On April 2, 2020, the proxy advisory firm Glass Lewis announced1 that unedited company feedback may now be included with its proxy research reports and provided “directly to the voting decision makers at every investor client.” According to Glass Lewis, the change is designed to allow companies “to more directly express their views on any differences of opinion they may have with Glass Lewis’ research and recommendations.” Under the new process, shareholder proposal proponents will also be eligible to have their unedited feedback included in Glass Lewis research reports.
The announcement follows on the heels of a recently proposed SEC rule which, if implemented, would, among other things, require proxy advisory firms to provide companies with an opportunity to review proxy voting advice in advance of dissemination and request that the proxy advisory firm include with its research report a hyperlink to the company’s statement in response to the voting advice.2 The comment period for the proposed rules ended on February 3, 2020, and while they were generally received favorably by issuers, they were heavily critiqued by proxy advisory firms, including Glass Lewis, as well as shareholder rights advocates.3 Key differences between the proposed rules and the new Glass Lewis policy are described below.
Process to Provide Feedback to Glass Lewis
In order to provide feedback to Glass Lewis on its report, companies must submit their response statement as follows:4
- Within seven days following the publication of Glass Lewis’s report;5 and
- No later than 14 days before the company’s annual meeting.
In addition, because the company statement would likely be considered a “solicitation” under the federal proxy rules, the company would need to file its statement (without the proxy advisor’s voting advice) as additional soliciting material with the SEC, by the date that Glass Lewis first publishes or sends its advice to its investor clients.
In order for a company to have the option to include its own statement in a Glass Lewis report, it must have purchased the relevant Glass Lewis research report directly from Glass Lewis. There would be no additional fee to submit a statement, but if a company declines to submit a statement at the time of purchasing a report, it will be charged a separate fee if it later decides to submit a statement. Once a Glass Lewis report includes a company response, any clients that already downloaded an earlier version of the report will receive an email with the updated research report that includes the company statement.6 Glass Lewis notes that such process, while occurring after the publication of the original Glass Lewis report, still allows an investor time to make or change their voting decision.
Differences Between Glass Lewis’s New Process and the SEC’s Proposed Rules
While Glass Lewis’s new process is similar to the proposed rules in that it allows a company to provide a response as part of the proxy advisory firm’s voting advice, there are key differences as follows:
- Opportunity for Feedback: The SEC’s proposed rules would require proxy advisory firms to provide an opportunity for all companies to review and provide feedback on draft voting recommendations before the firms disseminate them to their investor clients. The length of time for review would depend on how far in advance the company files its definitive proxy statement. Glass Lewis, by contrast, does not provide the opportunity for review and feedback of a draft report prior to dissemination.
- Timing of Distribution: Under the proposed SEC rules, companies would be provided an opportunity to review draft voting advice as well as a final opportunity to review the voting advice at least two business days before publication. A company could then elect to provide its own statement in response, which would be distributed to investors simultaneously with the proxy advisor’s report, which the SEC indicated was important because “a substantial percentage of proxy votes are typically cast within a few days or less” of the release of the voting advice. By contrast, Glass Lewis’s new process provides the company’s statement to investors only after the delivery of the proxy advisor’s initial report.
In light of these differences, Glass Lewis’s announcement serves as yet another move in the tactical debate over the appropriate role and services that proxy advisory firms should provide in the annual meeting process. Although the new Glass Lewis process meets one key principle of the SEC proposed rules by permitting a company response to be included in the voting advice, it lacks additional key aspects of the proposed rules that may be crucial for companies in contested voting situations.
1 Glass Lewis’s statement is available here.
2 The proposing release is available here. For more information, see our prior alert, “SEC Proposes Rule Amendments to Enhance Regulation of Proxy Advisers.” The proposed rules followed earlier SEC guidance on the role of proxy advisory firms, which was issued in response to increasing concerns that proxy advisory firms hold excessive sway over voting results. For more information, see our prior alert, “SEC Issues Guidance on Proxy Advisory Firms.” In response to this guidance, ISS filed a lawsuit against the SEC seeking injunctive and declaratory relief, arguing that the guidance exceeds the SEC’s statutory authority, is procedurally improper and is “arbitrary and capricious” because it lacks reasoned explanations for the SEC’s actions. The complaint is available here. In January 2020, the SEC filed an Unopposed Motion to Hold Case in Abeyance, which was granted by the court and which will stay the litigation until the earlier of January 1, 2021 or the promulgation of final rules in the SEC’s proxy advisor rulemaking. In the motion, the SEC confirmed that, during the stay, it would not enforce the interpretation and guidance.
3 Both Glass Lewis and ISS submitted comment letters. Glass Lewis’s comment letters are available here and here; ISS’s comment letter is available here.
4 For more information on the feedback process, see the FAQs, available here.
5 If a company makes an additional public filing that results in a material revision to Glass Lewis’ research report, the company will be permitted, at Glass Lewis’ discretion, to submit an additional report feedback statement, for a nominal distribution fee. This second statement must be received within two business days following the publication of the revised Glass Lewis research report.
6 Glass Lewis notes that companies and shareholder proponents can and should still report potential factual errors and omissions in our research.
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2020 White & Case LLP