding companies concerns, it remains highly unusual for the largest asset managers to vote against directors, leading to director elections resulting in average support of over 95%.
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California Enacts Law Requiring Public Company Boards to Include Women

By Sarah K. Solum, Ning Chiu and Bryan M. Quinn on October 1, 2018 Posted in Board Matters, Director Matters

As our client memo explains, yesterday the governor of California signed a bill that requires public companies with executive offices in the state to include a specific number of women on their boards of directors.

Governor Brown’s statement acknowledges that “serious legal concerns” have been raised about the bill, and that “flaws” in the bill may “prove fatal to its ultimate implementation.” However, he believes that “recent events in Washington D.C. [and] beyond” make it “crystal clear that many are not getting the message.”

His letter was copied to the U.S. Senate Judiciary Committee.
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