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ISS and Glass Lewis Update Proxy Voting Guidance for Covid-19

Institutional Shareholder Services and Glass, Lewis & Co. released revised proxy voting guidelines in light of the Coronavirus (COVID-19) pandemic. This On the Subject details key implications for the 2020 proxy season.

IN DEPTH


Institutional Shareholder Services Inc. (ISS) and Glass, Lewis & Co., LLC (Glass Lewis) recently updated their respective proxy voting guidelines in response to the Coronavirus (COVID-19) pandemic. As revised, these guidelines have important implications for the 2020 proxy season.

ISS Policy Updates

Annual Meeting Issues

Meeting Postponements: ISS announced that it will take a positive view of companies and boards that use electronic communications (webcasts, conference calls, etc.) to engage with their shareholders even if their annual meetings have been postponed.

Virtual-Only Meetings: ISS does not have a policy to recommend voting against US companies that hold virtual-only shareholder meetings. ISS confirmed that there will be no change to its current approach for the remainder of the 2020 proxy season.

Poison Pills, Shareholder Rights and Boards/Directors

Poison Pills: ISS announced that its existing policy is “appropriately flexible” to account for the adoption of poison pills during the COVID-19 pandemic. The existing policy evaluates poison pills on a case-by-case basis, taking into consideration the board’s rationale and the specific provisions of the poison pill. ISS noted that a severe stock price decline due to the COVID-19 pandemic will likely be considered a valid reason for adopting a pill of less than one year duration without a shareholder vote, provided that the board discloses its rationale.

Director Attendance: ISS noted that telephonic/electronic participation counts as full participation in board and committee meetings for US companies.

Changes to the Board of Directors or Senior Management: ISS announced that its existing policies provide “appropriate discretion and flexibility” to account for changes to boards or senior management. If a board needs to fill vacancies or add critical expertise because of COVID-19, ISS will evaluate the situation on a case-by-case basis.

Compensation Issues

Compensation: ISS encourages boards to provide contemporaneous disclosure to shareholders of their rationale for making material changes to performance metrics, goals or targets used in short-term compensation plans for 2020. Midstream or in-flight changes to awards granted under long-term compensation plans will be evaluated on a case-by-case basis to determine whether boards exercised appropriate discretion and provided adequate explanation to shareholders.

Option Repricing: ISS will apply its existing US benchmark policy on board accountability to repricing actions taken without seeking shareholder approval/ratification in a timely fashion. If a board seeks shareholder approval/ratification of repricing actions, ISS will apply its existing case-by-case approach. ISS generally recommends opposing repricing that occurs within one year of a precipitous drop in the company’s stock price. The factors taken into consideration include whether:

  • The design is shareholder value neutral (a value-for-value exchange).

  • Surrendered options are not added back to the plan reserve.

  • Replacement awards do not vest immediately.

  • Executive officers and directors are excluded.

Capital Structure and Payouts

Dividends: ISS supports broad discretion by boards that set payout ratios falling below historic levels or customary market practice.

Share Repurchases: ISS encourages boards to consider the reputational, regulatory and business risks associated with undertaking a share buyback program, even if approved by shareholders. ISS announced that it will consider whether a board appropriately managed risks for any repurchases in 2020.

Share Issuances: ISS will apply is existing case-by-case analysis to general authorization and share issuance requests, but will also adapt the approach for any regulatory relaxations or new guidance as a result of COVID-19. Factors under the existing framework include:

  • Proxy statement disclosure of the specific purposes for the proposed increase

  • The risks to shareholders of not approving the request

  • The size and potential dilutive impact of the request combined with any market-specific guidelines on limits and preemptive rights.

Private Placements: ISS’s existing voting policies provide for case-by-case analysis of private placement issuances considering:

  • The rationale for the private placement issuance

  • The potential dilution to existing shareholders

  • The discount/premium in issuance price to the unaffected share price before the announcement of the private placement

  • Any conflicts of interest

  • Consideration of alternatives

  • The market’s reaction to the proposed private placement since announcement.

ISS also will consider whether there are any exceptional circumstances.

Glass Lewis Policy Updates

Virtual Shareholder Meetings: Glass Lewis announced a change to its standard policy on virtual-only shareholder meetings. For companies holding virtual-only shareholder meetings because of COVID-19, Glass Lewis will generally refrain from recommending to vote against the governance committee members so long as the company discloses its rationale, including citing COVID-19. Glass Lewis will revert to its standard policy for virtual meetings occurring after the 2020 proxy season.

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 106

TRENDING LEGAL ANALYSIS


About this Author

Thomas P. Conaghan, Mcdermott Will Emery law Firm,  (M&A), joint ventures, strategic investments, spin-offs,
Partner

Thomas P. Conaghan is a partner in the law firm of McDermott Will & Emery and is based in the Firm’s Washington, D.C., office.  Tom represents both publicly held and closely held businesses, underwriters and other sources of capital, corporate boards and board committees and corporate executives.  He advises both U.S. and foreign-based public companies on issues relating to public and private offerings of securities, disclosure, periodic reporting, corporate governance, executive compensation, the rules of the New York Stock Exchange and the Nasdaq Stock Market and compliance with the...

202-756-8161
Robert H. Cohen, Corporate Attorney with McDermott Will law firm
Partner

Robert H. Cohen is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s New York office.  He focuses his practice on transactional and securities work for a broad range of clients, including initial and follow-on public offerings, registered direct and PIPE financings, private placements, bridge financings, equity line and reverse mergers.

Bob has extensive experience in the areas of mergers and acquisitions, joint ventures, 1933 & 1944 Act representation and licensing and distribution arrangements.

From his years of experience, Bob has developed industry-specific knowledge across numerous markets, particularly in the life sciences industry having represented the financing and mergers & acquisitions activity for  pharmaceutical and medical device companies.

He is admitted to practice in New York and before the U.S. District Court for the Eastern District of New York and U.S. District Court for the Southern District of New York.

212-547 5885
Partner

Gary Emmanuel is a partner in the law firm of McDermott Will & Emery and is based in the Firm’s New York office. He focuses his practice on corporate securities matters.

With over 15 years of experience, Gary represents both domestic and foreign companies that are navigating the process of capital raising including initial public offerings, registered direct offerings, follow-on offerings, private placements, PIPEs and bridge financings. Gary has worked extensively with biotechnology and other life science companies, both as company counsel...

212 547 5541
Mark J. Mihanovic Corporate Finance Mergers & Acquisitions Attorney McDermott Will Emery Law Firm
Partner

Mark J. Mihanovic is a partner in the law firm of McDermott Will & Emery LLP.  Mark heads our Firm’s California corporate practice and serves as corporate liaison partner in the Firm’s strategic alliance with MWE China Law Offices based in Shanghai.  His practice is primarily focused in the areas of corporate finance and mergers and acquisitions involving companies in a broad range of industries, with a particular emphasis on technology, life science and health care companies.  Mark has served as lead counsel on behalf of issuers and underwriters in numerous public...

1 650 815 7438
Eric Orsic, corporate, securities, attorney, McDermott Will, law firm
Partner

Eric Orsic is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office. Eric focuses his practice in the areas of mergers and acquisitions, and securities transactions and compliance.   Eric works with both public and privately-held companies to structure and negotiate business acquisitions/dispositions.  His public company transactional experience includes public equity and debt offerings, tender offers and going-private transactions.  Eric also serves as outside securities counsel to several public companies and advises on SEC compliance...

312-984-7617