Tag: Glass Lewis


2016 Proxy Season: Engagement, Transparency, Proxy Access

Howard B. Dicker is a partner in the Public Company Advisory Group of Weil, Gotshal & Manges LLP. This post is based on a Weil publication; the complete publication, including footnotes and appendix, is available here. Related research from the Program on Corporate Governance includes Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

While shareholders have a wide spectrum of views on corporate objectives, the time horizon for realizing these objectives and environmental, social and governance (ESG) issues, there is an emerging consensus that—regardless of size, industry or profitability—public companies must achieve greater accountability to their shareholders, through engagement and transparency, than ever before. Corporate engagement and transparency now take two forms: direct dialogue, increasingly involving directors, and enhanced proxy statement and other public disclosure that sheds light on the company’s strategy and the performance of its board, board committees and management, demonstrates responsiveness to shareholder ESG concerns, and justifies the composition of the board in light of the company’s present needs. Throughout this post, we offer practical suggestions about “what to do now” to meet shareholder expectations about engagement and transparency and to address a host of other new developments for the 2016 proxy season.

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2016 Proxy Advisor Policy Changes

Shirley 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:

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ISS and Glass Lewis Updated 2016 Voting Policies

Ellen Odoner and Lyuba Goltser are partners in the Public Company Advisory Group of Weil, Gotshal & Manges LLP. This post is based on a Weil publication by Ms. Odoner, Ms. Goltser, and Reid Powell. The complete publication, including appendices, is available here.

ISS and Glass Lewis have released updates to their proxy voting policies for the 2016 proxy season. [1] ISS has also modified its QuickScore 3.0 Technical Document and Equity Plan Scorecard. [2] In this post we provide guidance for U.S. public companies on addressing these developments.

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Glass Lewis’ Updated Voting Policy Guidelines

Andrew R. Brownstein is partner and co-chair of the Corporate practice group, and David A. Katz is a partner specializing in the areas of mergers and acquisitions, corporate governance and activism, and crisis management at Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton memorandum by Mr. Brownstein, Mr. Katz, David M. Silk, Trevor S. NorwitzSabastian V. Niles, and S. Iliana Ongun.

Glass Lewis has released updated U.S. proxy voting guidelines for the 2016 proxy season. Key areas of focus include: (i) nominating committee performance; (ii) changing the Glass Lewis approach to exclusive forum provisions if adopted in the context of an initial public offering; (iii) director “overboarding;” (iv) evaluation of conflicting management and shareholder proposals when both are put to a vote of shareholders; and (v) withhold recommendations in the context of failures of environmental and social risk oversight.

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Is Proxy Access Inevitable?

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, John P. Kelsh, Thomas J. Kim, Rebecca Grapsas, and Claire H. Holland. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance about proxy access include Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

This post revises our August 3, 2015 post to include additional information relating to the prevalence of certain types of proxy access provisions. In particular, the charts included in Appendix A and Appendix B highlight, on a company-by-company basis, the following terms of proxy access provisions adopted so far this year.

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Special Meeting Proposals

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess, Karen Hsu Kelley, and Yafit Cohn. The complete publication, including footnotes, is available here.

Shareholders petitioning the board for the special meeting right propose either to create the right or, in circumstances where the right already exists, to lower the minimum share ownership threshold required to exercise the right. As of June 30, 2015, 339 companies in the S&P 500 and Fortune 500 already provided their shareholders with the right to call a special meeting outside of the usual annual meeting. During the 2015 proxy season, 20 special meeting shareholder proposals went to a vote at Russell 3000 companies. Of these, six proposed to create the right, and 14 proposed to lower the ownership threshold with respect to an existing right. Only four special meeting shareholder proposals received majority support: three created the right for the first time and one lowered the threshold for an existing right to 25%. Overall, shareholder proposals relating to special meetings received average shareholder support of 43.6% this proxy season.
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Proxy Access Proposals

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess, Karen Hsu Kelley, and Yafit Cohn. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance includes Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

