2020 Policy Guidelines—United States

Courteney Keatinge is Senior Director, Environmental Social & Governance Research and Kern McPherson is Vice President, Research & Engagement at Glass, Lewis & Co. This post is based on their Glass Lewis memorandum.

Glass Lewis’ Policy Guidelines provide an overview of our approach to governance and proxy research. Updated guidelines are now available for the following markets:

  • Canada
  • China
  • Continental Europe
  • Israel
  • Shareholder Initiatives
  • Taiwan
  • United Kingdom
  • United States

In developing our policies, we consider a diverse range of perspectives and inputs, with ongoing analysis of regulatory developments, academic research and evolving market practices as a starting point. We incorporate insights gained from discussions with institutional investors, trade groups and other market participants, as well as meetings of the Glass Lewis Research Advisory Council. Further, our engagement meetings with over 1,500 public companies each year help shape our guidelines by adding essential market- and industry-specific context.

Glass Lewis evaluates these guidelines on an ongoing basis and formally updates them on an annual basis. For 2020, our guidelines are focused on several key areas, including companies’ exclusion of shareholder proposals and key board committee responsiveness and performance. For a complete detail of the 2020 updates, please review the Summary of Changes within the relevant policy document.

Among other updates, the 2020 guidelines for the U.S. and Shareholder Initiatives address the following topics:

Excluded Shareholder Proposals

In September 2019, the SEC announced guidance stating that in cases where a company seeks to exclude a shareholder proposal, the staff will inform the proponent and the company of its position, which may be that the staff concurs, disagrees or declines to state a view, with respect to the company’s asserted basis for exclusion. In instances where the SEC has declined to state a view on whether a shareholder resolution should be excluded, we believe that such proposal should be included in a company’s proxy filings. A failure to do so will likely lead Glass Lewis to recommend that shareholders vote against the members of the governance committee.

The SEC also stated that beginning with the 2019-2020 shareholder proposal season, the staff may respond orally, instead of in writing, to some no-action requests. In instances where the SEC has verbally permitted a company to exclude a shareholder proposal and there is no written record provided by the SEC about such determination, we expect the company to provide some disclosure concerning this no-action relief. In cases where a company has failed to include a proposal on its ballot without such disclosure, we will generally recommend shareholders vote against the members of the governance committee of the board.

Key Committee Performance and Disclosure

Glass Lewis has codified our guidelines to state that we will generally recommend voting against the audit committee chair when fees paid to the company’s external auditor are not disclosed.

We have also codified that we will generally recommend voting against the governance committee chair when: (i) directors’ records for board and committee meeting attendance are not disclosed; or (ii) when it is indicated that a director attended less than 75% of board and committee meetings but disclosure is sufficiently vague that it is not possible to determine which specific director’s attendance was lacking.

Finally, Glass Lewis has codified that we will generally recommend against all members of the compensation committee when the board adopts a frequency for its advisory vote on executive compensation other than the frequency approved by a plurality of shareholders.

Exclusive Forum Provisions

We have clarified our guidelines to state that When companies have adopted an exclusive forum provision, we may not recommend against the governance committee chair in instances where it can be reasonably determined that the provisions of a forum selection clause are narrowly crafted to suit the unique circumstances facing the company.

Supermajority Vote Provisions

We have codified our approach to shareholder proposals requesting that companies eliminate any supermajority vote standard. In instances where such proposals are submitted to controlled companies, we will generally recommend that shareholders vote against such resolutions, as the supermajority vote may serve to protect minority shareholders.

Gender Pay Equity

We have clarified our approach to shareholder proposals requesting that companies provide more disclosure on the steps they are taking to ensure equal pay for women and men. We will review on a case-by-case basis proposals that request that companies disclose their median gender pay ratios (as opposed to proposals asking that such information be adjusted based on factors such as job title, tenure, and geography). In instances where companies have provided sufficient information concerning their diversity initiatives as well as information concerning how they are ensuring that women and men are paid equally for equal work, we will generally recommend against these resolutions.

Other Updates

In addition to the above, we have clarified our approach to a number of topics, such as defining situations where we report on post-fiscal year end compensation decisions and setting expectations for disclosure of mid-year adjustments to STI plans. We have also enhanced our discussion of excessively broad definitions of “change in control” in employment agreements.

The following is based on Glass Lewis’ 2020 Policy Guidelines—United States.

