2021 Proxy Season Preview: U.S.

Kern McPherson is Vice President of Research & Engagement; Courteney Keatinge is Senior Director of ESG Research; and Julian Hamud is Senior Director of Executive Compensation Research at Glass, Lewis & Co. This post is based on their Glass Lewis memorandum.

Environmental, Social & Governance (ESG)

Climate Change

Issues of climate change have been among the most prominent issues facing investors and companies in recent years. Emissions-intensive companies are under increasing regulatory pressure from governments seeking to curb climate impacts and mitigate climate-related risks. Moreover, with 2020 bringing an unprecedented number of storms as well as devastating fires in Australia and the West Coast of the United States, it is becoming very challenging for companies and investors to ignore the significant risks posed by the physical impacts of a changing climate.

Investors have traditionally targeted companies with the greatest exposure to issues of climate risk, such as those in the energy, materials or other extractives industries. However, we are seeing this focus grow to encompass companies that may be outside of these industries. These companies are increasingly being asked to provide, and shareholders are increasingly supporting, enhanced disclosure concerning their climate impacts and risks.

However, this has not alleviated the pressure on companies in more extractive industries, which are increasingly being asked to set Scope 3 emissions reductions targets and are facing coordinated engagements from groups like the Climate Action 100+. Accordingly, we anticipate seeing the submission of and strong investor support for resolutions on this topic.

Human Capital Management

Human capital management touches on a wide range of issues, including employee engagement, sexual harassment prevention, diversity, and gender and racial pay equity. As a result, unlike many other environmental or social issues, almost all companies have significant risk exposures (and opportunities) related to the management of these issues. In the last several years, investors have been pushing companies for more information on how they are managing this key topic. Moreover, the focus on human capital management has only intensified in the last year, since which time both the pandemic and the racial justice movement have placed a spotlight on companies’ management and consideration of diversity, equity and inclusion (DEI).

In 2020, there was majority support for a record number of human capital management-related proposals, many of which were touching on issues of workforce diversity. In the coming year, we anticipate this trend to continue, with shareholders continuing to press companies to provide additional disclosure concerning their DEI commitments as well as other steps that companies are taking to ensure a productive, inclusive and safe working environment for their employees.


A focus on diversity of the workforce as well as at the board level accelerated in 2020. Many investors have adopted proxy voting policies aimed at promoting more women on boards, which has helped to ensure record levels of female directors. Notably, in 2020, a lack of female representation on boards was a top driver of majority opposition to director candidates. Although this focus from investors continues to remain strong, it has unsurprisingly grown to encompass both issues of racial and ethnic board representation and those related to diversity among senior ranks.

Shareholders are increasingly calling on companies to provide more disclosure concerning how they are promoting women and minorities within their organizations to more senior positions and on the diversity considerations boards have when appointing new directors. A number of companies have gone further, either of their own volition or as a result of shareholder pressure, and have adopted a “Rooney Rule” for CEO and/or board appointments. The Rooney Rule requires companies to ensure that underrepresented groups, typically women and minorities, are among the initial pool from which candidates for these positions are drawn.

Executive Compensation

Pay in a Pandemic

Disrupted supply chains. Dramatically rearranged employee work arrangements. Extreme changes in consumer and business spending patterns. The impacts of COVID-19 on the business environment have been enormous, leaving even the most robust pay plans laid at the beginning of 2020 often unrecognizable by year end. Through this uncertainty, business leaders have grappled with the questions of how to keep their businesses alive, what opportunities are created by an unpredictable “black swan” event, and, in some cases, how to manage runaway demand. In turn, boards are left with the challenge of how to measure performance in this environment and what (if any) reward executives deserve while shareholders suffer.

During our engagements with hundreds of U.S. companies in the past year, Glass Lewis heard a wide range of responses to the pandemic, ranging from a steadfast “the plan is the plan” to major changes in structure and practice. Reductions in performance goals or degradation in a pay program’s structure are usually clear red flags for investors, but the question for the proxy season will be whether and to what extent it can be forgiven if there are thoughtful workarounds or clearly extenuating circumstances. Early meetings have shown some tolerance for these adjustments, but not ubiquitously—for instance, the Walgreens Boots Alliance Inc. (NASDAQ: WBA) meeting in January 2021 resulted in a very early failed say-on-pay vote at an S&P 500 firm, where adjustments to blunt the impact of the pandemic on executive payouts were likely a factor.


