United States: ISS And Glass Lewis Update Their Proxy Voting Guidelines For The 2017 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 2017 proxy season. ISS's revised policies will take effect for annual meetings that are held on or after February 1, 2017, while Glass Lewis's revised policies will generally apply to meetings that are held on or after January 1, 2017.

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 2017 proxy season. Below is a summary of the key policy updates applicable to U.S. companies.

Director Overboarding Policy

ISS's new overboarding policy, which it announced last year, will apply to companies in 2017. In particular, ISS will generally recommend voting against a director who serves as a CEO of a public company while serving on more than three public company boards (including the "home" company board) and any other director who serves on more than five total public company boards.

IPOs with Multi-Class Shareholder Structures

Citing an increase in the number of companies completing IPOs with multi-class capital structures, ISS updated its policy to provide for adverse vote recommendations for directors (individually, committee members or the entire board, except for new nominees, who will be considered on a case-by-case basis) if, prior to or in connection with a company's IPO, the company implemented a multi-class capital structure in which the classes do not have the same voting rights. ISS had previously viewed a public commitment by a newly public company to put the adverse shareholder provisions to a vote within three years of the IPO as a mitigating factor, but ISS now deems such a vote to be insufficient and believes that a reasonable sunset provision is necessary.

Non-Employee Director Pay

ISS expanded its framework for evaluating non-employee director compensation. Under a new policy, ISS will vote, on a case-by-case basis, on management proposals seeking ratification of non-employee director compensation based on whether the equity plan under which non-employee director grants are made should be supported (if it is up for approval) and an assessment of following qualitative factors:

  • the relative magnitude of director compensation as compared to peer companies,
  • the presence of "problematic" director compensation practices,
  • director stock ownership guidelines and holding requirements,
  • equity award vesting schedules,
  • the mix of cash and equity-based compensation,
  • meaningful limits on director compensation,
  • the availability of retirement benefits or perquisites, and
  • the quality of disclosure surrounding director compensation.

ISS will consider the same factors when evaluating whether to support a non-employee director equity plan that is determined to be relatively costly, taking a holistic approach to all of the factors instead of requiring that certain minimum criteria be met for each factor.

Equity Plan Scorecard

ISS revised the factors and weightings under its U.S. Equity Plan Scorecard policy. In addition to minor changes to various factor weightings, the updated policy will include one additional factor related to the payment of dividends on unvested awards. Under this new factor, full points will be earned if the equity plan expressly prohibits, for all award types, the payment of dividends before the underlying award vests and no points will be earned if this prohibition is absent or not applied to all award types. ISS noted that a company's general practice of not paying dividends until vesting will be deemed insufficient to receive points related to this factor.

Modifications were also made to the minimum vesting factor under the scorecard. An equity plan must specify a minimum vesting period of one year for all award types under the plan in order to receive full points. No points will be earned if the plan allows for individual award agreements that reduce or eliminate the one-year vesting requirement.

Restricting Binding Shareholder Proposals

Under a new policy, ISS will generally recommend voting against governance committee members if the company's charter imposes undue restrictions on shareholders' ability to amend the company's bylaws, including an outright prohibition on the submission of binding shareholder proposals or share ownership or holding requirements beyond those required by Rule 14a-8.

Other Changes

In addition, where there is a management proposal to increase share capitalization in connection with a stock split or share dividend, ISS will look to the "effective" increase. ISS also renamed and reorganized its policy regarding amending cash and equity plans, including approval for Section 162(m) tax deductibility, to more clearly differentiate the evaluation framework applicable to the different types of amendment proposals. Generally, ISS will vote in favor of proposals that seek approval of cash and equity plans for Section 162(m) purposes if the plan is administered by a committee consisting entirely of independent directors (determined under ISS's standards), except in the case where the plan is presented for the first time following an IPO or if the proposal is bundled with other material amendments, in which case its recommendation will be done on a case-by-case basis.

In addition to the above policy updates, ISS is expected to release a complete set of updated policies and FAQs in December and updated proxy voting guidelines for any new U.S. shareholder proposals anticipated for 2017 in January.

Key Updates to Glass Lewis's Proxy Voting Guidelines

Director Overboarding Policy

Similar to ISS, the overboarding policy changes that Glass Lewis announced last year will be in effect for the 2017 proxy season. Specifically, Glass Lewis will generally recommend voting against a director who serves as an executive officer of any public company while serving on a total of more than two public company boards and any other director who serves on more than five total public company boards. Note that Glass Lewis's policy applies to a director who also serves as any executive officer of a public company, not just as CEO.

Glass Lewis will not generally recommend that shareholders vote against "overcommitted" directors at the companies where they serve as an executive. In evaluating whether a director may be overcommitted, Glass Lewis noted that it would consider the following factors: the size and location of the other companies, the board roles of the director, whether the director serves on the board of any large privately-held companies, the director's tenure, and the director's attendance record.

Glass Lewis also indicated that it may refrain from recommending against (1) certain directors if the company provides sufficient rationale for their continued board service (including disclosure regarding the scope of the directors' other commitments as well as their contributions to the board) or (2) a director who (a) serves on an excessive number of boards within a consolidated group of companies or (b) represents a firm whose sole purpose is to manage a portfolio of investments that include the company. With respect to the latter point in clause (b), the guidelines reflect Glass Lewis's belief that a director serving as a private equity or hedge fund designee deserves special consideration. Accordingly, a private equity or hedge fund designee that serves on more than five public company boards would not be deemed overboarded.

Governance Following an IPO or Spin-Off

Glass Lewis clarified its approach to corporate governance at newly public companies. Where it believes the board has approved governing documents that significantly restrict the ability of shareholders to effect change, Glass Lewis will consider adverse recommendations for governance committee members or the directors that served at the time of the governing documents' adoption, depending on the severity of the concern.

Specific areas of governance that Glass Lewis will review include:

  • anti-takeover mechanisms (e.g., poison pill or classified board),
  • supermajority vote requirements to amend governing documents,
  • exclusive forum or fee-shifting provisions,
  • shareholders' ability to call special meetings or act by written consent,
  • the voting standard for director elections,
  • shareholders' ability to remove directors without cause, and
  • evergreen provisions in the company's equity compensation arrangements.

Board Evaluation and Refreshment

Glass Lewis clarified its approach to board evaluation, succession planning and refreshment. Glass Lewis believes that shareholders should monitor the board's overall composition, including its diversity of skill sets, the alignment of the board's areas of expertise with the company's strategy, the board's approach to corporate governance, and its stewardship of company performance, rather than imposing inflexible rules such as age or term limits.

Other Changes

Use of Non-GAAP Metrics. In addition, in the context of the SEC's recent increased scrutiny of non-GAAP financial measures, Glass Lewis reminded companies that if they use non-GAAP financial measures in their incentive compensation disclosures, they should also provide clear reconciliations between such non-GAAP measures and GAAP measures and clear explanations for the basis of any non-GAAP adjustments.

As a reminder, the disclosure of non-GAAP target levels in the CD&A is not subject to the requirements of Regulation G and Item 10(e) under Instruction 5 to Item 402(b) of Regulation S-K, but companies that use non-GAAP target levels must also include disclosure as to how such non-GAAP numbers are derived from the company's audited financials.

Footnote

1. ISS, 2017 Americas Policy Updates (Nov. 21, 2016); Glass Lewis, 2017 Proxy Paper Guidelines: An Overview of the Glass Lewis Approach to Proxy Advice – United States (Nov. 18, 2016).

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
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
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
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions