Last week, Glass Lewis & Co. (Glass Lewis) released its annual U.S. and Shareholder Initiatives proxy voting policies and guidelines for the 2020 proxy season.
Glass Lewis's policy updates reflect the impact of the recent policy announcement from the Division of Corporation Finance (Division) of the Securities and Exchange Commission (SEC) that 1) the Division staff may respond to some shareholder proposal no-action requests orally rather than in writing and 2) if the Division staff declines to state a view on a no-action request, then that position should not be interpreted to mean that the shareholder proposal must be included in the proxy statement. In its summary of changes for the 2020 proxy season, Glass Lewis stated that it believes "that companies should only omit proposals in instances where the SEC has explicitly concurred with a company's argument that a proposal should be excluded." Therefore, Glass Lewis will now consider recommending a vote against all members of a company's governance committee where the Division staff:
- declines to state a view on a shareholder proposal and the company does not include the shareholder proposal in its proxy statement; and
- orally concurs with a company's no-action request but 1) the Division staff does not provide any written record and/or 2) the company does not provide any disclosure relating to the result of its no-action request.
Other key updates for the 2020 proxy season include the following:
- Standards for Assessing the Audit Committee. Glass Lewis will now consider recommending a vote against the audit committee chair when fees paid to the company's external auditor are not disclosed. If the company has a staggered board and the audit committee chair is not up for re-election, then Glass Lewis will not recommend a vote against other audit committee members but will note its concern regarding the audit committee chair.
- Compensation Committee Performance. Glass Lewis will now consider recommending a vote against all members of the compensation committee if the board adopts a frequency for say-on-pay votes that differs from the frequency that received the most votes from shareholders.
- Nominating and Governance Committee Performance. Glass Lewis will now consider recommending a vote against the governance committee chair when board and committee attendance is not disclosed. Glass Lewis will also consider recommending a vote against the governance committee chair when a director's attendance is less than 75 percent of the board and applicable committee meetings but the disclosure is too vague to determine which director's attendance was lacking.
- Forum Selection Clauses. Glass Lewis will continue to consider recommending a vote against the governance committee chair if the board adopted a forum selection clause without shareholder approval during the past year. But, Glass Lewis clarified that it would "evaluate the circumstances surrounding the adoption," and if the forum selection clause "is narrowly crafted to suit the particular circumstances facing the company and/or a reasonable sunset provision is included," then it may make an exception to its voting policy.
- Shareholder Proposals – Supermajority Vote Requirements. While Glass Lewis generally supports shareholder proposals seeking to eliminate supermajority voting provisions, it clarified that it may recommend that shareholders vote against proposals that seek to eliminate supermajority voting provisions at controlled companies because these provisions may protect minority shareholders.
- Shareholder Proposals – Gender Pay Equity. Glass Lewis will review on a case-by-case basis shareholder proposals requesting disclosure of a company's median gender pay ratio. However, if a company has disclosed "sufficient information" about its diversity initiatives, including how it is "ensuring that women and men are paid equally for equal work," then Glass Lewis will generally recommend a vote against these proposals.
- Say-On-Pay Considerations.
- Post fiscal year-end changes. Glass Lewis clarified that its review of say-on-pay proposals would include post fiscal year-end changes to executive compensation and one-time awards, "particularly where the changes touch upon issues that are material to Glass Lewis recommendations."
- Low shareholder support; company responsiveness. Glass Lewis added "insufficient response to low shareholder support" to its non-exhaustive list of issues that may cause it to recommend voting against a company's say-on-pay proposal. In addition, Glass Lewis sought to clarify what it considered appropriate responses to low shareholder support of say-on-pay proposals (that is, proposals that did not receive at least 80 percent support). First, Glass Lewis noted that "the minimum appropriate levels of responsiveness will correspond with the level of shareholder opposition, as expressed both through the magnitude of opposition in a single year, and through the persistence of shareholder discontent over time." And second, Glass Lewis indicated that "engaging with large shareholders to identify their concerns, and where reasonable, implementing changes that directly address those concerns within the company's compensation program[,]" were responses that it would consider appropriate.
- Short-term incentives. In its discussion of short-term incentives, Glass Lewis noted that in cases where a company "applied upward discretion, which includes lowering goals mid-year or increasing calculated payouts" for short-term incentives, it would "expect a robust discussion of why" the company made that decision.
- Change in control. Glass Lewis stated that it "considers double-trigger change in control arrangements…to be best practice[,]" and that broad definitions of change in control may be problematic because this could "lead to situations where executives receive additional compensation where no meaningful change in status or duties has occurred."
- Contractual arrangements; amended employment agreements. Glass Lewis provided a slightly revised non-exhaustive list of problematic entitlements that would likely weigh in favor of a negative recommendation on a company's say-on-pay proposal, including: excessively broad change in control triggers; inappropriate severance entitlements; inadequately explained or excessive sign-on arrangements; guaranteed bonuses (especially as a multiyear occurrence); and failure to address any concerning practices in amended employment agreements. Following on this last point, Glass Lewis noted that a company's failure to address problematic pay practices in an amended employment agreement would be viewed "as a missed opportunity on the part of the company to align its policies with current best practices."