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
 
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.