Almost everyone has one. Almost no one uses it. Clawbacks are a prominent but highly underutilized tool in many boards’ kits for punishing behavior that damages the company’s reputation, performance, or both. The past year saw high profile cases of boards passing on using clawback and giving almost favorable treatment to departing, disgraced former leaders. The current, however, may be changing.

Goldman Sachs made headlines for advancing clawbacks and pay cuts totaling in the nine figures for its role in Malaysia’s 1MDB scandal and the related fines. Financial services firms have often cited reliance on these powers as a key feature in pay programs that look looser on paper than those of other large firms, but Apple Inc. (NASDAQ: AAPL) and others far from Wall Street have also taken steps to enhance their own clawback policies. In the pharmaceutical space particularly (but by no means exclusively), investor pressure and a very different regulatory environment may drive similar changes that come to light in proxy statements.

Executive Transitions

While the American government recently completed a handoff of power, many firms have disclosed their own changes in personnel at the very top. Amazon.com Inc. (NASDAQ: AMZN), Emerson Electric Co. (NYSE: EMR), Merck & Co., Inc. (NYSE: MRK), and Intel Corporation (NASDAQ: INTC) are just a few of the mega cap companies that have recently disclosed the expensive and often risky process of changing CEOs. While the timing of proxy disclosures and significant news are not always well aligned, pay decisions for incoming, outgoing, and even continuing executives can all weigh on a say-on-pay vote.

Shareholders should expect to see large payments and big names in proxy statements and the news cycle as more details come to light—and more leaders announce their successors.

Shareholder Proposal Topics

Say on Climate

In 2021, proposals were filed at seven companies requesting that they report on their greenhouse gas (GHG) emissions in a manner that is consistent with the Task Force on Climate-related Financial Disclosures (TCFD) as well as their strategies to reduce emissions in the future. The proposal also requests that shareholders be given the opportunity each year to cast a non-binding advisory vote on future plans at the company’s AGM. While this proposal appears to be poised to go to a vote at six of the companies at which it was filed, it was withdrawn at one of the target companies, Moody’s Corporation (NYSE: MCO) has chosen to adopt the resolution, and will thus be granting shareholders the opportunity to vote on its climate plans at its 2021 annual meeting.

Opioid & Governance Risk in Pharma

Pharmaceutical companies, particularly those that bore responsibility for the opioid epidemic, have drawn intense scrutiny from investors in recent years. In the coming year, groups including the Investors for Opioid and Pharmaceutical Accountability (IOPA) and the Interfaith Center on Corporate Responsibility (ICCR) have continued to target these and other pharmaceutical companies on their governance and compensation practices. We anticipate seeing a number of proposals requesting that pharmaceutical companies adopt an independent chair and that they adopt certain compensation reforms, including enhanced clawback provisions and mechanisms that would defer executive bonuses as a way to enhance the effectiveness of their clawback policies.

Diversity, Equity, and Inclusion (DEI)

Given the significant attention paid to issues of diversity and inclusion in the last year, as well as the strong support for diversity-related proposals in 2020, it is unsurprising that a number of companies will likely be receiving proposals requesting additional information on their diversity initiatives and the composition of their workforces. One such proposal requests that companies disclose their EEO-1 reports, which are reports filed annually with the Equal Employment Opportunity Commission that detail a demographic breakdown on companies’ workforces by race and gender. We also anticipate seeing a number of proposals requesting that companies commission a racial equity audit to analyze their impacts on DEI and the impacts of those issues on their business.

Climate Lobbying

After the success of first-time proposals submitted in 2020 requesting that companies provide enhanced disclosure around their direct and indirect lobbying activities and whether those activities were aligned with broader goals of limiting climate change, it is likely that these proposals will go to a vote at more companies in 2021. Submitted primarily by BNP Paribas in 2020, a number of different investors, including the California State Teachers’ Retirement System and ICCR have submitted these proposals to a variety of companies in advance of their upcoming AGMs.

