SEC Issues Final Rules on Proxy Voting Advice

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On July 22, 2020, the U.S. Securities and Exchange Commission met and adopted final rules, Exemptions from the Proxy Rules for Proxy Voting Advice, SEC. Rel. 34-89732, in a 3-1 vote. These final rules will become effective 60 days after publication in the Federal Register. Of course, that presumes that a lawsuit isn’t filed against the SEC and these final rules by an interested party (such as ISS which filed such a lawsuit with the SEC’s earlier guidance affecting proxy voting advisory firms).

The final rules codify the SEC’s view that proxy voting advice generally constitutes a solicitation under the proxy rules. The SEC Press Release clarifies that the availability of two exemptions often used by proxy voting advice businesses to the proxy rules depends on compliance with tailored and comprehensive conflicts of interest disclosure requirements. The exemptions also require compliance with two principles-based requirements designed to ensure that:

(1) companies that are the subject of proxy voting advice have such advice made available to them in a timely manner, and

(2) clients of proxy voting advice businesses are provided with an efficient and timely means of becoming aware of any written responses by companies to such proxy voting advice.

Glass Lewis Will Include Company Feedback In Proxy Reports

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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.

Glass Lewis Changes Policy on Virtual Meetings

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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/