Category Glass Lewis

On April 2, 2020, Glass Lewis announced a significant change to the manner in which it conducts its business. It will now include company feedback in its proxy reports without any rebuttals or other statements made about such company statement. The full text of the Glass Lewis announcement is at https://www.glasslewis.com/report-feedback-statement-included-with-research/

Companies will now have 7 days after Glass Lewis publishes its report to provide feedback. Feedback can be provide using Glass Lewis’ Report Feedback Statement webpage (https://www.glasslewis.com/report-feedback-statement/). Glass Lewis will then republish its proxy report and include the statement from the company.

Given that Glass Lewis has changed its peer group methodology for the 2020 proxy season, we may see more companies provide feedback this year as the change in peer groups may be dramatic and could have implications for the letter grades Glass Lewis assigns companies under its pay-for-performance analysis as part of its Say-on-Pay vote recommendation process.

I applaud Glass Lewis for taking this step and hope their subscribers will take company feedback provided seriously. At the same time, companies should provide feedback only where warranted and where specific issues have been identified. If both do so, it should help ensure that company feedback becomes a meaningful part of the Glass Lewis proxy reports.

Given the current COVID-19 crisis and the difficulty of having large, in-person meetings, many companies are considering or have decided to have their annual meeting be done this proxy season in a virtual format to help protect the health of everyone in attendance. Until Glass Lewis issued this update on March 19, 2020, its policy was to recommend Governance Committee members who approved a company’s virtual meeting.

However, recognizing the challenges presented by COVID-19, Glass Lewis issued an immediate update to its virtual meetings policy. Under Glass Lewis’ revised policy, Glass Lewis will review virtual meetings on a case-by-case basis. Glass Lewis will be noting whether a company indicates its intention to resume holding in-person or hybrid meetings under normal circumstances. This revised policy will be effective for shareholder meetings from March 1, 2020 through June 30, 2020.

Glass Lewis also offered an example of a company that handled switching to a virtual meeting format correctly, Starbucks Corporation. Starbucks issued an announcement about its change to a virtual meeting for its 2020 annual shareholders meeting on March 4, 2020, available at: https://www.sec.gov/Archives/edgar/data/829224/000119312520060980/d104351ddefa14a.htm

Note: Starbucks did not specifically indicate that it intended to return to its normal in-person meetings once the crisis is over.

I know several companies have been re-tooling their proxy statements to allow them to make their annual meeting a virtual meeting if necessary. To those companies, if they still have time, they may want to include a statement about their intent to return to an in-person meeting format once the COVID-19 crisis passes if a virtual meeting is used.

Glass Lewis’ announcement about the immediate change in its policy can be found in its blog post, Immediate Glass Lewis Guidelines Update on Virtual-Only Meetings due to COVID-19 (Coronavirus), available at: https://www.glasslewis.com/immediate-glass-lewis-guidelines-update-on-virtual-only-meetings-due-to-covid-19-coronavirus/

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