Companies’ Response to COVID-19

COVID-19 has caused significant disruption for most companies in the last year. In some instances, the virus presented issues of employee safety, as close working conditions resulted in COVID hotspots that impacted surrounding communities. Other companies, such as those in the pharmaceutical industry, received massive government funds in order to create vaccines or treatments for the virus. As a result of the significant impact of COVID-19 on these companies, shareholders have submitted a variety of proposals requesting that companies provide enhanced disclosure on their response to the novel coronavirus. For example, several companies have received proposals requesting additional information on how they ensured worker safety in the midst of the pandemic, while others have requested additional information on companies’ sick leave policies in response to COVID-19. Further, a number of pharmaceutical companies are being asked for more information concerning how they used government funds that were distributed in order to develop a vaccine, while other retail companies have been asked to provide additional information concerning the risks of selling tobacco given the COVID-19 pandemic.

Transitions to a Public Benefit Corporation Structure

A variety of companies who signed the Business Roundtable’s Statement on the Purpose of a Corporation (which emphasized the importance of stakeholders and the environment to companies), have received proposals asking them to change their corporate form. Specifically, these proposals request that they approve amendments to their governing documents that would change their corporate form to that of a Public Benefit Corporation pursuant to Delaware law. These proposals will likely go to a vote in the same year that the first U.S. public company, Veeva Systems, Inc. (NYSE: VEEV), took the step to transition to a public benefit corporation.

Glass Lewis Voting Guidelines

United States Policy: Summary of Updates

Board Gender Diversity

We have evolved our policy on board gender diversity. Beginning in 2021, we will note as a concern boards consisting of fewer than two female directors. Our voting recommendations in 2021 will be based on our current requirement of at least one female board member; but, beginning with shareholder meetings held after January 1, 2022, we will generally recommend voting against the nominating committee chair of a board with fewer than two female directors. For boards with six or fewer total members, our existing voting policy requiring a minimum of one female director will remain in place.

State Laws on Diversity

In addition to our standard policy on board diversity, we will recommend in accordance with board composition requirements set forth in applicable state laws when they come into effect.

Disclosure of Director Diversity and Skills

Beginning with the 2021 proxy season, our reports for companies in the S&P 500 index will include an assessment of company disclosure in the proxy statement relating to board diversity, skills and the director nomination process. Specifically, we will reflect how a company’s proxy statement presents: (i) the board’s current percentage of racial/ethnic diversity; (ii) whether the board’s definition of diversity explicitly includes gender and/or race/ethnicity; (iii) whether the board has adopted a policy requiring women and minorities to be included in the initial pool of candidates when selecting new director nominees (aka “Rooney Rule”); and (iv) board skills disclosure. This assessment may be a contributing factor in our recommendations when additional board-related concerns have been

Environmental & Social Risk Oversight

Beginning in 2021, Glass Lewis will note as a concern when boards of companies in the S&P 500 index do not provide clear disclosure concerning the board-level oversight afforded to environmental and/or social issues. Beginning with shareholder meetings held after January 1, 2022, we will generally recommend voting against the governance chair of a company in the aforementioned index who fails to provide explicit disclosure concerning the board’s role in overseeing these issues.

While we believe that it is important that these issues are overseen at the board level and that shareholders are afforded meaningful disclosure of these oversight responsibilities, we believe that companies should determine the best structure for this oversight for themselves. In our view, this oversight can be effectively conducted by specific directors, the entire board, a separate committee, or combined with the responsibilities of a key committee.

Board Refreshment

Beginning in 2021, we will note as a potential concern instances where the average tenure of non- executive directors is 10 years or more and no new independent directors have joined the board in the past five years. Insufficient board refreshment may be a contributing factor in our recommendations when additional board-related concerns have been identified.

