November 1, 2018
On October 24, 2018, Glass Lewis released its updated U.S. proxy voting policy guidelines for 2019, including guidelines for shareholder proposals. The updated U.S. guidelines are available here, and the guidelines on shareholder proposals are available here. The most significant updates to the guidelines are summarized below. The updated U.S. proxy voting guidelines include discussion of two previously announced policy changes that will take effect for meetings held after January 1, 2019, relating to board gender diversity and virtual-only annual meetings.
Board Gender Diversity
As previously announced, for a company that has no female directors, Glass Lewis generally will begin recommending votes “against” the nominating/governance committee chair, and may also recommend votes “against” other committee members depending on factors such as the company’s size, industry, state of headquarters, and governance profile.
Glass Lewis will “carefully review a company’s disclosure of its diversity considerations” and may not recommend votes “against” directors when the board has provided a “sufficient rationale” for the absence of any female board members. Such rationale may include any notable restrictions on the board’s composition (e.g., the existence of director nomination agreements with significant investors) or disclosure of a timetable for addressing the board’s lack of diversity.
In light of California’s recently enacted legislation requiring a minimum number of women on public company boards (discussed here), which includes having at least one woman by the end of 2019, Glass Lewis will recommend votes “against” the nominating/governance committee chair at companies headquartered in California that do not have at least one woman on the board and do not disclose a “clear plan” for addressing this issue before the end of 2019.
Conflicting Shareholder Proposals
Glass Lewis updated its policy on conflicting shareholder proposals to address special meeting proposals specifically. These updates respond to developments during the 2018 proxy season, when the Securities and Exchange Commission (the “SEC”) staff permitted companies to exclude “conflicting” special meeting shareholder proposals when seeking shareholder ratification of an existing special meeting right with a higher ownership threshold.
The updated policy states that Glass Lewis generally favors a 10%-15% special meeting right and will generally recommend votes “for” shareholder and company proposals within this range. When companies exclude a special meeting shareholder proposal by seeking ratification of an existing special meeting right, Glass Lewis will recommend votes “against” both the company’s ratification proposal and the members of the nominating/governance committee.
When the proxy statement includes both shareholder and company proposals on special meetings:
While it appears that the special meeting threshold will be the primary focus of Glass Lewis’s analysis, Glass Lewis also will consider the company’s overall governance profile, including its responsiveness to and engagement with shareholders.
Director Voting Recommendations Based on Excluded Shareholder Proposals
With respect to the exclusion of shareholder proposals more generally, Glass Lewis states in the updated policy that “it generally believe[s] that companies should not limit investors’ ability to vote on shareholder proposals that advance certain rights or promote beneficial disclosure.” In light of this, Glass Lewis will make note of instances where a company has successfully petitioned the SEC to exclude shareholder proposals and, “in certain very limited circumstances,” may recommend votes “against” the members of the nominating/governance committee if it believes exclusion of a shareholder proposal was “detrimental to shareholders.”
Environmental and Social Risk Oversight
Glass Lewis believes that companies should have “appropriate board-level oversight of material risks” to their operations, including those that are environmental and social in nature. For large cap companies or companies where Glass Lewis identifies “material oversight issues,” Glass Lewis will seek to identify the directors or committees charged with oversight of environmental and social issues, and will note instances where companies have not clearly defined this oversight in their governance documents.
Where Glass Lewis believes that a company has not properly managed or mitigated environmental or social risks “to the detriment of shareholder value,” Glass Lewis may recommend votes “against” directors who are responsible for oversight of environmental and social risks. If there is no explicit board oversight of environmental and social issues, Glass Lewis may recommend votes “against” members of the audit committee.
Ratification of Auditor: Additional Considerations
Glass Lewis’s policies list situations in which it may recommend votes “against” ratification of the outside auditor. Under the 2019 policy updates, Glass Lewis will consider factors that may call into question an auditor’s effectiveness, including auditor tenure, any pattern of inaccurate audits, and any ongoing litigation or controversies. In “limited cases,” these factors may lead to a recommendation “against” auditor ratification.
Virtual-Only Shareholder Meetings
As previously announced, Glass Lewis’s new policy on virtual-only shareholder meetings will take effect January 1, 2019. Under this policy, for a company that chooses to hold a virtual-only meeting, Glass Lewis will analyze the company’s disclosure of its virtual meeting procedures and may recommend votes “against” the members of the nominating/governance committee if the company does not provide “effective” disclosure assuring that shareholders will have the same opportunities to participate at the virtual meeting as they would at in-person meetings.
Examples of effective disclosure include descriptions of how shareholders can ask questions during the meeting, the company’s guidelines on how questions and comments will be recognized and disclosed to meeting participants, procedures for posting questions and answers on the company’s website as soon as practical after the meeting, and how the company will deal with any potential technical issues regarding accessing the virtual meeting including providing technical support.
Director Recommendations Based on Company Performance
Glass Lewis typically recommends that shareholders vote against directors who have served on boards or as executives at companies with “indicators of mismanagement or actions against the interests of shareholders.” One instance where Glass Lewis may issue an “against” recommendation is where a company’s performance for the past three years has been in the bottom quartile of the sector and the board has not taken reasonable steps to address the poor performance. For 2019, Glass Lewis has clarified that rather than looking solely at stock price performance, it will also consider the company’s overall corporate governance, pay-for-performance alignment, and board responsiveness to shareholders, in order to assess whether “the company performed significantly worse than its peers.”
Directors Who Provide Consulting Services
Under its voting policies on conflicts of interest, Glass Lewis recommends that shareholders vote “against” directors who provide, or whose immediate family members provide, material professional services to the company, including legal, consulting or financial services. Beginning in 2019, Glass Lewis will generally refrain from voting against directors who provide consulting services if they do not serve on the audit, compensation or nominating/governance committees and Glass Lewis has not identified “significant governance concerns” at the company.
Glass Lewis clarified or amended several executive compensation policies:
In addition to special meeting shareholder proposals (discussed above), Glass Lewis has also updated its policies on other shareholder proposals in several respects:
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have about these developments. To learn more about these issues, please contact the Gibson Dunn lawyer with whom you usually work, or any of the following lawyers in the firm’s Securities Regulation and Corporate Governance and Executive Compensation and Employee Benefits practice groups:
Securities Regulation and Corporate Governance Group
Elizabeth Ising – Washington, D.C. (+1 202-955-8287, firstname.lastname@example.org)
Lori Zyskowski – New York (+1 212-351-2309, email@example.com)
Ronald O. Mueller – Washington, D.C. (+1 202-955-8671, firstname.lastname@example.org)
Gillian McPhee – Washington, D.C. (+1 202-955-8201, email@example.com)
Aaron Briggs – San Francisco (+1 415-393-8297, firstname.lastname@example.org)
Maia Gez – New York (+1 212-351-2612, email@example.com)
Julia Lapitskaya – New York (+1 212-351-2354, firstname.lastname@example.org)
Michael Titera – Orange County, CA (+1 949-451-4365, email@example.com)
Executive Compensation and Employee Benefits Group
Sean C. Feller – Los Angeles (+1 310-551-8746, firstname.lastname@example.org)
Michael J. Collins – Washington, D.C. (+1 202-887-3551, email@example.com)
Krista Hanvey – Dallas (+1 214-698-3425; firstname.lastname@example.org)
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