Glass Lewis update on Policy and Approach for 2020 Proxy season

Glass Lewis has published an update to their approach for 2020 guidelines and  anticipate these changes will impact 2021 voting recommendations. Glass Lewis highlights the key governance areas they are going to be paying particular attention to as a result of new expectations.

Compensation and Balance Sheet

This sentence sums up their overall approach best “The stark reality is that for many workers, including executives, they should not expect to be worth as much as they were before the crisis, because their free market value as human capital has now changed.”

Changes to plans that take a proportional approach to the impacts of the COVID-19 on shareholders and employees are more likely to be supported.  Glass Lewis does expect to see a lot of amendments to existing plans;  there will be an increased difficulty to gain support for plans that maintain or even increase executive compensation levels or substantial adjustments to equity compensation plan proposals. It will be extremely important to provide sufficient disclosure to support changes to your plan.

You should anticipate increased criticism of repricing, dilution, burn rates, hurdle adjustments, changes to vesting periods, caps and cuts on incentives, and the quality of disclosure concerning the limits and exercise of board discretion.

Board Composition and Effectiveness

You should also anticipate increased scrutiny of board diversity, both in gender and age and on the number of board seats held by directors.

Glass Lewis considers boards and to a lesser extent management with a lack of age and gender diversity to have an increased systematic risk.  Glass Lewis noted “ given men and those aged 65 and over are much more likely to die or become seriously ill” and “ given directors typically sit on several boards and one sick or deceased director can have a compound effect on the capacity of other directors at those companies, which then spreads to the other companies those directors sit on, and so on”.

Glass Lewis notes that current crisis will be an important test of succession planning and board renewal programs.”

Given the risk of in-person gatherings Glass Lewis also states a preference for board meeting and decisions -making to be done remotely, even without specialized software and clear governance procedures.

While they don’t really note a policy change in this section, I anticipate they will be more critical on boards that do not have age and gender diversity and scrutinize the time commitments of directors more closely to assess if they have sufficient time to commit to be effective.  Their determination may affect their recommendation on particular board members and possibly governance and nominating committees’ members.

Activism and M&A

Glass Lewis is anticipating, like the aftermath of the 2008 financial crisis, there was an increase in shareholder activism, M&A, lawsuits and consolidation as macro conditions improve.

While again there is no noted policy stated, the language indicates that they are supportive of management that is looking to compromise and settle.

“Where boards prefer to maintain management focus on day-to-day business health and stability, we expect the ongoing trend for settlements with investors to continue”

Oil and Gas

Given the unique threat to this industry, Glass Lewis has singled out this industry in their update.

“Glass Lewis’ will be closely monitoring how companies respond to protect shareholder value in exceptionally challenging conditions that will likely include many restructures and bankruptcies. We will also be monitoring how the closely-related plastics industry is impacted given the high level of shareholder concern and proposals related to plastics we expect to see this year.”

Shareholder Proposals

Given that deadlines for shareholders to submit proposals, the proposals that will be put forward to shareholders this annual meeting season will most likely not reflect the impact of COVID-19 virus.  Glass Lewis notes that proposals that submitted prior to the outbreak may no longer be practical.

However, they also noted a caution of issuers “Equally, companies should be mindful not to use the crisis to dismiss or hamper the ability of shareholder proponents to put forward their resolutions, speak at virtual meetings and have shareholders vote on such matters. Poor behavior or treatment towards shareholders will likely only encourage more activist attention and will certainly be reflected in future shareholder votes on directors and recommendations from proxy advisors.”

It will be important for companies to disclose their rational as well as to demonstrate the decisions are made with their responsibility to shareholders and other stakeholders have been taken into account.

Disclosure and Explanation

Effective disclosure and company rationale for any changes will be key to obtaining Glass Lewis support.  It is important to demonstrate that decision was made consistent and in proportion to the impact on shareholder interests and employees.

Glass Lewis has indicated that a company that has a good track record will be afforded more desertion when making their voting recommendation than companies that did not.

Timing and Certainty

Glass Lewis is looking for decisive decision making and timely action by issuers in the current uncertainty.

“Glass Lewis will exercise discretion when considering governance issues where there is a clear material benefit to shareholders for supporting proposals that bring timing and/or certainty of decisions and outcomes.”

Should you have any questions or wish to discuss, please do not hesitate to contact Penny Rice (647-931-7389) or