United States: ISS And Glass Lewis Update Their Proxy Voting Guidelines For The 2016 Proxy Season

Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co. (Glass Lewis) have both released updates to their respective proxy voting guidelines.1 This alert provides a brief summary of the significant changes to each proxy advisory firm's respective policies for the 2016 proxy season. ISS's revised policies will take effect for annual meetings that are held on or after February 1, 2016, while Glass Lewis's revised policies will apply to meetings that are held on or after January 1, 2016.

Key Updates to ISS's Proxy Voting Guidelines

After concluding its annual global policy review, consisting of a policy survey, a request for comments on proposed policy changes, and several roundtable discussions, ISS issued its policy updates for the 2016 proxy season. Below is a summary of the key policy updates applicable to U.S. companies.

Proxy Access

ISS stated that its fundamental approach to management and shareholder proxy access proposals remains unchanged. ISS also acknowledged that, while it is unlikely that many proxy access director nominees will appear in 2016, it plans to update the framework that it will use to evaluate such nominees. ISS indicated that it will release a FAQ document in December 2015, which will provide more information on which additional proxy access provisions ISS considers overly restrictive as well as details regarding the analytical framework that it will use to evaluate proxy access director nominees.

Overboarding

ISS currently considers a director "overboarded" if he or she sits on more than six public company boards – or, if he or she is also a CEO, more than three public company boards (including the "home" company board). Under the new policy, ISS reduced the maximum number of public company boards that a director who is not also a CEO can sit on from six to five. There will be a one-year grace period before directors are evaluated under this new policy until 2017. During this grace period, ISS research reports will highlight if a director serves on more than five public company boards, but ISS will not make an adverse voting recommendation unless the current maximum of six boards is exceeded. For CEOs, the current overboarding limit will remain at two outside directorships. While ISS decided not to change this policy with respect to CEOs, it noted that it will continue to study the issue.

Unilateral Governance Changes

With regard to board actions that significantly reduce shareholder rights without approval by shareholders (so-called unilateral board actions), ISS's policy is being updated to distinguish between (1) unilateral board adoptions of bylaw or charter provisions made prior to or in connection with a company's initial public offering (IPO), and (2) unilateral board amendments to those documents made after a company's IPO. According to ISS, this distinction better reflects the differing expectations that investors may have for newly public companies versus more established public companies.

  • For newly public companies, under ISS's updated policy, it will give significant weight to shareholders' ability to change the governance structure in the future through a simple majority vote, and their ability to hold directors accountable through annual director elections. A public commitment by the company to put the adverse provisions to a shareholder vote within three years of the IPO can also be a mitigating factor.
  • For established public companies, the updated policy generally calls for continuing to withhold votes from directors who have unilaterally adopted provisions that create a classified board, establish supermajority voting requirements to amend the company's bylaws or charter, or eliminate shareholders' ability to amend bylaws.

Further, in subsequent years and on a case-by-case basis, ISS will consider these adverse governance provisions in determining vote recommendations for director nominees until such time as the actions are reversed or submitted to a shareholder vote.

Key Updates to Glass Lewis's Proxy Voting Guidelines

Conflicting Management and Shareholder Proposals

In light of the significant limits that SEC Staff Legal Bulletin No. 14H (SLB 14H) placed on the applicability of Rule 14a-8(i)(9),2 which permits a company to exclude a shareholder proposal that directly conflicts with a company's own proposal, Glass Lewis acknowledged that "some companies may still choose to place management proposals alongside similar shareholder proposals." Glass Lewis's updated policies therefore include guidance on how it would evaluate whether to support a "conflicting" management proposal, which includes the consideration of the following factors:

  • the nature of the underlying issue;
  • the benefit to shareholders from implementation of the proposal;
  • the materiality of the differences between the terms of the shareholder proposal and management proposal;
  • the appropriateness of the provisions in the context of a company's shareholder base, corporate structure, and other relevant circumstances; and
  • a company's overall governance profile and, specifically, its responsiveness to shareholders as evidenced by the company's response to previous shareholder proposals and its adoption of progressive shareholder rights provisions.

