Both Institutional Shareholder Services Inc. (“ISS”) and Glass Lewis recently announced updates to their voting guidelines for the 2025 proxy season. Additionally, Glass Lewis published its 2025 Guidelines for Shareholder Proposals and ESG-Related Issues. ISS largely clarified three policies – regarding poison pills, SPAC extensions, and environmental shareholder proposals. Glass Lewis adopted new policies regarding board oversight of AI risk, AI-related shareholder proposals, and responsiveness to shareholder proposals meeting certain thresholds. It also revised and clarified certain policies, including corporate reincorporations and change-in-control provisions for executive compensation.
Changes to ISS’s benchmark voting policies will apply for shareholder meetings to be held on or after February 1, 2025, and updates to Glass Lewis’s proxy voting guidance will apply for shareholder meetings to be held on or after January 1, 2025.
Key ISS Guideline Changes
Poison Pills
ISS has clarified the factors it considers in its case-by-case evaluation of whether a short-term poison pill (i.e., with a term of one year or less) is reasonable, or whether it warrants a recommendation to vote against directors. ISS clarified that it considers (i) the terms of the pill, (ii) the context in which the pill was adopted (e.g., factors such as the company's size and stage of development, sudden changes in its market capitalization, and extraordinary industry-wide or macroeconomic events), and (iii) the company's overall track record on corporate governance and responsiveness to shareholders, in addition to the factors ISS has previously identified – specifically, the disclosed rationale for the pill’s adoption, the trigger threshold, and the company’s market capitalization. ISS explained that this update is intended to enhance transparency and align the policy with ISS’s existing practice, as it already considers these factors under the category of “other factors as relevant.” ISS also clarified that there is no change to its current policy with respect to a board’s adoption of a long-term pill without a shareholder vote, or when a pill is submitted to shareholders for approval or ratification.
SPAC Extensions
ISS has simplified its policy regarding special purpose acquisition company (“SPAC”) extension proposals. Instead of using a multi-factor, case-by-case analysis, ISS will now recommend support for requests to extend the termination date by up to one year from the SPAC’s original termination date. ISS noted that in recent years there has been a proliferation of SPACs that have failed to consummate a business combination far beyond their original termination dates and have experienced significant redemptions, leaving minimal cash in trust, commonly known as “zombie SPACs.” Under the update multiple extension requests may be looked at favorably as long as they do not collectively exceed one year from the original termination date, which ISS notes is inclusive of any built-in extension options that were included in the original governing documents.
General Environmental Proposals and Community Impact Assessment
ISS updated its policy regarding shareholder proposals requesting reports on policies and/or the potential (community) social and/or environmental impact of company operations, stating that it will consider the alignment of current disclosure of applicable policies, metrics, risk assessment report(s) and risk management procedures with relevant, broadly accepted reporting frameworks. The other factors considered were unchanged – those being (i) the impact of regulatory non-compliance, litigation, remediation, or reputational loss that may be associated with failure to manage the company’s operations in question, including the management of relevant community and stakeholder relations, (ii) the nature, purpose, and scope of the company’s operations in the specific region(s), (iii) the degree to which company policies and procedures are consistent with industry norms, and (iv) the scope of the resolution. ISS explained that the change is intended to update the policy in light of the development of frameworks such as the Taskforce on Nature-related Financial Disclosures and Kunming-Montreal Global Biodiversity Framework. It also updated the terminology used from “General Environmental Proposals” to “Natural Capital-Related Proposals.” ISS noted that these changes will better reflect the variety of nature-related and community impact assessment shareholder proposals that companies may receive in the coming years.
Key Glass Lewis Guideline Changes
Board Oversight of Artificial Intelligence
Glass Lewis adopted a new policy regarding board oversight of artificial intelligence (“AI”). Glass Lewis believes that, given the potential risks associated with the development and use of AI, companies that use or develop AI technologies should consider adopting “strong internal frameworks that include ethical considerations” to ensure sufficient oversight at the board level. Glass Lewis believes these companies should provide clear disclosure to investors about the board’s role, including how they are ensuring that directors are “fully versed” on the topic. The new policy does not provide any specific structure or details for board oversight, and instead leaves these decisions up to companies. Glass Lewis will generally not make voting recommendations on the basis of a company’s AI oversight or disclosure. Where there is evidence that insufficient oversight and/or management of AI technologies has resulted in material harm to shareholders, Glass Lewis will review the company’s overall governance practices and identify which directors or board committees have been charged with oversight of AI-related risks and will evaluate the board’s response to, and management of, this issue and any associated disclosures. In these circumstances, Glass Lewis may recommend against directors if it determines that the board’s oversight, response, or disclosures regarding AI-related issues to be insufficient.
