Providing effective stewardship during proxy season is a challenge. With binding and advisory pay votes spreading across Europe, and say-on-climate proposals popping up around the world, there are not only more topics to vote on but often these topics are increasingly nuanced. And with regulatory and stakeholder scrutiny on voting practices increasing globally, making the appropriate vote decision is crucial.
How do you know if it’s the appropriate vote decision? It is critical to understand the background and context — not just the facts, but relevant perspectives from both management and shareholders. That’s difficult enough when there is plenty of time to meet with each side, and even more challenging at the height of proxy season, when a formal engagement meeting isn’t necessarily a practicable option and disclosure filings pile up daily.
The Report Feedback Statement (RFS), included along with Glass Lewis Proxy Paper reports, helps investors and public companies bridge the gap. The RFS gives companies and shareholder proponents the opportunity to respond to Glass Lewis’ proxy research and voting recommendations, and in turn provides investors a more complete picture of what’s at stake in time to make the appropriate vote decision.
Companies may have a difference of perspective from our Proxy Paper analyses, particularly with regard to how various elements of governance balance out and the methodologies used to measure performance. Or, they may simply want to provide additional context that informed the board’s decisions. The RFS provides a forum for this thoughtful exchange of ideas, giving investors another tool to use in performing their fiduciary duties.
RFS Case Studies
In the past year, over a hundred public companies and shareholder proponents have utilised the RFS to get their feedback included along with Glass Lewis’ Proxy Paper reports, delivered directly to institutional investors weighing their vote decision. Let’s take a closer look at how companies have leveraged the RFS to offer additional context and perspective on contested elections, pay proposals, and much more:
- Toshiba Corporation — 7/31/2020
Board elections at the Japanese electronics giant’s 2020 AGM were complicated. Along with twelve directors put forward by the company, five additional nominees were proposed by two different shareholders, 3D Investment Partners and Effissimo Capital Partners. Whereas Effissimo’s argument was focused on recent accounting scandals and the potential for additional reputational damage, 3DI instead took issue with management’s broader decision-making and approach to value creation. From internal controls and financial oversight to overall strategy, there was a great deal for investors to consider in determining who should sit on the board. Glass Lewis examined each of the dissidents’ assertions and, based on the limited scope of Effissimo’s position and questions about 3DI’s overall argument, ultimately supported management’s nominees.
In response, all three parties — Toshiba, 3DI, and Effissimo — submitted their own RFS, responding to the points raised in Glass Lewis’ analysis. In effect, the Proxy Paper and RFS became a key forum for investors weighing how to vote, featuring an exchange of perspectives and arguments from all sides that wasn’t available anywhere else.
- BlueScope Steel Limited — 11/19/2020
After reviewing BlueScope’s remuneration report, Glass Lewis had strong concerns and recommended voting against the proposal. In particular, the Proxy Paper noted that FY2020 was the second consecutive year in which the Australian steel manufacturer had failed to meet its targets/thresholds with respect to all three safety measures in the short-term incentive, including fatalities. Glass Lewis highlighted that the safety measures only made up 5% of the target award, and that accountability for failure in this area had been effectively minimised.
In response, BlueScope submitted an RFS highlighting information that put the specific safety targets and resulting performance into context. The RFS detailed the stretching nature of internal goals, industry-leading performance on medically-treated injury frequency, the unprecedented and unforeseen impact of the COVID-19 pandemic on hours worked, and positive direction of travel in other areas of safety. While the RFS did not provide context that mitigated concerns with respect to the company’s fatality record, it highlighted factors that changed the overall balance of the analysis, and Glass Lewis revised its recommendation to support the remuneration report. The RFS and revised recommendation were published nineteen days prior to the meeting, and just three days after publication of the initial report, giving Glass Lewis clients plenty of time to consider the additional information and their own voting decision.
- Kingspan Group plc — 4/30/2021
The UK-listed construction supplier has faced public scrutiny for its alleged role in the Grenfell Tower disaster, and for its subsequent response. Those issues were summarised in Glass Lewis’ Company Updates roundup and informed an “against” recommendation on the remuneration report. In particular, Glass Lewis had concerns about the level of disclosure provided regarding the treatment of Peter Wilson, who retired after heading up the company’s insulation business.
In response, Kingspan submitted an RFS setting out details of the incentive plan rules governing the treatment of Mr. Wilson’s awards, along with additional context and the board’s perspective on how other pay decisions should factor into an overall assessment. The result for investors was a clearer picture of the company’s thought process, without having to dig through prior year filings. Many of these contextual considerations were brought to light again by the company in a supplementary disclosure to the market — but the RFS afforded Glass Lewis clients with more time to reflect on the information before submitting their votes.
