Amid the flurry of policymaking at the end of 2020, proxy advisory firms Institutional Shareholder Services, or ISS, and Glass, Lewis & Co. released updated proxy voting guidelines for 2021. ISS and Glass Lewis are the most prominent proxy advisory firms in the United States. Many institutional investors vote their shares in accordance with ISS and Glass Lewis’s policy recommendations. A summary of the ISS updates is available here and the updated Glass Lewis guidelines are available here.
Highlights of actions Glass Lewis will take in 2021 are listed below:
- Noting as a concern boards that have fewer than two female directors. Beginning in 2022, they will recommend voting against the nominating committee chair of a board with fewer than two female directors.
- Including an assessment of a company’s proxy statement disclosure relating to board diversity, skills, and the director nomination process for companies in the S&P 500.
- Noting as a potential concern instances where the average tenure of non-executive directors is ten years or more and no new independent directors have joined the board in the last five years.
- Noting as a concern when companies in the S&P 500 do not provide clear disclosure relating to board oversight of environmental and social issues.
- Companies choosing to hold virtual-only shareholder meetings will be expected to provide robust disclosure addressing the ability of shareholders to participate in the meeting.
Highlights of actions ISS will take in 2021 are listed below:
- Highlighting the absence of racial/ethnic diversity on a company’s board in its research reports (however, this will not be a factor in ISS’s voting recommendations in 2021).
- Recommending votes against the chair of the nominating committee (or other directors) at any company that has no women on its board except in situations where there was at least one woman on the board at the previous annual meeting and the board commits to return to a gender-diverse status by the next annual meeting.
- Recommending votes against directors, committee members, or the entire board in the event of demonstrably poor risk oversight of environmental and social issues, including climate change.
- Recommending votes against directors if a board unilaterally adopts a “deadhand” or “slowhand” poison pill. A poison pill is a tactic used by companies to defend against hostile takeover attempts. A deadhand poison pill can only be redeemed if the board consists of a majority of continuing directors. A slowhand poison pill is where the redemption restriction applies for a set period of time.
- Taking a case-by-case approach to proposals to impose director tenure limits. ISS will continue to recommend votes against proposals to impose director age limits.
- Recommending votes for charter or bylaw provisions that specify “the district courts of the United States” (not a particular federal district court) as the exclusive forum for federal securities law claims. For Delaware companies, ISS will generally support provisions selecting Delaware courts as the exclusive forum. For companies incorporated in other states, ISS will take a case-by-case approach.
- Generally recommending votes for management proposals allowing for virtual shareholder meetings, so long as they do not preclude in-person meetings.
Public companies, particularly those with significant ownership by institutional investors, should review ISS and Glass Lewis’s updated policies and assess whether any of their practices are impacted.
Jonathan A. Greene is a member of the Capital Markets practice group of Wyrick Robbins, which represents clients across a broad range of industries in connection with their significant financing transactions. The Capital Markets group publishes Client Alerts periodically as a service to clients and friends. The purpose of this Client Alert is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.