ISS and Glass Lewis Present Guidance for Corporate Governance During COVID-19

Locke Lord LLP

Public companies and their boards can look to the recently released guidance of ISS and Glass Lewis when considering best therapies to address corporate governance and broader environmental, social and governance issues.  The prominent proxy advisors address, among other things, issues affecting annual general meetings, board composition, and executive compensation.  This post highlights the executive compensation considerations.

  • Generally, ISS and Glass Lewis support proportional approaches to the adjustment of executive compensation, to keep the adjustments in line with changes that are occurring for the rank and file employees (such as pay cuts). In somewhat divergent approaches, ISS stressed the importance of adequate explanation to shareholders of the rationale for any changes, particularly with respect to long-term performance-based awards, and strongly encouraged contemporaneous disclosures even though disclosures would not be technically required until the following year, while Glass Lewis focused on executives coming to the realization that “they should not expect to be worth as much as they were before the crisis, because their free market value as human capital has now changed”, emphasizing a “heavy burden of proof for boards and executives to justify their compensation levels in a drastically different market for talent.”
  • While recognizing that the dramatic drop in stock prices may result in a desire to reprice stock options which may have become significantly “out of the money,” ISS is maintaining its position that if boards undertake a repricing without shareholder approval, the directors’ actions will remain subject to scrutiny under ISS’ board accountability provisions. Further, if boards do seek shareholder approval, ISS will apply its existing case-by-case policy approach generally recommending against any repricing that occurs within one year of a precipitous drop in stock price.  Glass Lewis expects a marked increase in shareholder concerns in respect ofrepricing grants (among other pro-executive compensation protection mechanisms).

The guidance also touched on other current board considerations such as use of virtual-only annual general meetings and telephonic attendance of board members, among other items. You can read the full guidance here: ISS Pandemic Guidance and Glass Lewis Pandemic Guidance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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