Guidelines Introduction

Summary of Changes for the 2020 United States Policy Guidelines

Glass Lewis evaluates these guidelines on an ongoing basis and formally updates them on an annual basis. This year we’ve made noteworthy revisions in the following areas, which are summarized below but discussed in greater detail in the relevant section of this document:

Standards for Assessing the Audit Committee

We have codified additional factors we will consider when evaluating the performance of audit committee members. Specifically, Glass Lewis will generally recommend voting against the audit committee chair when fees paid to the company’s external auditor are not disclosed. Glass Lewis believes that when considering a proposal to ratify the board’s choice of auditor, the balance of fees paid to the auditor for audit-related and non-audit services is crucial information. Without this basic disclosure, we do not believe shareholders are able to make an informed judgement on the independence of the company’s external auditor and we believe it is the duty of the audit committee to provide this information to shareholders.

Nominating and Governance Committee Performance

We have codified additional factors we will consider when evaluating the performance of governance committee members. Specifically, Glass Lewis will generally recommend voting against the governance committee chair when: (i) directors’ records for board and committee meeting attendance are not disclosed; or (ii) when it is indicated that a director attended less than 75% of board and committee meetings but disclosure is sufficiently vague that it is not possible to determine which specific director’s attendance was lacking.

We believe that attendance at board and committee meetings is one of the most basic ways for directors to fulfill their responsibilities to shareholders and that disclosure of attendance records is a critical element in evaluating the performance of directors more generally.

Additionally, in September 2019, the SEC announced guidance stating that in cases where a company seeks to exclude a shareholder proposal, the staff will inform the proponent and the company of its position, which may be that the staff concurs, disagrees or declines to state a view, with respect to the company’s asserted basis for exclusion. We believe that companies should only omit proposals in instances where the SEC has explicitly concurred with a company’s argument that a proposal should be excluded. In instances where the SEC has declined to state a view on whether a shareholder resolution should be excluded, we believe that such proposals should be included in a company’s proxy filings. A failure to do so will likely lead Glass Lewis to recommend that shareholders vote against the members of the governance committee.

The SEC also stated that beginning with the 2019-2020 shareholder proposal season, the staff may respond orally, instead of in writing, to some no-action requests. In instances where the SEC has verbally permitted a company to exclude a shareholder proposal and there is no written record provided by the SEC about such determination, we expect the company to provide some disclosure concerning this no-action relief. In cases where a company has failed to include a proposal on its ballot without such disclosure, we will generally recommend shareholders vote against the members of the governance committee of the board.

Compensation Committee Performance

We have codified additional factors we will consider when evaluating the performance of compensation committee members. Specifically, Glass Lewis will generally recommend against all members of the compensation committee when the board adopts a frequency for its advisory vote on executive compensation other

than the frequency approved by a plurality of shareholders. Although frequency proposals are advisory in nature, we generally believe such cases are an example of the board ignoring the clear will of shareholders, for which all members of the compensation committee should be held responsible.

Contractual Payments and Arrangements

We have clarified our approach to analyzing both ongoing and new contractual payments and executive entitlements. In general, we disfavor contractual agreements that are excessively restrictive in favor of the executive, including excessive severance payments, new or renewed single-trigger change-in-control arrangements, excise tax gross ups and multi-year guaranteed awards. Further, we believe that the extension of such entitlements through renewed or revised employment agreements represent a missed opportunity to remedy shareholder un-friendly provisions.

Company Responsiveness

We have expanded our discussion of what we consider to be an appropriate response following low shareholder support for the say-on-pay proposal at the previous annual meeting, including differing levels of responsiveness depending on the severity and persistence of shareholder opposition. We expect a robust disclosure of engagement activities and specific changes made in response to shareholder feedback. Absent such disclosure, we may consider recommending against the upcoming say-on-pay proposal.

Clarifying Amendments

In addition to the above, we have clarified and formalized certain aspects of our current approach, including our assessment of situations where the board adopts an exclusive forum provision without shareholder approval. While Glass Lewis ordinarily recommends against the governance committee chair in such cases, we believe additional factors merit consideration. Specifically, we have added a footnote (p. 15) clarifying that we may make exceptions to this policy where it can be reasonably determined that the provisions of a forum selection clause are narrowly crafted to suit the unique circumstances facing the company.

With respect to compensation, these clarifications include defining situations where we report on post-fiscal year end compensation decisions (p. 31), setting expectations for disclosure of mid-year adjustments to STI plans (p. 33-34) and enhancing our discussion of excessively broad definitions of “change in control” in employment agreements (p. 36).

Lastly, we have made several minor edits of a housekeeping nature, including the removal of several outdated references, in order to enhance clarity and readability.

The complete publication is available here.

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