Proxy advisory firms ISS and Glass Lewis have issued their annual updated proxy voting guidelines for the upcoming 2021 proxy season. Glass Lewis’s new guidelines apply to shareholder meetings on or after January 1, 2021, while ISS’s guidelines will be used for meetings on or after February 1 next year. Among other key changes, the recently published annual updates signal enhanced scrutiny of boards that lack racial/ethnic and gender diversity – a topic that has generated substantial attention recently, including from NASDAQ’s recent request for SEC approval of “comply or explain” rules on board diversity.
With regard to gender diversity, ISS will now generally recommend against nominating committee chairs at Russell 3000 and S&P 1500 boards that lack a female member, while Glass Lewis will identify boards with fewer than two female directors and recommend against nominating committee chairs at boards with no female members.
On racial/ethnic diversity, Glass Lewis’s reports for S&P 500 companies will include an assessment of the quality of director diversity and skill disclosures, including the board’s definition of diversity, the board’s current percentage of racial/ethnic diversity, and whether the company has adopted a “Rooney Rule” to ensure that women and minority candidates are included in the pool from which director candidates are chosen. ISS’s 2021 reports will identify Russell 3000 and S&P 1500 companies that have no apparent racial/ethnic diversity; in 2022, it will generally recommend against nominating committee chairs of companies in those indexes that lack a racially/ethnically diverse board member.
In addition to these policy updates on board diversity, both proxy advisors made numerous other changes to their benchmark voting policies, including those on issues related to exclusive forum provisions, environmental and social risk oversight, and other matters. The remainder of this client alert summarizes the most important changes. The full text of ISS’s updates can be viewed on pages 4-26 of Proxy Voting Guidelines Updates for 2021; Glass Lewis’s updates are on pages 2-4 of their United States Policy Guidelines.
Summary of Significant Policy Changes and Clarifications
Institutional Shareholder Services (ISS) – Policies generally effective as of February 1, 2021
Glass Lewis – Policies generally effective as of January 1, 2021
Proxy advisor voting guidelines are an important signal of evolving shareholder views on corporate governance issues. Many investors, especially smaller investors, will follow a proxy advisor’s guidance; those investors that do not will often independently agree with some or all of a proxy advisor’s positions. Companies should evaluate how they will fare under both sets of updated proxy advisor guidelines, as well as the guidelines of their largest institutional shareholders, to proactively identify areas where additional shareholder engagement or corporate action may be helpful.