Virtual-Only Shareholder Meetings

We have removed the temporary exception to our policy on virtual shareholder meeting disclosure that was in effect for meetings held between March 1, 2020 and June 30, 2020. Our standard policy on virtual meeting disclosure is now in effect. Specifically, for companies opting to hold their meeting in a virtual-only format, we expect robust disclosure in the company’s proxy statement addressing the ability of shareholders to participate in the meeting. This includes disclosure of shareholders’ ability to ask questions at the meeting; procedures, if any, for posting appropriate questions received during the meeting and the company’s answers on its public website; as well as logistical details for meeting access and technical support. Where such disclosure is not provided, we will generally hold the governance committee chair responsible.

Short-Term Incentives

We have codified additional factors Glass Lewis will consider in assessing a company’s short-term incentive plan. Specifically, we expect clearly disclosed justifications to accompany any significant changes to a company’s short-term incentive plan structure, as well as any instances in which performance goals have been lowered from the previous year. Additionally, we have expanded our description of the application of upward discretion to include instances of retroactively prorated performance periods.

Long-Term Incentives

We have codified additional factors we will consider in assessing long-term incentive plan structure. Specifically, we have defined inappropriate performance-based award allocation as a criterion which may, in the presence of other major concerns, contribute to a negative recommendation. Additionally, any decision to significantly roll back performance-based award allocation will be reviewed as a regression of best practices, that outside of exceptional circumstances, may lead to a negative recommendation. Additionally, we have defined that clearly disclosed explanations are expected to accompany long-term incentive equity granting practices, as well as any significant structural program changes or any use of upward discretion.

Peer Group Methodology

We have provided additional information about the Glass Lewis methodology for determining the peer groups used in our A-to-F pay-for-performance letter grades, Glass Lewis utilizes a proprietary methodology, as previously announced in 2019. In forming this proprietary peer group, Glass Lewis considers both country-based and sector-based peers, along with each company’s network of self- disclosed peers. Each component is considered on a weighted basis and is subject to size-based ranking and screening. The peer groups used are provided to Glass Lewis by CGLytics based on Glass Lewis’ methodology and using CGLytics’ data.

ESG Policy: Summary of Updates

Diversity Reporting

Glass Lewis has updated its guidelines to provide that it will generally support shareholder proposals requesting that companies provide EEO-1 reporting. Further, given that issues of human capital management and workforce diversity are material to companies in all industries, we will no longer be incorporating a company’s industry or the nature of its operations into the factors considered when evaluating diversity reporting proposals.

Management-Proposed ESG Resolutions

Glass Lewis has codified its approach to management-sponsored proposals that deal with environmental and social issues. We will take a case-by-case approach to these proposals, and will consider a variety of factors, including: (i) the request of the resolution and whether it would materially impact shareholders;

(ii) whether there is a competing or corresponding shareholder proposal on the topic; (iii) the company’s general responsiveness to shareholders and to emerging environmental and social issues; (iv) whether the proposal is binding or advisory; and (v) management’s recommendation on how shareholders should vote on the proposal.

Climate Change

Because climate change can have extensive and wide-ranging impacts, we believe that it is an issue that should be addressed and considered by companies in every industry. Accordingly, we have removed our consideration of a company’s industry when reviewing climate reporting resolutions. As a result, we will generally recommend in favor of shareholder resolutions requesting that companies provide enhanced disclosure on climate-related issues, such as requesting that the company undertake a scenario analysis or report that aligns with the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”). While we are generally supportive of proposals seeking this enhanced disclosure, we will closely evaluate the request of each resolution in the context of a company’s unique circumstances and will evaluate the following when making vote recommendations: (i) how the company’s operations could be impacted by climate-related issues; (ii) the company’s current policies and the level and evolution of its related disclosure; (iii) whether a company provides board-level oversight of climate-related risks; (iv) the disclosure and oversight afforded to climate change-related issues at peer companies; and (v) if companies in the company’s market and/or industry have provided any disclosure that is aligned with the TCFD recommendations.