Corporate Reincorporation
Glass Lewis updated its policy on proposals to reincorporate to a different state or country, explaining that it will evaluate these proposals on a case-by-case basis, closely examining the potential impact on shareholder rights arising from a change in domicile and governing law, including: (i) whether shareholders would gain/retain certain rights (e.g., the right to call special meetings, the right to act by written consent, the ability to remove directors), (ii) whether the proposed new jurisdiction allows for director and officer exculpation and/or exclusive forum provisions, (iii) the fiduciary duties (if any) of directors, officers, and majority shareholders under the new jurisdiction’s statutes, (iv) the material differences in corporate statutes, case law, and judicial systems, and (v) whether the company is proposing to reincorporate to a jurisdiction considered to be a “tax haven.” In addition, Glass Lewis clarified it will consider the overall governance of the company, including whether the company has a significant shareholder or is otherwise considered controlled, and whether the company has an independent board chair and the board is sufficiently independent. These new factors are in addition to existing considerations, which include: (i) whether the company has anti-takeover protections, such as a poison pill or classified board, (ii) whether the board has been previously unresponsive to shareholders (e.g., by failing to implement a shareholder proposal that received majority support), (iii) whether there are other material governance issues of concern, (iv) whether the company’s performance matched or exceeded its peers over the past one and three years, and (v) how the company ranked in Glass Lewis’s pay-for-performance analysis during the last three years. Glass Lewis also noted that although it would consider shareholder proposals to reincorporate in another jurisdiction where doing so would enhance shareholder rights, it will only support such proposals “in exceptional circumstances.”
Change-in-Control Provisions for Executive Compensation
Under existing policy, Glass Lewis considers double-trigger change in control arrangements, which require both a change in control and termination or constructive termination, to be best practice. The updated policy explains that when change-in-control arrangements provide for committee discretion over the treatment of unvested awards, Glass Lewis expects companies to provide clear disclosure of the rationale for the committee’s ultimate decision regarding how such awards should be treated in the event a change in control occurs.
Say-on-pay Voting Recommendations
Glass Lewis revised its policy to clarify that it reviews executive compensation programs holistically on a case-by-case basis, reviewing all relevant factors, and that, except for particularly egregious pay decisions and practices, typically no one factor would lead to an unfavorable voting recommendation without a review of the company’s rationale and/or the influence of such decisions or practices on other aspects of the executive compensation program – most notably the company’s ability to align compensation with performance and shareholder experience. Glass Lewis also expanded its list of negative pay factors to include egregious or excessive perquisites and adjustments to performance results that lead to problematic pay outcomes. Glass Lewis also cautioned smaller reporting companies to provide sufficient information in their proxy statements to enable shareholders to vote in an informed manner, notwithstanding such issuers’ ability to utilize scaled disclosure requirements (including, but not limited to, not providing a compensation discussion and analysis).
Board Responsiveness to Shareholder Proposals
Glass Lewis adopted a new policy stating that when a shareholder proposal has received at least 30% shareholder support (but less than a majority of votes cast), Glass Lewis believes that boards should engage with shareholders on the issue and provide disclosure addressing shareholder concerns and outreach initiatives. At controlled companies and companies with unequal multi-class voting rights, Glass Lewis examines the level of approval or disapproval attributed to unaffiliated shareholders. This new policy is in addition to Glass Lewis’s existing policy of expecting boards to take clear action in response to shareholder proposals that receive support from a majority of votes cast. In addition, Glass Lewis’s policy on board responsiveness continues to provide that boards should engage with shareholders when at least 20% of shareholders vote contrary to management on a director nominee or vote against a management-sponsored proposal.
AI-Related Shareholder Proposals
Glass Lewis adopted a new policy regarding shareholder proposals dealing with companies’ use of AI technologies. Glass Lewis will evaluate such proposals on a case-by-case basis, taking into account (i) the request of the proposal, (ii) the disclosure provided by the company and its peers concerning their use of AI and the oversight afforded to AI-related issues, (iii) any lawsuits, fines, or high-profile controversies concerning the company’s use of AI, and (iv) any other indication that the company’s management of AI-related issues presents a clear risk to shareholder value.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Securities and Capital Markets practice.
Back