- Vale SA — 4/30/2021
When a group of shareholders nominated four candidates to Vale’s board, the Brazilian miner faced an extremely unusual contested election. Investors were asked to consider whether the board had made sufficient progress in responding to the Mariana and Brumadinho disasters; in implementing governance reforms; and in refreshing its board to ensure an appropriate mix of skills and experience. Glass Lewis noted strong progress on the company’s approach to governance, but had some concerns about the mix of skills on the board (as well as one director’s commitment levels), and recommended supporting two of the four alternative nominees.
Vale took the opportunity to submit an RFS providing investors with an additional assessment of what they felt the two board-proposed nominees that Glass Lewis had opposed brought to the table, including the geographic scope of one candidate’s experience, as well as more colour on its overall decision-making process. This provided more context to existing filings and allowed investors to understand the board’s perspective and rationale.
- BAE Systems plc — 5/6/2021
After BAE’s CEO told the board he was considering a generous offer to leave and head up another company, the company sweetened his pay package by increasing salary 13%, and guaranteeing full payout of an award that would otherwise have vested at 25%. UK companies generally abide by pre-approved remuneration policies, with a grey area of discretion baked-in to allow for exceptional situations. These moves fell into the little-utilised grey area, and the circumstances meant that they had to be made on short notice without any preemptive engagement discussions – leaving investors to consider after the fact whether the remuneration policy had been implemented appropriately.
Glass Lewis didn’t take issue with the re-election of the remuneration committee members themselves, but did recommend voting against the advisory implementation report, prompting BAE to submit an RFS offering additional perspective on the wider strategic and succession context for the discretionary increase, explaining why it was unable to engage regarding the initial decision, and outlining its subsequent efforts to meet and discuss with shareholders. It didn’t change Glass Lewis’ voting recommendation, but clients making their own determination got a more complete picture of why the board had exercised its discretion.
- Kraton Corporation — 5/19/2021
Like many companies around the world, Kraton adopted a virtual-only format for its annual shareholder meeting in response to the ongoing pandemic. Glass Lewis has outlined its expectations for companies holding virtual-only meetings, namely that they ensure shareholders are given the same level of participation as at an in-person meeting — and clearly explain how that will be ensured. In the absence of explicit disclosure to that effect, the policy led to a recommendation that shareholders withhold votes from the chair of Kraton’s nominating, governance, and sustainability committee.
In response, Kraton submitted an RFS, along with a concurrent SEC filing, disclosing additional information about how the meeting would be conducted, including details of a live Q&A session and the provision of technical support. Based on that additional disclosure, Kraton’s shareholders had a better understanding of how to effectively participate in the upcoming AGM, and Glass Lewis changed its voting recommendation to support the committee chair’s re-election. The revised recommendation was published just two days after our initial report, and weeks prior to the meeting, giving investors plenty of time to get their votes in.
- Nielsen Holdings plc – 5/25/2021
Nielsen Holdings is a complex multi-jurisdictional company that has both an advisory U.S. say on pay and a binding UK remuneration policy proposal. Glass Lewis recommended supporting the advisory proposal as the prior year’s pay decisions appeared reasonable — however, structural concerns regarding the lack of explicit individual limits on short- and long-term awards prompted an against recommendation on the binding policy proposal. There are many nuances to consider when weighing the practices of a primarily U.S. company that is incorporated overseas or otherwise subject to foreign voting law. The company took issue with a strict application of UK policy for the binding resolution, and the RFS enabled them to enumerate their perspective.
These examples involve situations where a public company or shareholder proponent took issue with Glass Lewis’ recommendation, and took the opportunity to respond. But RFS isn’t just a tool for rebutting voting recommendations. Increasingly, companies are using the RFS to address portions of the Proxy Paper that don’t factor explicitly into Glass Lewis recommendations, such as ESG Risk Ratings and additional compensation analytics from our data partners. This reflects the extent to which clients use Glass Lewis’ research to support their own internal deliberations and custom voting policies, and the power of the RFS as a tool for engagement and disclosure across a variety of topics.
By providing detailed feedback from companies and proponents, the RFS increases the transparency of Glass Lewis’ research. It better enables investors to make their own voting decisions on the basis of supplemental feedback from companies and/or shareholders.
Investors: For more on getting access to Glass Lewis research, including Proxy Papers and the RFS, contact GROW@glasslewis.com.
Public companies: If you want investors to hear your side of the story, find more information on how to submit an RFS here. Interested in engaging with us? Contact ENGAGE@glasslewis.com.