Last year, seven companies included competing management and shareholder proxy access proposals in their proxy statements (representing approximately 8% of the proxy access proposals that were voted on in 2015).3 It is unclear, however, what effect SLB 14H will have on the number of companies that will include a competing proxy access proposal in their proxy statements for the 2016 proxy season.

Director Overboarding Policy

Similar to ISS, Glass Lewis announced changes to its director overboarding policy and will also provide companies with a one-year grace period. As a result, Glass Lewis's voting recommendations in 2016 will continue to be based on its existing thresholds of three total boards for a director who serves as an executive officer of a public company and six total boards for directors who are not public company executives. For meetings held in 2016, Glass Lewis will note as a concern instances of a director serving as an executive of a public company while serving on more than two boards and any other director who serves on more than five total boards. Beginning in 2017, Glass Lewis's voting recommendations will be based on these lowered thresholds.

Exclusive Forum Provisions

Glass Lewis changed its approach to companies that include exclusive forum provisions in their governing documents in connection with an IPO and will no longer recommend that shareholders vote against the chairman of the nominating and governance committee in such situations. Instead, Glass Lewis indicated that it will weigh the presence of an exclusive forum provision in a newly public company's bylaws along with other provisions that it believes will unduly limit shareholder rights, such as supermajority vote requirements, a classified board, or a fee-shifting bylaw.

Companies that are considering whether to seek shareholder approval of an exclusive forum provision should note that Glass Lewis's current policy is to generally recommend that shareholders vote against any bylaw or charter amendment seeking to adopt such a provision. Glass Lewis may consider supporting the adoption of such a provision, however, if the company provides a compelling argument on why the provision would directly benefit shareholders, provides evidence of abuse of legal process in other, non-favored jurisdictions, has narrowly tailored such provision to address the risks involved, and has maintained a strong record of good corporate governance practices.

Environmental and Social Risk Oversight

Glass Lewis codified its policy regarding the responsibilities of directors for the oversight of environmental and social issues. Glass Lewis believes that boards should ensure that management conducts a complete risk analysis of company operations, including those that have environmental and social implications. Where 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, Glass Lewis will recommend that shareholders vote against the directors responsible for risk oversight.

Nominating Committee Performance

Glass Lewis clarified its guidelines to indicate that it may consider recommending that shareholders vote against the nominating committee chair 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.

Compensation Updates

Glass Lewis provided a more detailed discussion of how it will analyze awards granted to newly hired executive officers and generally reiterated its positions with respect to discretionary, one-time awards. With respect to one-time awards, Glass Lewis requires a thorough description of the awards and an explanation of why they are necessary and why existing awards do not provide sufficient motivation. Sign-on arrangements should be clearly disclosed and accompanied by a meaningful explanation of the payments involved and the process by which the amounts were reached. In addition, the details of any "make-whole" awards should be provided. Glass Lewis also added minor clarifications regarding its analysis of equity compensation plans.

Footnotes

1. ISS, 2016 Policy Updates (Nov. 20, 2015); Glass Lewis, Proxy Paper Guidelines, 2016 Proxy Season: An Overview of the Glass Lewis Approach to Proxy Advice – United States (Nov. 13, 2015).

2. For a detailed analysis of SEC Staff Legal Bulletin No. 14H, please refer to our previous Alert, " SEC Issues Staff Legal Bulletin Outlining the Scope of the 'Directly Conflicts' Exclusion under Rule 14a-8 and Providing Guidance on the Staff's Interpretation of the Ordinary Business Exclusion" (Oct. 26, 2015).

3. Management proposals at three companies (Exelon Corporation, Expeditors International of Washington, Inc., and SBA Communications Corporation) passed, shareholder proposals at three companies (AES Corporation, Cloud Peak Energy Inc., and Visteon Corporation) passed, neither the management nor the shareholder proposal passed at one company (Chipotle Mexican Grill, Inc.), and there were no companies where both proposals were passed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.