2015 Proxy Season Developments: NYC Pension Funds Launch Broad Proxy Access Initiative, Filing Proposals at 75 Public Companies; ISS and Glass Lewis Release 2015 Voting Policies; ISS Codifies Approach on Bylaw Amendments and Adopts Previously Proposed Changes on Independent Chair Proposals and Equity Plans

Sullivan & Cromwell LLP - November 7, 2014

Public companies should be aware of a range of announcements made by shareholders and proxy advisors in the past few days:

  • The NYC Pension Funds announced yesterday a broad initiative to advance the cause of proxy access, filing shareholder proposals with 75 public companies seeking to give a shareholder or group who has held 3% of the stock for three years the right to include director nominees in the company’s proxy statement.
Similar proposals have received high levels of support during 2014, with support levels ranging from 44% to 69% of votes cast. Some companies that have received and are considering opposing such a shareholder proposal may consider instead putting forward a management proposal with terms that the company finds acceptable in light of its circumstances.
  • Institutional Shareholder Services, the proxy advisory firm, has issued final updates to its proxy voting guidelines, which will be effective for meetings on or after February 1, 2015.  The updates include not only the previously proposed changes to ISS’s policy on independent chair proposals and a new equity plan scorecard, but also a number of updates not included in the October proposal:
  • Adopting a formal policy to vote against directors if the board unilaterally amends the company’s bylaws or charter “in a manner that materially diminishes shareholders’ rights or that could adversely impact shareholders” (which ISS indicates is a codification of its current approach under its “Governance Failures” policy);
  • Generally voting against bylaws that mandate fee-shifting if they apply when the plaintiff is partially successful, and voting case-by-case on other litigation-related bylaw amendments (such as exclusive venue and mandatory arbitration) based in part on the company demonstrating past harm from litigation;
  • Refining the political contributions policy to indicate separately the factors ISS considers regarding types of oversight mechanisms and disclosure practices; and
  • Updating the current policy on greenhouse gas emissions to provide greater clarity on the factors ISS considers in evaluating shareholder proposals, including company disclosure.
  • Glass Lewis & Co., the proxy advisory firm, published its proxy season guidelines for the 2015 proxy season. The updates include:
  • Voting against governance committee members or the governance committee chair if the board unilaterally limits important shareholder rights, including through adoption of fee-shifting or mandatory arbitration bylaws;
  • Refining its policy to vote against governance committee members if a majority-approved shareholder proposal is not implemented, to reflect that Glass Lewis will consider the quality of any action taken by the board in response, including any unreasonable restrictions; and
  • Refining its policies on (1) the $120,000 materiality threshold for relationships with director-affiliated companies, (2) treatment of one-off awards in the say-on-pay analysis and (3) employee stock purchase plans.