ISS and Glass Lewis have issued guidance on their corporate governance voting policies that adds flexibility to reflect the realities of the impact of the COVID-19 crisis and the challenges in responding to it. Public companies will want to consider this guidance since many institutional investors are influenced in their voting by the positions taken by these leading proxy advisory firms. The guidance covers the following subjects:
- Annual Meetings.
Although various institutional investors have historically preferred in-person or hybrid shareholder meetings, many companies have announced plans to hold remote-only (or virtual) meetings due to the impacts of the COVID-19 pandemic. In most jurisdictions, including the U.S., ISS does not have a general policy to recommend votes against directors of companies that hold remote-only meetings. In those jurisdictions where it would normally make adverse vote recommendations related to remote-only meetings, ISS is suspending its policy until such time as it is safe to hold in person meetings again. In all jurisdictions, it encourages companies to clearly inform shareholders how to participate in such meetings and to provide shareholders with the opportunity to participate as fully as possible. Glass Lewis is generally neutral on remote-only meetings so long as adequate disclosure is made about steps the company has taken to protect investor participation. It has suspended its policy of recommending a vote against a governance committee chair where this disclosure is lacking for meetings being held through June 30, 2020, so long as the reasons for conducting a remote-only meeting, citing COVID-19, are given. These ISS and Glass Lewis policies go along with actions taken in a number of states through emergency legislation and executive orders to enable remote-only shareholder meetings when not already permitted under state corporation statutes and to provide flexibility in noticing changes in meeting plans. The SEC has also created flexibility under the proxy rules for companies to change the location, timing and format of their shareholder meetings. (See our related posts here and here.)
- Director Issues.
Both ISS and Glass Lewis recognize that board members may decide to attend shareholder meetings and board meetings telephonically during the COVID-19 pandemic. Moreover, both proxy advisory firms note that boards may need flexibility to adapt to illness, incapacity and death, and that this need will be taken into consideration when assessing their policies on independence, board diversity, and other attributes.
- Shareholder Rights Plans.
ISS notes that many companies are being advised to adopt shareholder rights plans or other defensive measures to protect against any threat of opportunistic bidders in the wake of recent stock price drops. For plans of less than one year, ISS believes that COVID-19 presents a genuine short-term threat and will review the disclosed rationale for such plan on a case-by-case basis with that in mind. Glass Lewis has adopted a similar policy.
- Capital Structure and Payouts.
In jurisdictions (generally outside the U.S.) where dividend policies are matters for shareholder approval, ISS notes its support for affording boards of directors broad discretion to set dividend payout levels that are lower than past practice in order to manage cash in an uncertain economic environment. However, it urges companies to disclose plans for using the retained cash to protect business operations and the company’s workforce. Relatedly, in jurisdictions where share repurchases require shareholder authorization, ISS cautions companies to consider repurchases carefully even though depressed share prices may make buybacks attractive. ISS will review share repurchase activity in considering whether risks were responsibly managed. While these policies apply outside the U.S., they nevertheless should be considered by U.S. companies because of their potential relevance to ISS director voting recommendations. Finally, ISS indicates that it will continue to consider company requests for increases in authorized capital and approval of share issuances on a case-by-case basis. In particular, it notes its existing policies on relevant factors in considering proposals for additional share authorizations and confirms that they provide flexibility for exceptional circumstances such as those that currently exist. Similarly, ISS notes its existing policy that allows case-by-case analysis of private placements, including relevant factors to be taken into account, including whether exceptional circumstances exist.
- Compensation Issues.
ISS and Glass Lewis also address potential changes to compensation programs to reflect the disruption cause by the COVID-19 crises.