As is customary this time of year, both Institutional Shareholder Services Inc. (“ISS”) and Glass Lewis issued updates to their voting guidelines for the 2023 proxy season. At a high level, the updates focused on director diversity, board oversight of ESG matters and cybersecurity and board accountability.
With regard to board composition, ISS will recommend against the chair of the nominating committee of any U.S. issuer if the board does not have at least one female director (previously this policy only applied to Russell 3000 and S&P 1500 companies). Glass Lewis will recommend against the chair of the nominating committee if a board is less than 30% diverse (for Russell 3000 companies) or has no directors from an underrepresented community (for Russell 1000 companies). Glass Lewis will also recommend against the chair of the governance committee of any Russell 1000 company that has not provided disclosure regarding demographic information for directors.
While there were no changes to ISS’ policy regarding board oversight of cyber risk, Glass Lewis indicated that it may recommend against directors under certain circumstances where cyber-attacks have caused harm to shareholders and cybersecurity oversight was inadequate. Glass Lewis has also indicated it will recommend against the chair of the governance committee at Russell 1000 companies that provide inadequate disclosures about the board’s role in overseeing environmental and social issues.
As it relates to shareholder proposals on environmental and social matters, ISS will evaluate on a case-by-case basis in regard to proposals requesting greater disclosure of an issuer’s alignment of political contributions and lobby spend with an issuer’s publicly stated values and policies. ISS’ policy update included a listing of the factors it will consider in making any such voting recommendation. ISS will also evaluate on a case-by-case basis proposals that seek a comparison of an issuer’s political spending to objectives that can mitigate material risks to a company (for instance, global warming).
In regard to board accountability for climate-related matters, ISS indicated that for certain high emitting companies with inadequate disclosure regarding climate risk and GHG reduction targets, ISS would recommend voting against responsible directors. Similarly, ISS will recommend against responsible directors of companies with material exposure to climate risk resulting from the company’s own operations where there is insufficient climate risk disclosure or no clearly defined board oversight responsibilities.
Whereas historically ISS would only recommend against directors at newly public companies with unequal voting structures, ISS expanded that policy to apply to all U.S. public companies (subject to certain exceptions). Finally, Glass Lewis modified its recommendation regarding the minimum percentage of long-term incentive grants that should be performance-based from 33% to 50%. While Glass Lewis will not automatically issue a negative recommendation for executive compensation programs that do not adhere to this recommendation, Glass Lewis will raise the issue and may eventually issue a negative recommendation if Glass Lewis notices a negative trajectory in such percentage.
