& Securities

Glass Lewis has released results of its 2024 Global Policy Survey, which is expected to inform policy changes for the upcoming 2025 proxy season. This is the second year Glass Lewis has conducted this survey. Glass Lewis expects to release its 2025 Voting Policy Guidelines for key markets and its 2025 ESG Initiatives Policy Guidelines covering shareholder proposals in mid-November. The final policies will apply to annual shareholder meetings held after January 1, 2025.

As discussed in our blog announcing the launch of the survey, in this year’s Global Policy Survey Glass Lewis covered a wide variety of topics, including board oversight of climate, artificial intelligence and cybersecurity matters, executive compensation topics, shareholder rights, and multijurisdictional governance regimes. The results of the annual ISS survey are discussed here.

A summary of some of the notable findings of the Glass Lewis survey results below and the full text of the survey results is available here for more detail.  We focus primarily on investor responses.

Board and Governance Matters

Director Performance. With director elections at the forefront of the annual proxy season, a majority of investors (78.6%) responded that they believed they would consider opposing the election/reelection of a director at one company when there are material concerns with the performance of such director at another company. Areas of performance most concerning to investors were: selecting poor strategic decisions or oversight (61.6%); poor responsiveness to shareholders (54.8%); and only in particularly egregious circumstances such as an accounting scandal (54.6%).

Artificial Intelligence Board Oversight. In response to many companies embracing the use of artificial intelligence (“AI”), investors are expecting safeguards to mitigate risks, assess the impact of AI on operations and ensure ethical use, which was evident in their responses to the survey. Overall, whereas a majority of non-investors felt it was too early to hold the board of any company accountable for AI issues, over three-quarters of investors rejected this notion. Generally, investors are looking for AI experience on the board and expect clear disclosure of AI oversight by the board and committees reflecting the sentiment that it is not too early for boards to focus on this important topic. Further, when considering company risk with respect to AI and AI ethics, an overwhelming majority of investors believe that data security and privacy-related vulnerabilities (83.5%), social and ethical issues and potential form reputation harm (72.1%), integration into products and services (61.9%), board oversight, director expertise and ongoing education/training (67.1%), and integration internal operations (42.9%) were very important.

Cybersecurity Risk Oversight. A majority of investors found the following factors “very important” when assessing the board’s cybersecurity risk oversight: number/cost of cybersecurity attacks and remediation efforts (89%), director expertise and training (69%), and alignment of the company’s cybersecurity program with an external framework or standard (52%). Under half of investors (40%) found the use of external advisors to be very important as well. Glass Lewis also asked investors whether they would consider opposing the election/reelection of directors following a significant cybersecurity attack and if so, what particular factors of the attack weigh into their decision. The most common response was yes, only if there were existing concerns about the board’s oversight of cybersecurity (67.9%).

Climate Transition. A majority of investor respondents (68.4%) stated that they currently consider climate transition strategies when making director election decisions. In making their voting decisions, they responded that they consider, among other factors, the overall quality and robustness of the company’s climate strategy and reporting on targets, alignment with global standards or frameworks and board oversight and expertise. Other factors cited included the company’s level of disclosure (particularly regarding progress updates), scenario analysis, asset impairment testing, and verification/certification of targets and results. Some investors commented, however, that regardless of the above factors, they will only vote against directors if the company does not engage with them and has not been responsive to discussions on the topic. Among the significant minority of investor respondents (31.6%) that do not currently evaluate climate transition strategies when making decisions about director elections, about a quarter of them plan on doing so in the future.

Shareholder Rights

Shareholder Meeting Format. Respondents were asked whether they believe it is acceptable for companies to hold virtual-only shareholder meetings at which in-person attendance is not permitted. A majority of investors (52.7%) felt that shareholder meetings should typically allow for in-person participation in all but exceptional circumstances. A very slim majority (8.1%) believed shareholders should generally defer to a board’s judgment on meeting format, and 36.5% of investors believed virtual-only meetings were okay as long as sufficient safeguards were included to protect shareholder rights, e.g. no restrictions on question subject matter, number of questions, etc.

Reincorporation. Investor and non-investor views were generally aligned on factors that impact a company’s reincorporation in another jurisdiction.  Both identified the impact on shareholder rights and governance issues as the most important factor, but investors overwhelmingly identify them as very important (rather than somewhat important). Non-investors put more weight on the financial benefits and director and officer protections when considering whether to reincorporate in a different jurisdiction.

Executive Compensation

Time-Based vs. Performance-Based Incentives. Investors appear to overwhelmingly agree that performance based conditions are important for long-term incentives. In response to questions about whether long-term vesting requirements make performance conditions unnecessary, support of time-based awards, and the importance of performance-based equity, investors disagree that performance conditions are unnecessary for long-term incentives (73.0%), or too complicated (85.1%). There is also a general consensus among investors that performance-based equity play an important role in directing executives (90.9%), but investors (85.4%) would also consider supporting time-based awards in specific circumstances.

Responsiveness to Equity Incentive Plans with Low Support. When asked about an appropriate response to escalate matters when an equity incentive plan or equity award receives significant shareholder dissent, but is nevertheless implemented without modification, a large majority of investors (79.4%) indicated they would vote against compensation committee members who implemented the plan at their next re-election and 66.2% indicated they would vote against the next say on pay proposal after the granting of the award to oppose its implementation. Additionally, 45.6% of investors indicated they would vote against the executive pay proposal in the year of vesting/payout and 30.9% of investors indicated they would vote against the next say on pay proposal after vesting only if payouts are concerning.

Perquisites. Addressing what continues to be a hot topic with the SEC, Glass Lewis noted that the annual value of CEO perquisites has dramatically increased (a 28% increase since pre-pandemic years). Glass Lewis asked respondents their opinion on how and whether perquisites should be considered in voting. A majority of investors, at 55.8%, indicated that perquisites are indicative of broader pay issues, and may justify voting against. A very slim minority of investors believed perquisites should not play a significant role in proxy voting (1.3%).