This year was a break-through year for shareholder proposals seeking to implement proxy access, a mechanism allowing shareholders to nominate directors and have those nominees listed in the company’s proxy statement and on the company’s proxy card. It is estimated that over 100 proxy access proposals were submitted to public companies during the 2015 proxy season, 75 of which were submitted by New York City Comptroller Scott Stringer on behalf of the New York City pension funds he oversees. Stringer’s “2015 Boardroom Accountability Project” affected companies in diverse industries and with a range of market capitalizations, but explicitly targeted companies with purportedly weak track records on board diversity, climate change or say-on-pay. The Comptroller’s proposals, which were precatory and identical regardless of the company’s market capitalization, generally called for the right of shareholders owning three percent of the company’s outstanding shares for at least three years to nominate up to 25% of the board in the company’s proxy materials.
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Independent Chair Proposals

Avrohom J. Kess is partner and head of the Public Company Advisory Practice at Simpson Thacher & Bartlett LLP. This post is based on a Simpson Thacher memorandum by Mr. Kess, Karen Hsu Kelley, and Yafit Cohn.

During the 2015 proxy season, 64 independent chair proposals were submitted to Russell 3000 companies, 62 of which reached a shareholder vote. This statistic is generally consistent with the number of proposals brought to a vote in 2014 and 2013, respectively. Issuers that received an independent chair proposal this year, however, may have found it more challenging to assess their chances of defeating the proposal, given that, for annual meetings occurring on or after February 1, 2015, Institutional Shareholder Services Inc. (“ISS”) changed its voting policy with regard to independent chair proposals. ISS previously applied a more objective six-factor test, which gave issuers some measure of predictability and allowed them to conform their governance features to ISS’s guidelines in an attempt to obtain an “against” recommendation. This year, however, ISS replaced this policy with a balancing test that takes a more “holistic” approach, which appears to have resulted in an increase in ISS recommendations in favor of independent chair proposals. Interestingly, ISS’s increasing support of independent chair proposals has not had a material impact on the overall outcome of the voting results: only 3.2% of independent chair proposals passed this year, as compared to 5% and 8% in 2014 and 2013, respectively.

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Is Proxy Access Inevitable?

Holly J. Gregory is a partner and co-global coordinator of the Corporate Governance and Executive Compensation group at Sidley Austin LLP. The following post is based on a Sidley update by Ms. Gregory, John P. Kelsh, Thomas J. Kim, Rebecca Grapsas, and Claire H. Holland. The complete publication, including footnotes, is available here. Related research from the Program on Corporate Governance about proxy access include Lucian Bebchuk’s The Case for Shareholder Access to the Ballot and The Myth of the Shareholder Franchise (discussed on the Forum here), and Private Ordering and the Proxy Access Debate by Lucian Bebchuk and Scott Hirst (discussed on the Forum here).

Efforts by shareholders to directly influence corporate decision-making are intensifying, as demonstrated by the significant increase over the past three years in financially focused shareholder activism and the more recent efforts by large institutional investors to encourage directors to “engage” with shareholders more directly.

Through the collective efforts of large institutional investors, including public and private pension funds, shareholders at a significant number of companies are likely within the next several years to gain the power to nominate a portion of the board without undertaking the expense of a proxy solicitation. By obtaining proxy access (the ability to include shareholder nominees in the company’s own proxy materials) activists and other shareholders will have an additional weapon in their arsenal to influence board decisions.
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The Changing Dynamics of Governance and Engagement

David A. Katz is a partner at Wachtell, Lipton, Rosen & Katz specializing in the areas of mergers and acquisitions and complex securities transactions. The following post is based on an article by Mr. Katz and Laura A. McIntosh that first appeared in the New York Law Journal; the full article, including footnotes, is available here. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here), The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here), The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here), and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

As anticipated, the 2015 proxy season has been the “Season of Shareholder Engagement” for U.S. public companies. Activist attacks, high-profile battles for board seats, and shifting alliances of major investors and proxy advisors have created an environment in which shareholder engagement is near the top of every well-advised board’s to-do list. There is no shortage of advice as to how, when, and why directors should pursue this agenda item, and there is no doubt that they are highly motivated to do so. Director engagement is a powerful tool if used judiciously by companies in service of their strategic goals. As companies and their advisors study the lessons of the recent proxy season and look ahead, it is worth examining recent shifts in corporate governance dynamics. With an awareness of the general trends, and by taking specific actions as appropriate, boards can prepare and adapt effectively to position themselves as well as possible to achieve their strategic objectives.

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