Category Glass Lewis

Recently, both Glass Lewis and ISS released their U.S. policy updates for the 2020 proxy season.

Glass Lewis’ Policy Updates

ISS’ Policy Updates

ISS’ Preliminary Compensation FAQs

For more information, please see Exequity’s Client Alert which covers these developments:

https://www.exqty.com/uploads/6/9/9/0/69908991/gl_iss_2020_policy_updates_20191121.pdf

On November 5, 2019, the SEC issued two new proposed rules. One impacts proxy voting advice and the other impacts shareholder proposals.

Proxy Voting Advice

The proposed rule amends Exchange Act Rule 14a-2(b), which provides exemptions from the proxy rules’ filing and information requirements for certain kinds of solicitations. The amendment would call for enhanced disclosure of material conflicts of interest and would codify the August 2019 guidance’s change in the definition of “solicitation” to include proxy voting advice.

Under the proposed amendments, proxy voting advice businesses (i.e., proxy advisory firms) relying on the Exchange Act Rule 14a-2(b) exemptions from the information and filing requirements of the proxy rules would be subject to the following conditions:

• They must include disclosure of material conflicts of interest in their proxy voting advice
• Public companies must be given an opportunity to review and provide feedback on proxy voting advice before it is issued; and
• Public companies may request that proxy voting advice businesses include in their voting advice a hyperlink or similar method of directing the recipient of the advice to a written statement that sets forth the public company’s views on the proxy voting advice.

The proposed amendments would permit the proxy voting advice businesses to require public companies to enter into confidentiality agreements for materials exchanged during the review and feedback period and would allow proxy voting advice businesses to rely on the exemptions where failure to comply with the new conditions was immaterial or unintentional.

The proposed rule will be subject to a 60-day public comment period.

The SEC announcement about these proposed rules changes can be found at: https://www.sec.gov/news/press-release/2019-231

Shareholder Proposals

The other rule changes that the SEC proposed involved shareholder proposals. The proposed amendments would:

• update the criteria, including the ownership requirements, that a shareholder must satisfy to be eligible to have a shareholder proposal included in a company’s proxy statement.
• Update the “one proposal” rule to clarify that a single person may not submit multiple proposals at the same shareholder’s meeting, whether the person submits a proposal as a shareholder or as a representative of a shareholder; and
• Modernize the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings

The changes to the ownership requirements represent a significant increase over the current standard. Currently, the ownership requirement is met if a shareholder hold at least $2,000 or 1 percent of a company’s securities for at least one year. The $2,000 amount is retained, provided the individual has held the shares for at least 3 years but increased to $15,000 if held for at least 2 years and increased again to $25,000 if held for at least 1 year (25 times the current ownership standard!).

Even the changes to the resubmission thresholds for proposals are being increased. The current resubmission thresholds of 3 percent, 6 percent, and 10 percent for matters voted on once, twice or three or more times in the last 5 years, respectively, would be changed to 5 percent, 15 percent, and 25 percent respectively, and an overriding provision would be added for proposals that have been previously voted on three or more times in the last five years could be excluded if (1) it received less than 50 percent of votes cast, and (2) experienced a decline in shareholder support of 10 percent or more compared to the immediately preceding vote.

These proposed changes are also subject to a 60-day public comment period. It will interesting to see what comments shareholders have on these proposals as they all seem to limit the current rights of shareholders with respect to the companies in which they hold securities.

The SEC announcement about these proposed rules changes can be found at: https://www.sec.gov/news/press-release/2019-232

On August 21, 2019, the SEC issued two sets of guidance: (1) for proxy advisors, stating that the proxy rules apply to the provision of proxy voting advice, and (2) for investment advisers, regarding their proxy voting responsibilities.

This guidance could significantly change the proxy voting landscape and impact voting process at public companies. I provide my observations about these potential impacts and summaries of the SEC guidance in this Exequity Client Alert.

On November 28, 2018, Equilar announced that its 2019 peer submission window opened. The submission deadline is December 31, 2018. Companies have the opportunity to submit the peer companies that will be listed in a proxy to be filed between January 15, 2019, and July 15, 2019. This will help ensure that Equilar uses the correct company peers when constructing its MarketPeers for the company.

According to Equilar:

• institutional investors use Equilar’s MarketPeers for independent validation of  company disclosed peer groups,
• Glass Lewis uses Equilar’s MarketPeers algorithm to generate peer groups using in formulating Say on Pay recommendations for investors, and
• The Pay for Performance (P4P) modeler in Equilar Insight’s Shareholder Engagement Center includes simulations for ISS and Glass Lewis P4P analyses based on the most recent peer group information.

The Equilar web page where companies may submit their peer groups is:

https://insight.equilar.com/app/peer_update/