Glass Lewis expects all governance issues and most proposal types to be impacted by the coronavirus pandemic and we will exercise our existing discretion and pragmatism to prioritize timing, certainty, disclosure and voting on any affected proposals. We consider it likely that this will continue to be the case through 2021 and we believe it is important to provide the market with certainty and transparency on our established approach.
As stated previously, Glass Lewis acknowledges that some believe in a prescriptive approach to governance that favors ideological purity over pragmatic principles. We do not believe that discouraging pragmatism, discretion and context serves the interests of shareholders or companies—particularly during a crisis.
Our approach to several areas of particular relevance to Japanese companies and investors in the midst of the pandemic is set out below. For more information on Japan’s upcoming proxy season, see our 2020 Japan Season Preview.
Incomplete Audited Financial Statements and Hybrid Annual General Meeting
For the upcoming Japanese proxy season, we expect that a notable number of companies may choose to hold hybrid annual general meetings. In such cases, the companies may have limited information such as director attendance, compensation and independent auditor reports in their proxy materials, which are disclosed in the business report for the most recent fiscal year. Under such circumstances, we generally do not support proposals such as election of directors and statutory auditors and appointment of auditors due to lack of limited information. However, given the effect of COVID-19 on companies’ auditing process, we may refrain from recommending against any nominees or proposals solely based on lack of disclosure of these materials at this time. However, we will monitor and hold to account such nominees at future meetings if this material is not released in a timely manner after the meeting.
Allocation of Profit
With limited exceptions, Glass Lewis will generally support the dividend policy proposed by a company. However, in light of the global market volatility and uncertainty caused by the COVID-19 pandemic, we believe a cautious approach to dividend distributions by certain companies, especially insurance and financial institutions, would be prudent. Given the circumstances, we generally support decisions by boards to take a cautious approach to capital management for the time being, including deferral of dividend payments, reduction of payout ratios, or suspension of dividend distributions, provided the company provides a compelling rationale for any material change in policy. Companies who provide such a compelling rationale, should ensure that rationale is consistent with other decisions they make on governance issues such as remuneration.
Adoption or Renewal of Takeover Defense Plan During Pandemic
Glass Lewis generally opposes the adoption or renewal of takeover defense plans, as these provisions carry the potential to reduce management accountability by substantially limiting opportunities for corporate takeovers.
However, we are supportive of takeover defense plans that meet certain conditions, particularly those that are limited in scope to accomplish a particular objective. As described in greater detail in our Japan policy guidelines and Poison Pills and Coronavirus: Understanding Glass Lewis’ Contextual Policy Approach, we are supportive of takeover defense plans that meet certain conditions to accomplish a particular objective. This objective may include the closing of an important merger, managing a clear and present hostile takeover threat, or other contextual factors like a severe drop in stock price due to a widespread industry or market downturn.
We consider companies that are impacted by coronavirus and the related economic crisis as reasonable context for adopting a takeover defense plan under the following conditions:
- The duration of the plan is limited to one year or less; and
- The company discloses a sound rationale for adoption of the plan as a result of coronavirus.
If the plan does not meet these conditions, Glass Lewis will recommend opposing the renewal or adoption of takeover defense plan proposals.
If the company fails to put the renewal or adoption of takeover defense plan up for shareholder approval, Glass Lewis will recommend opposing the re-election of chair of the Company (or the most senior executive in the absence of a company chair).
As the COVID-19 crisis continues to unfold, and the sweeping fiscal impacts become more apparent, Glass Lewis will continue to apply our contextual approach with the appropriate discretion and pragmatism in making our recommendations.
To learn more about Glass Lewis’ approach to the coronavirus and the impacts on governance and our voting recommendations please visit our coronavirus resources page.
Companies wishing to access Glass Lewis research and to have their own opinion included with our report and on our voting platform should contact firstname.lastname@example.org.
Investors wishing to learn how these issues and Glass Lewis’ approach may affect the 2020 proxy season and their custom policies should contact email@example.com.
Glass Lewis clients interested in the impact of these issues, including on their custom voting policies, should contact firstname.lastname@example.org.
Complete copies of all our market-specific guidelines can be accessed here.