Proxy advisor says it will start noting exclusions for clients.
Glass Lewis, one of the two big proxy advisors, has fired another shot in the war over shareholder resolutions by saying it will recommend a vote against a company’s governance if it believes that valid resolutions have been egregiously excluded from the ballot.
In its latest Proxy Paper Guidelines and its Guidelines Regarding Shareholder Initiatives, it says: “Glass Lewis will also be making note of instances where the SEC has allowed companies to exclude shareholder proposals, which may result in recommendations against members of the governance committee.” It says that it understands that not all shareholder proposals “serve the long-term interests of shareholders”. However, if it believes that the exclusion of a shareholder proposal was “detrimental to shareholders, we may, in very limited circumstances [my emphasis], recommend against the members of the governance committee.”
Courteney Keatinge, Glass Lewis’ director for ESG research, said of the change: “We have seen different iterations of different kinds of proposals that were widely supported by shareholders for the most part but are then allowed to be excluded, so we wanted to get out ahead of the process. For example, last year, we saw a number of special meeting proposals and certain examples of proposals requesting that companies reduce their GHG emissions allowed to be excluded. Right now, I think we’re more concerned regarding the bread-and-butter governance proposals, such as those asking companies to declassify their boards. But we would also potentially be concerned regarding the exclusion of proposals, such as those requesting that companies produce a sustainability report, that commonly receive high shareholder support. This would especially be the case if a company has not addressed the issue or if we have other concerns regarding a company’s responsiveness to shareholders. However, given this is a relatively nascent policy, it would be very difficult to give a specific example until we see how the policy works out during the proxy season.”
In another development, Glass Lewis will be noting any exclusions: “For the first time this year we will be noting all proposals that are allowed to be excluded in our research reports for
our clients,” said Keatinge. “In significantly egregious situations we may consider recommendations of votes against the members of the nominating and governance committee. For example, if a company excludes shareholder proposal for a sustainability report, but it already has a sustainability report that’s been recently updated, that’s not a situation where we would take issue. But if they had had very high support for sustainability reporting proposal in previous years and then they get another one and then exclude that proposal, that’s a different story. But it’s important to note that we will be looking at all of these issues case-by-case.”
Following the 2018 proxy season development of companies filing their own resolutions on special meetings in order to exclude shareholder proposals calling for vote thresholds to be lowered, Glass Lewis has also codified its policy regarding this development.
Glass Lewis will generally recommend voting for the lower threshold, typically the shareholder proposal. It may also recommend that shareholders abstain from voting on management’s proposal. Companies have also been attempting to exclude shareholder proposals by asking shareholders to ratify an existing special meeting right. In this instance, Glass Lewis will typically recommend against the ratification proposal as well as against members of the nominating and governance committee. The new guidelines say: “We find the exclusion of these shareholder proposals to be especially problematic as, in these instances, shareholders are not offered any enhanced shareholder right, nor would the approval (or rejection) of the ratification proposal initiate any type of meaningful change to shareholders’ rights.”
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