Glass Lewis has also codified its approach to proposals on climate-related lobbying. When reviewing proposals asking for disclosure on this issue, we will evaluate: (i) whether the requested disclosure would meaningfully benefit shareholders’ understanding of the company’s policies and positions on this issue; (ii) the industry in which the company operates; (ii) the company’s current level of disclosure regarding its direct and indirect lobbying on climate change-related issues; and (iii) any significant controversies related to the Company’s management of climate change or its trade association memberships. While we will generally recommend that companies enhance their disclosure on these issues, we will generally recommend against any proposals that would require the company to suspend its memberships in or otherwise limit a company’s ability to participate fully in the trade associations of which it is a member.

Meetings To Watch

Amazon.com, Inc. (NASDAQ: AMZN) — Amazon will likely undergo significant governance changes following the resignation of Jeff Bezos from the CEO role, though he will still remain on as its executive chair. This change is notable from a compensation standpoint because Jeff Bezos never received stock-based compensation from Amazon, with no obvious precedent for how the CEO of a trillion-dollar company should be paid. Regardless of this change in leadership, the company’s management of environmental and social issues will likely continue to face significant scrutiny, some of which has been exacerbated by the COVID-19 pandemic. Amazon has historically been one of the companies with the highest number of shareholder proposals, and these proposals have ranged in topic from its management of food waste, to its sale of hate products, to the privacy implications of its facial recognition technology. These proposals have demonstrated the breadth and range of Amazon’s influence and omnipresence in society.

AmerisourceBergen Corp. (NYSE: ABC) — After years of legal proceedings and industrywide changes, the 3,000 lawsuits brought by state and local governments around companies’ roles in the opioid epidemic were settled in 2020. One of the parties in the settlement was drug wholesaler AmerisourceBergen. The $6 billion settlement was no small sum even for such a large firm, but the impacts on executive compensation remain to be seen. Firms often make adjustments for legal fees and reserves to avoid creating perverse decisions around the best course of action in legal matters, but prior meetings for other firms in the settlement raised serious questions about accountability and the broader implications of company performance. How AmerisourceBergen addresses these matters will have a significant influence on how shareholders respond.

Exxon Mobil Corporation (NYSE: XOM) — For several years, shareholders have been pushing back on Exxon’s climate-related plans and disclosures. Following several years of the SEC allowing the omission of climate-related shareholder proposals and a high-profile shareholder campaign spearheaded by investor Engine No. 1, aimed at expressing disapproval on the company’s governance of this issue, an activist fund took aim at the oil giant. Supported by pension plans and a slew of other investors, the activist sought to appoint four directors to its board. At the same time, Exxon has had talks with activist investor D.E. Shaw, is also agitating the company due to underperformance, which could result in the appointment of new directors or a proxy contest at Exxon’s 2021 AGM.

Facebook Inc. (NASDAQ: FB) — Facebook has long faced investor scrutiny on a variety of issues, including its role in elections, anticompetitive practices, its allowance of hate speech and its role in spreading misinformation. In addition to, and perhaps as a result of, these scandals, legislators have been increasingly considering how to strengthen the rules that govern companies in the tech industry, an effort that has gained bipartisan support. As a dual-class share company, the votes of outside shareholders often are diluted by strong inside ownership. However, that is unlikely to dissuade shareholders, who often to submit a significant number of shareholder proposals, from engaging with the company.

Moderna Inc. (NASDAQ: MRNA) / Pfizer Inc. (NYSE: PFE) — Two very different firms merit joint mention. The first two providers of the American-designed coronavirus vaccines have seen strong financial results and clinical trials alike. Moderna was only a small fraction of the size of Pfizer at the beginning of the pandemic but is now valued right along with other blue-chip U.S. pharmaceutical companies. How Moderna translates this growth to executive pay and whether Pfizer meaningfully deviates from its highly consistent and long-tailed pay program will be interesting addendums to these scientific success stories.

Moody’s Corporation (NYSE: MCO) — Following the submission of a shareholder proposal asking the company to adopt a “say on climate” proposal (see the above section on Upcoming Shareholder Proposals), Moody’s has determined to place a management-sponsored proposal on its ballot at its 2021 AGM. The proposal will allow shareholders to evaluate Moody’s climate strategies and responsiveness to related issues.

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