Glass Lewis Issues Policy Updates for 2022
Posted by Donald Kalfen on November 29, 2021 in Client Alerts
Glass Lewis recently issued its policy updates for 2022 on board diversity and selected compensation and environmental and social issues.
Glass Lewis has updated its proxy voting policies for U.S.-listed companies with regard to: (i) board diversity, and (ii) board oversight of environmental and social (E&S) risks. Glass Lewis has also clarified its policies on the following compensation matters: (i) linking executive pay to E&S metrics, and (ii) adjustments to financial results in determining incentive compensation.
Board Diversity
Glass Lewis has adopted the following policies related to board diversity requirements.
- Board gender diversity. Glass Lewis will generally recommend voting AGAINST (i) the chair of the nominating committee of a board that has fewer than two woman directors and (ii) the entire nominating committee of a board that has no women directors at a Russell 3000 constituent company.
- State laws on gender/underrepresented community diversity. Glass Lewis will assess whether a company has complied with applicable state laws on board diversity.
- Mandatory board compensation requirements. Glass Lewis will recommend voting AGAINST directors serving on the nominating committee if a company fails to conform to mandatory board compensation requirements included in applicable state laws when they come into effect.¹
- Non-binding board composition or board reporting requirements. Glass Lewis will not recommend AGAINST directors on the basis of non-compliance with applicable state laws that: (i) do not mandate board composition requirements, or (ii) solely impose disclosure or reporting requirements in state annual filings.²
- Stock exchange diversity disclosure requirements. Glass Lewis will recommend voting AGAINST the chair of the governance committee of any company that does not disclose board diversity statistics prescribed under applicable stock exchange listing rules. The foregoing policy will be applicable for Nasdaq-listed companies holding annual meetings held after August 8, 2022.³
- Disclosure of board diversity and director skills. As described below, Glass Lewis will evaluate the quality of an S&P 500 constituent company’s disclosure related to board diversity and director skills.
- Glass Lewis will rate how a company’s proxy statement presents: (i) the board’s current percentage of racial/ethnic diversity, (ii) whether the board’s definition of diversity explicitly includes gender and/or race/ethnicity, (iii) whether the board has adopted a policy requiring women and minorities to be included in the initial pool of candidates when selecting new director nominees, and (iv) board skills disclosure. Such ratings will inform Glass Lewis’s assessment of a company’s overall governance and may be a contributing factor in its recommendations when Glass Lewis has identified additional board-related concerns.
- Starting in 2022, Glass Lewis may recommend voting AGAINST the chair of the nominating and/or governance committee if a company exhibits particularly poor disclosure.
- Starting in 2023, Glass Lewis will generally recommend voting AGAINST the chair of the nominating and/or governance committee if a company does not provide any disclosure of individual or aggregate racial/ethnic minority board demographic information.
Director Accountability for Risk Oversight Failures Related to Environmental and Social Issues
As described below, Glass Lewis will assess whether a company discloses board-level oversight of E&S issues.
- Glass Lewis will generally recommend voting AGAINST the governance committee chair of a company that fails to provide explicit disclosure regarding the board’s role in overseeing E&S issues. This policy applies to only S&P 500 constituent companies.
- Glass Lewis will note as a concern in its proxy voting reports a company in the Russell 1000 index that does not provide clear disclosure concerning the board-level oversight of E&S issues. Glass Lewis believes that companies should determine the best structure for the board-level oversight of E&S issues, which could be discharged by specific directors, the entire board, a separate committee or combined with the responsibilities of a key committee.
Compensation Matters
Glass Lewis clarified its policies on the following compensation matters.
- Linking executive pay to E&S metrics. Glass Lewis does not have a policy on whether a company should include E&S metrics in executive incentive plans. However, Glass Lewis expects any company that includes E&S metrics in an executive incentive plan to disclose the E&S metrics, performance targets and payout determinations.
- Adjustments to financial results in determining incentive compensation. Glass Lewis will consider adjustments to financial results in its assessment of the incentive’s effectiveness at linking executive pay to company performance, and will assess the rationale for any such adjustments.
Meridian Comment. The Glass Lewis policy updates align with investor expectations on enhanced disclosures regarding board diversity and board oversight of E&S risks. We expect that investor concerns and investor engagement on board diversity will lead to: (i) changes in board composition to be more inclusive, and (ii) enhancements in company disclosure practices on demographic characteristics of individual directors. Glass Lewis’s policy updates also largely codify how it has analyzed certain compensation matters.
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The Client Update is prepared by Meridian Compensation Partners’ Governance and Regulatory Team led by Donald Kalfen. Questions regarding this Client Update or executive compensation technical issues may be directed to Donald Kalfen at 847-235-3605 or dkalfen@meridiancp.com.
This report is a publication of Meridian Compensation Partners, LLC, provides general information for reference purposes only, and should not be construed as legal or accounting advice or a legal or accounting opinion on any specific fact or circumstances. The information provided herein should be reviewed with appropriate advisors concerning your own situation and issues.
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