Earlier this week, we commented on updated proxy voting guidelines released by Institutional Shareholder Services Inc. ("ISS"). Glass, Lewis & Co., LLC ("Glass Lewis") has now also released its guidelines for the 2016 proxy season. The guidelines include changes and clarifications in areas such as proxy access, director overboarding, environmental and social risk oversight and exclusive forum provisions. A copy of the voting guidelines is available here, and a summary of certain key changes follows.
Glass Lewis has stated that it generally supports affording shareholders the right to nominate director candidates for inclusion on management's proxy. Glass Lewis will consider the following in evaluating proposals for enhanced proxy access:
- minimum share ownership threshold and holding requirements for nominating shareholders; and
- company size, performance and history of responsiveness to shareholders.
The Glass Lewis approach is broadly consistent with factors advocated for by the Canadian Coalition for Good Governance in its recent proxy access policy paper, as summarized by our colleagues in an earlier blog post.
The new guidelines address awards granted to newly hired executive officers. Glass Lewis has indicated that there should be clear disclosure and a "meaningful explanation" of sign-on arrangements and the process by which the amounts were determined, including the details of and basis for any "make-whole" payments and any departure from the company's regular compensation arrangements. Glass Lewis will evaluate such one-time awards in the context of the company's overall incentive strategy and granting practice as well as the current operating environment.
Director Overboarding & Audit Committee Over-Commitment
Like ISS, Glass Lewis has provided revised guidance on when it believes a director serves on too many public company boards. Glass Lewis has historically recommended a "withhold" vote for a director who is not a public company executive and serves on more than six public company boards or a director who is an executive officer of a public company and serves on more than two other public company boards.
- For 2016, Glass Lewis' voting recommendations will be based on existing thresholds, but will note as a concern instances of a director serving as an executive of a public company while serving on more than two total boards and any other director serving on more than five total boards.
- Beginning in 2017, Glass Lewis will lower these thresholds and will recommend a "withhold" vote for a director (a) who is the executive officer of a public company and serves on more than two public company boards (including the "home" board) or (b) who serves on more than five public company boards.1 In the case of an overboarded executive officer, Glass Lewis will recommend against the executive officer only for election to outside boards.
In contrast to ISS, Glass Lewis does not also require a poor attendance record before a director will receive a "withhold" recommendation.
These changes will not affect Glass Lewis' approach for TSX Venture Exchange listed companies, for which a more lenient standard will continue to be applied.
Audit Committee Over-Commitment:
Despite tightening its recommendations with respect to overboarding, Glass Lewis has adopted a more lenient approach with respect to its thresholds for audit committee over-commitment for directors of TSX Venture Exchange listed issuers. The new threshold considers four audit committees to be a reasonable limit (or five in the case of a director with financial expertise).
Performance Failures Associated with Board Composition or Environmental and Social Risk Oversight
Glass Lewis may recommend a "withhold" vote for the chair of the nominating committee where the board's failure to ensure that the board has directors with relevant experience, either through periodic director assessment or board refreshment, has contributed to a company's poor performance.
How Glass Lewis will establish that board composition has contributed to "poor performance" or how it will define such performance is not addressed.
Environmental and Social Risk Oversight:
Glass Lewis has also formalized its policy regarding board oversight of environmental and social issues. Boards should ensure that management conducts a complete risk analysis of company operations, including those that have environmental and social implications, and should monitor management's performance in managing and mitigating these risks.
Glass Lewis intends to recommend a "withhold" vote for directors who are responsible for risk oversight when "the board or management has failed to sufficiently identify and manage a material environmental or social risk that did or could negatively impact shareholder value". No guidance is provided as to how Glass Lewis will evaluate the efforts of the board to manage these risks and assess potential negative impact on shareholder value.
2015 saw the introduction of exclusive forum provisions in Canada by way of by-law and charter amendments, though it remains to be seen whether this will be a growing trend. Glass Lewis believes that provisions limiting a shareholder's choice of forum for legal proceedings are generally not in the best interests of shareholders, as such clauses may discourage shareholder derivative claims by increasing their associated costs and making them more difficult to pursue. Glass Lewis will generally recommend that shareholders vote against any by-law or charter amendment that adopts an exclusive forum provision.
A company would have to provide a compelling argument as to why such a provision would directly benefit shareholders in order to garner support from Glass Lewis.
1. For comparison, ISS has indicated that beginning in 2017, it will recommend withhold votes for a CEO that serves on more than one outside public company board, or a non-CEO director that serves on more than four public company boards.
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