Glass Lewis released its Proxy Paper Policy Guidelines for 2021 and updated approach to ESG proposals.
Noteworthy changes to the Guidelines include:
Board gender diversity
- Glass Lewis will continue its policy in 2021 of generally recommending a vote against the nominating committee chair (or other nominating committee members depending on the circumstances) of boards with no female directors. However, beginning in 2021, it will note as a concern boards with fewer than two female directors.
- Beginning with shareholder meetings held after January 1, 2022, Glass Lewis will generally recommend voting against the nominating committee chair of a board with fewer than two female directors; provided, however, that boards will six or fewer total directors won't receive adverse voting recommendations if they have at least one female director.
- Importantly, adequate proxy disclosure may ward off a negative voting recommendation for boards that don't meet the minimum requirements. See pages 26 - 27 of the Guidelines.
- For states with relevant board diversity laws (e.g., California), Glass Lewis will recommend in accordance with board composition requirements set forth in applicable state laws when they come into effect.
Director diversity & skills disclosure
Although Glass Lewis won't be making voting recommendations on this basis in 2021, beginning with the 2021 proxy season, it will assess these aspects of companies' proxy disclosure on board diversity, skills, and the director nomination process:
- Board’s current percentage of racial/ethnic diversity
- Whether the board’s definition of diversity explicitly includes gender and/or race/ethnicity
- Whether the board has adopted a policy requiring women and minorities to be included in the initial pool of candidates when selecting new director nominees (aka “Rooney Rule”)
- Board skills disclosure
Glass Lewis's assessment of the quality of disclosure based on the foregoing will inform its assessment of a company's overall governance and may inform its recommendations on other matters involving board-related concerns.
Board refreshment - Beginning in 2021, Glass Lewis will note as a potential concern instances where the average tenure of non-executive directors is 10 years or more and no new independent directors have joined the board in the past five years. This information won't itself be the basis for a voting recommendation, but may inform its recommendations on other matters involving board-related concerns.
E&S Risk Oversight - Beginning in 2021, Glass Lewis will note as a concern for S&P 500 companies the lack clear disclosure concerning board-level oversight of environmental and/or social issues. Beginning with shareholder meetings held after January 1, 2022, it will generally recommend voting against the governance chair where explicit disclosure concerning the board’s role in overseeing these issues is lacking. The foregoing notwithstanding, Glass Lewis defers to companies as to their appropriate board oversight structure.
Vote results disclosure - For shareholder meetings held after January 1, 2021, Glass Lewis will recommend voting against the governance committee chair when a detailed record of proxy voting results from the last annual meeting has not been disclosed.
Compensation
-
- In assessing a company's short-term incentive plan, Glass Lewis will look for clearly disclosed justifications for any significant changes to the short-term incentive plan structure, as well as any instances in which performance goals have been lowered from the previous year.
- Upward discretion has been expanded to include instances of retroactively prorated performance periods.
-
- Inappropriate performance-based award allocation may, in the presence of other major concerns, contribute to a negative recommendation.
-
- Any decision to significantly roll back performance-based award allocation will be reviewed as a regression of best practices that - outside of exceptional circumstances - may lead to a negative recommendation.
- Glass Lewis will look for clearly disclosed explanations to accompany long-term incentive equity granting practices, as well as any significant structural program changes or any use of upward discretion.
Clarifying updates address - among other topics - virtual-only shareholder meetings. The Guidelines remove the COVID-19 policy exception and revert to Glass Lewis's standard policy:
When analyzing the governance profile of companies that choose to hold virtual-only meetings, we look for robust disclosure in a company’s proxy statement which assures shareholders that they will be afforded the same rights and opportunities to participate as they would at an in-person meeting.
Examples of effective disclosure include: (i) addressing the ability of shareholders to ask questions during the meeting, including time guidelines for shareholder questions, rules around what types of questions are allowed, and rules for how questions and comments will be recognized and disclosed to meeting participants; (ii) procedures, if any, for posting appropriate questions received during the meeting and the company’s answers, on the investor page of their website as soon as is practical after the meeting; (iii) addressing technical and logistical issues related to accessing the virtual meeting platform; and (iv) procedures for accessing technical support to assist in the event of any difficulties accessing the virtual meeting.
Glass Lewis will generally recommend voting against members of the governance committee where the board is planning to hold a virtual-only shareholder meeting and the company does not provide such disclosure.
The areas of change highlighted in the ESG Initiatives Policy Guidelines (ESG proposals) summary include EEO-1 diversity reporting, management ESG proposals, climate change, and E&S risk oversight.
See Glass Lewis's release and additional information & resources on our Proxy Advisors page.