Like ISS (see this PubCo post), proxy advisor Glass Lewis has also revisited the application of its policies to take into account the impact of COVID-19—having conducted, in its words, “scenario planning in order to consider how this will impact governance and broader ESG issues in the present and future.” Glass Lewis advises that it expects, currently and probably through 2021, “all governance issues and most proposal types to be impacted by the pandemic,” including balance-sheet and executive comp issues, on which Glass Lewis expresses some rather strong opinions. Relying on the flexibility inherent in its “contextual approach,” Glass Lewis plans to exercise its “existing discretion and pragmatism” in connection with voting on any affected proposals.
Today, ISS provided special policy guidance on the impact of the COVID-19 pandemic, observing that, in light of the current uncertainty, it is appropriate “to provide our stakeholders with some specific guidance on a number of voting policy issues that are likely to be directly implicated over the coming months by the pandemic and the global response to it.” While the guidance suggests that ISS will apply its policies more flexibly under the circumstances, some things never change: option repricings—still disfavored.
You might recall that, in November 2019, the SEC proposed amendments to the proxy rules to add new disclosure and engagement requirements for proxy advisory firms, such as ISS and Glass Lewis. Among the amendments included in that proposal was a new provision that would require proxy advisory firms to allow companies time to review and provide feedback on the advisory firm’s advice in advance of dissemination of the advice to the firm’s clients. (See this PubCo post.) Although there has been a substantial amount of pushback with regard to the SEC proposal and its earlier related guidance, including litigation filed by ISS (see this PubCo post), as noted on thecorporatecousel.net blog, proxy advisor Glass Lewis has announced that it will now include “unedited company feedback on its research…with all its proxy research papers” and will deliver that information “directly to the voting decision makers at every investor client.” Will ISS follow suit?
On Friday, the President signed into law the ‘‘Coronavirus Aid, Relief, and Economic Security Act” (CARES Act), a $2 trillion relief package intended to provide “emergency assistance and health care response for individuals, families and businesses affected by the 2020 coronavirus pandemic.” Here is a link to our Cooley Alert, which summarizes key portions of the CARES Act: https://www.cooley.com/news/insight/2020/2020-03-29-president-signs-cares-act
How many people have strong opinions about most hot topics in corporate governance— staggered boards, proxy advisory firms or dual-class share structure? In Pay for Performance… But Not Too Much Pay: The American Public’s View of CEO Pay, from the Rock Center for Corporate Governance at Stanford, the authors take a look at a corporate governance subject on which everyone seems to have an opinion—CEO pay—and the public’s perceptions about it. While academics may be arguing about labor market efficiency, much of the public takes a more intuitive or pragmatic approach: “the issue of CEO pay boils down to a personal assessment of whether any executive deserves to be paid so much money.” The authors’ conclusion from the survey: “the disconnect between observed pay levels and the public’s view of pay is stark.” Overall, the survey results were quite fascinating.
At the end of 2018, the SEC dredged up its 2015 rule proposal regarding hedging disclosure (required by Dodd-Frank) and voted to adopt final rule amendments. The amendments mandate disclosure about the ability of a company’s employees or directors to hedge or offset any decrease in the market value of equity securities granted as compensation to, or held directly or indirectly by, an employee or director. As described in the legislative history of the related Dodd-Frank provision, the purpose of the requirement was to “allow shareholders to know if executives are allowed to purchase financial instruments to effectively avoid compensation restrictions that they hold stock long-term, so that they will receive their compensation even in the case that their firm does not perform.” As required, companies have now begun to include the new hedging disclosure in their proxy statements. To see how companies were approaching their responses to the new rule, comp consultant F.W. Cook examined the first 40 proxies that contained the new disclosure (covering the period from August 23, 2019 to October 4, 2019) and provides us with a number of observations that may well be helpful as we head into the new proxy season.