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E-MailShirley Westcott is a Senior Vice President at Alliance Advisors, LLC. This post is based on an Alliance Advisors whitepaper. The complete publication, including footnotes, is available here.
In preparation for the 2016 proxy season, proxy advisors Institutional Shareholder Services (ISS) and Glass Lewis & Co. have issued updates to their proxy voting guidelines, which take effect for annual meetings held on or after Feb. 1, 2016 (ISS) and Jan. 1, 2016 (Glass Lewis). [1] The policy changes and their expected impact on issuers are discussed in more detail in Alliance Advisors’ November newsletter.
The key revisions deal with various situations where the proxy advisors recommend against directors. These include the following:
Overboarded Directors
In view of the increased time commitments associated with public company board service, ISS and Glass Lewis are lowering their acceptable number of outside directorships. ISS will recommend against directors who are not public company CEOs if they serve on more than five public company boards (reduced from six). However, it is maintaining its policy of three public company boards for CEOs. Glass Lewis will recommend against directors who are executive officers of public companies if they sit on more than two public company boards (reduced from three) and against other directors who sit on more than five public company boards (reduced from six). The new policies will not take effect until 2017 in order to give directors time to adjust their board obligations.
Unilateral Board Actions
ISS is extending the period of time that it will recommend votes against directors for unilaterally adopting charter or bylaw amendments that materially diminish shareholder rights. At established companies that classify their boards, adopt supermajority vote provisions to amend the charter/bylaws, or eliminate shareholders’ ability to amend the bylaws, ISS will continuously oppose individual directors, committee members, or the full board until the provisions are repealed or ratified by shareholders. At newly public companies which adopted adverse provisions prior to or in connection with their initial public offerings (IPOs), ISS will oppose directors in subsequent years on a case-by-case basis.
Exclusive Forum Provisions
Glass Lewis is easing its policy on the adoption of exclusive forum provisions in connection with a company’s IPO. Instead of automatically recommending against the governance committee chair, it will base any “withhold” recommendation on the presence of other provisions that limit shareholder rights, such as a classified board, supermajority voting requirements, or fee-shifting bylaws.
ISS plans to release additional policy updates in the coming weeks that will address its views of overly restrictive proxy access bylaws, its framework for analyzing proxy access nominations, and its position on new types of shareholder proposals. Alliance Advisors will keep issuers apprised of these revisions as they become available.
Endnotes:
[1] See ISS’s 2016 policy updates at http://www.issgovernance.com/policy-gateway/2016-policy-information. See Glass Lewis’s 2016 policy updates at http://www.glasslewis.com/assets/uploads/2015/11/GUIDELINES_United_States_20161.pdf.
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