Institutional Shareholder Services (ISS) and Glass Lewis, two leading proxy advisory firms, recently published their 2015 proxy voting guidelines for US companies, which include several updates applicable to the 2015 proxy season.
Institutional Shareholder Services
Two significant updates included in ISS’s 2015 proxy voting guidelines (the proposals of which were discussed previously in Corporate & Financial Weekly Digest) are as follows:
Equity Plan Scorecard: ISS adopted a “scorecard” model for evaluating equity plan proposals whereby voting recommendations will largely be based on a combination of factors, both positive and negative, related to (1) plan cost, (2) plan features, and (3) grant practices. Under the new scorecard approach, for S&P 500 and Russell 3000 companies, cost will be weighted 45 percent, grant practices 35 percent and plan features 20 percent, with roughly a dozen individual factors within each of these three areas. The scorecard approach replaces the series of “pass/fail” tests (focused on cost and certain egregious practices) previously used by ISS to determine whether to recommend voting “against” an equity plan.
Independent Chair Shareholder Proposals: Under the previous policy, ISS generally recommended in favor of independent chair shareholder proposals unless the company satisfied all of its six criteria. For 2015, ISS updated its independent chair proposal policy by adding new governance, board leadership and performance factors to its analytical framework and adopting a more holistic approach in which factors are examined in their totality.
In addition to the changes described above, ISS adopted a stand-alone policy (which codifies ISS’s existing policy of evaluating bylaw and charter amendments under the “Governance Failures Policy”) of recommending votes against (or withhold votes from) directors, generally, where the board amends the company’s bylaws or charter without shareholder approval in a manner that materially diminishes shareholders’ rights or that could adversely affect shareholders. With respect to bylaw amendments affecting shareholders’ litigation rights, ISS expanded its policy of a case-by-case analysis applicable to exclusive forum provisions to also apply to bylaw amendments mandating arbitration or providing for fee-shifting. ISS also updated and refined its policies for analyzing proposals with respect to disclosure of political contributions, trade association spending policies and activities, as well as proposals relating to greenhouse gas emissions goals.
Glass Lewis’s 2015 proxy voting guidelines also contained several updates.
Governance Committee Performance: Glass Lewis may recommend that shareholders vote against the chairman of the governance committee (or the entire committee) where the board, without shareholder approval, has amended the company’s governing documents to reduce or remove important shareholder rights or to otherwise impede the ability of shareholders to exercise such rights. Examples of such amendments include charter or bylaw amendments that eliminate or reduce the ability of shareholders to act by written consent, call a special meeting, amend the company’s charter or bylaws or pursue full legal recourse (including arbitration, forum selection and fee shifting bylaws); amendments providing for a classified board structure; or amendments that eliminate the power of shareholders to remove a director without cause. Glass Lewis generally will also recommend a vote against all members of the governance committee during whose tenure a shareholder proposal relating to important shareholder rights received majority support of the votes cast and the board failed to respond accordingly.
Pre-IPO Charter and Bylaw Provisions: Glass Lewis has increased its scrutiny of certain provisions (such as anti-takeover provisions, exclusive forum bylaws and fee-shifting bylaws) adopted in a company’s charter or bylaws prior to its initial public offering. In the case of post-IPO director elections where these provisions are present, Glass Lewis will consider recommending votes against all members of the board, the chairman of the governance committee or all members of the governance committee.
“Material” Transactions with Directors: With respect to Glass Lewis’s $120,000 threshold for directors employed by a professional services firm where the company pays the firm, rather than the individual, for services, Glass Lewis may deem such a transaction to be immaterial if the amount represents less than one percent of the firm’s annual revenues and the board provides a compelling rationale as to why the director’s independence is not affected.
Compensation: Glass Lewis has added a new discussion on its approach to analyzing “one-off” awards granted outside of existing incentive programs and added discussion regarding its approach to analyzing employee stock purchase plans.
To view the full text of ISS’s 2015 proxy voting guideline updates for US companies, click here.
To view the full text of Glass Lewis’s 2015 proxy voting guidelines for US companies, click here.