Glass Lewis's new post: "Everything in Governance is Affected by the Coronavirus Pandemic. This is Glass Lewis’ Approach" aims to explain how it will apply its purportedly contextual approach to coronavirus-stricken companies this proxy season. While Glass Lewis believes the pandemic will have a widespread impact on governance issues and proposals generally, it is particularly focused on, e.g., executive pay, capital allocation and management, and ESG proposals. The overarching message to companies on executive pay is that shareholders' reduced return based on lower company valuations should generally be reflected in the form of reduced pay for executives to garner Glass Lewis support, whereas other focus areas illustrate more flexibility based on the anomalous nature of these circumstances.
This excerpt on ESG shareholder proposals is particularly share-worthy:
While the basic calculus for assessing environmental or social shareholder proposals on the basis of materiality to the returns or risk of a business hasn’t changed, the context has, significantly. Approaching these issues from a long-term perspective is still crucial, but ensuring that companies are able to operate in the short- to medium-term is also a very important consideration. Those companies hardest hit by social distancing as a result of the recent crisis, including in the airline, restaurant or hotel industries, may be considering a wholly different set of material benefits and risks than at their prior AGM. Moreover, companies in all industries will be looking at ‘black swan’-type risks, such as preparedness for climate change, from a new perspective and reconsidering how robust their governance structures truly are.
In the meantime, investors should be mindful that many of the shareholder proposals this proxy season may not adequately account for companies’ current circumstances or constraints. Issues that appeared accretive in the context of a strong market may not make as much sense in the midst of this crisis and the very material challenges that many companies are now facing in the short to medium-term. This is particularly true for proposals asking companies to undertake resource-intensive actions or reporting that would undermine their ability to respond to more immediate concerns that are also in shareholders’ interests.
Importantly, Glass Lewis emphasizes that companies will benefit by effective disclosure and rationales underlying their crisis-related changes or actions that support the reasonableness (including proportionality of impact) of the changes or actions to shareholder interests and the company's employees.
See Davis Polk's memo and last week's report: "Vanguard, Glass Lewis Sanction Virtual-Only Meeting Format." This post first appeared in the weekly Society Alert!