Prepping for Proxy Season

Proxy advisors Institutional Shareholder Services (ISS) and Glass Lewis (GL) released their 2025 policy recommendations. In a word, they are subtle. Glass Lewis’s 2025 policy update, issued in late-November, is final. ISS opened its policy recommendations for comment around the same time and expects to announce final changes this month.

These annual policy updates are significant because they signal how the proxy advisors are likely to vote on shareholder proposals while holding sway over institutional investors. Voting helps shape corporate behavior by guiding investors on evolving governance issues such as executive compensation, board composition, and shareholder rights.

One difference between the advisory firms’ new policies involves oversight of artificial intelligence. Glass Lewis stipulated that it would not make voting recommendations for AI unless evidence of material harm caused by AI technologies is present. In contrast, the ISS policy did not mention the board’s oversight of AI.

 

ISS Policy Updates in Brief

ISS has also introduced several changes to its benchmark policy guidelines for 2025, covering various governance issues. Key updates include:

• Executive compensation: ISS plans to adapt its qualitative review of performance-vesting equity awards, giving greater weight to design and disclosure concerns. This change aims to address investor concerns about poorly designed performance equity programs. In addition, ISS disclosed that any potential policy update regarding performance versus time-based equity pay mix will remain under consideration until at least 2026 or later
• Poison pills: ISS updated its policy to recommend withholding or voting against a director nominee or nominees if the board adopts a poison pill without shareholder approval. The advisor provided clarification of the factors to be considered in evaluating a decision to adopt a short-term poison pill, including the trigger threshold, rationale for adoption, and the company’s overall governance track record
• SPAC extension proposals: The policy now supports SPAC extension requests of up to one year from the original termination date and considers factors such as added incentives and the status of the business combination
• Natural capital-related and community impact assessment proposals: ISS has updated its policy to reflect the emerging focus on biodiversity and related environmental topics and their alignment with frameworks like the Taskforce on Nature-related Financial Disclosures (TNFD)
• Board diversity: In the UK, ISS has updated its policy to align with the Financial Conduct Authority Listing Rules on board diversity, including targets for gender and ethnic diversity

 

Glass Lewis Policies in Brief

The proxy advisor stated its pay program analysis considers the company’s rationale, overall structure, disclosure quality, and the program’s ability to align executive pay with performance. One individual feature alone does not lead to an unfavorable SOP recommendation.

• Incentive plan adjustments that “result in problematic pay outcomes” were added to GL’s list of issues that can negatively affect its SOP vote
• Post-vesting holding requirements were added to the list of elements of a well-structured LTI plan and viewed positively by GL in its holistic analysis
• Executive share ownership minimum requirements should be “meaningful”
• Golden parachute proposals may result in negative SOP recommendations if they contain excessive single-trigger entitlements
• Change-in-control provisions allowing committee discretion over unvested awards necessitate a clearly stated rationale for their treatment
• Boards should engage shareholders whose proposals receive greater than 30% support
• Boards should be held accountable for environmental and social risks with potential voting recommendations against directors if oversight is deemed insufficient

 

Farient Recommendations for Boards

• Manage AI risks proactively, ensuring that directors have the necessary expertise and frameworks in place for informed oversight
• Engage with shareholders regularly, especially when significant support is shown for proposals. Provide clear disclosures that demonstrate responsiveness to shareholder concerns
• Ensure that executive compensation programs are well-structured, transparent, and aligned with long-term performance
• Strive to meet diversity targets for gender and ethnic representation on the board, aligning with regulatory requirements and investor expectations
• Maintain high standards of transparency and accountability in all governance practices, including the adoption of poison pills and SPAC extensions

Stay informed. ISS is expected to release compensation and equity plan FAQs later this month. We’ll share another update when those are released, as warranted.