ISS Releases 2018 Proxy Voting Guideline Updates

On November 16, the Institutional Shareholder Services (ISS) published its 2017 Proxy Voting Guideline Updates, which will be effective for shareholder meetings held on or after February 1, 2018. The US 2018 updates cover numerous policies, and significant changes are summarized below.

Poison Pills

ISS will recommend voting against all board nominees of companies that maintain long-term shareholder rights plans (greater than one year) which have not been approved by shareholders. Under this revised voting policy, ISS will no longer consider a company’s commitment to put a long-term shareholder rights plan to a shareholder vote a mitigating factor for adverse vote recommendations. Short-term shareholder rights plans will continue to be assessed on a case-by-case basis, with ISS focusing primarily on the rationale for adoption.

Non-Employee Director Compensation

ISS will generally recommend voting against members of board committees responsible for approving or implementing non-employee director compensation, if there has been a pattern (for two or more years) of excessive non-employee director pay without a compelling rationale or other mitigating factors.

Gender Diversity on Board

ISS will highlight boards that lack gender diversity; however it will not recommend adverse votes based on the lack of gender diversity.

Gender Pay Gaps

Introducing a new policy, ISS will make voting recommendations on a case-by-case basis with respect to requests for reports on a company’s pay data by gender, or for reports on a company’s policies and goals to reduce any gender pay gap. In making any such recommendation, ISS will evaluate (1) the company’s current policies and disclosure related to its diversity and inclusion practices and its compensation philosophy and fair and equitable compensation practices, (2) whether the company has been the subject of recent controversy, litigation or regulatory action related to gender pay gap issues, and (3) whether the company’s reporting regarding gender pay gap policies or initiatives is lagging its peers.

Pay for Performance

In addition to existing tests currently in place, ISS will now consider the rankings of CEO total pay and company financial performance within a peer group measured over a three-year period.

The full text of the ISS 2018 Americas Proxy Voting Guidelines Updates is available here.

Glass Lewis Releases 2018 Proxy Paper Guidelines

On November 22, Glass Lewis released its 2018 US Proxy Paper Guidelines. The US 2018 updates cover numerous policies, and significant changes are summarized below:

Board Gender Diversity

Glass Lewis will not make voting recommendations solely on the basis of the diversity of the board, but rather will consider diversity of the board as one of many considerations when evaluating a company’s oversight structure. However, Glass Lewis clarified that, beginning in 2019, they will generally recommend voting against the nominating committee chair (and, depending on other factors, other members of the nominating committee) of a board that has no female members, but notes that they may refrain from such adverse recommendations if, for example, the board has provided a “sufficient rationale” for not having any female board members.

Dual-Class Share Structures

In general, Glass Lewis views dual-class voting structures as not being in the best interest of common shareholders, and that one vote per share generally ensures that those who hold a significant amount of minority shares are able to weigh in on issues set forth by the board. Accordingly, Glass Lewis will generally recommend in favor of recapitalization proposals that would eliminate a dual-class structure, and generally recommend against proposals to adopt a new class of common stock. In addition, when evaluating corporate governance following an IPO or spinoff within the past year, Glass Lewis will now include the presence of dual-class share structures as an additional factor in determining whether shareholder rights are being severely restricted indefinitely.

Board Responsiveness

Glass Lewis clarified its view that. in some circumstances where 20 percent or more of shareholders dissent from management’s recommendation on a proposal, particularly in the case of a compensation or director election proposal, the board should be responsive to some level in addressing shareholder concerns. For companies where voting control is held through a dual-class structure with disproportionate voting and economic rights, Glass Lewis will examine the level of approval or disapproval attributed to unaffiliated shareholders when determining whether board responsiveness is warranted.

Virtual Shareholder Meetings

Noting the relatively small, but increasing, number of companies holding shareholder meetings by virtual means only, in 2018, Glass Lewis will not make voting recommendations solely on the basis of a company holding virtual shareholder meetings. However, where a company chooses to hold a virtual-only shareholder meeting, Glass Lewis will look for robust disclosure in a company’s proxy statement assuring shareholders they will be afforded the same rights and opportunities to participate as they would in an in-person meeting. Beginning in 2019, Glass Lewis will generally recommend voting against members of a governance committee of a board of a company planning to hold virtual-only meetings that does not provide such robust disclosure in their proxy statements.

The full text of the Glass Lewis 2018 Proxy Season Guidelines can be found here.

CEO Pay Ratio

Neither ISS nor Glass Lewis included CEO pay ratio as a factor for consideration with respect to voting recommendations in its updated guidelines.