In late October, Glass Lewis announced the results from its annual policy survey. You might be wondering, “does this still matter, since Glass Lewis is moving away from its house policy?” The answer is “yes,” for a few reasons:
1. That move isn’t happening until 2027.
2. Even after the “house policy” disappears, Glass Lewis is still going to provide research and perspectives to clients – it’s just that everything will be more customized, which is already happening at a certain level. Glass Lewis says results from the policy survey inform its case-by-case analysis of company circumstances in the research and filters that it provides to its global client base.
3. The policy gives insight into investors’ current views on several hot topics – including reincorporation, board and workforce diversity, bylaws restricting shareholder proposals and derivative suits, disclosure of executives’ personal security costs and other executive compensation info, response to “anti-ESG” sentiment, and more.
Here are a few key takeaways:
– 85 percent of investors and 76 percent of non-investors say they do not base governance votes solely on financial performance.
– With Texas and Nevada amending their laws to attract more companies, 50 percent of investors are focusing more on shareholder rights when assessing reincorporation.
– 44 percent of U.S. investors view the CEO-to-median-employee pay ratio as “not important”, compared to just 8 percent of non-U.S. investors.
– U.S. based investors are far more likely to ignore diversity factors in their evaluation of boards (42%) compared to investors from other regions (6%).
When it comes to providing research & recommendations that take into account non-financial factors, that’s a pretty important question (and response) for the proxy advisors. John blogged recently that Texas AG Ken Paxton announced an investigation of ISS & Glass Lewis – another shot across the bow after a court temporarily blocked SB 2337 while challenges to that bill proceed to trial early next year.
On that note, here’s more color on how investors and non-investors are evaluating reincorporation, based on survey responses:
Over the past year, many U.S. states have amended their corporate laws to attract or retain companies. Changes include establishing specialized business courts, providing increased protection for directors, officers, and controlling shareholders, reducing litigation risk, and providing greater clarity on the standards for director independence and/or disinterestedness.
In response to this shifting landscape, half of investors reported that they are putting more emphasis on shareholder rights and protections (compared to just one-third of non-investors. Conversely, compared to investors, non-investors were over twice as likely to have become more favorable to company-friendly laws and statutes, litigation risk, and protecting directors, officers and controlling shareholders.
Glass Lewis typically publishes its policy updates in November or December. Stay tuned!
– Liz Dunshee
Delistings have been top of mind for some folks lately, especially in light of steps that Nasdaq has been taking to accelerate the process for some types of non-compliance. Specifically:
– Meredith recently flagged a couple of Nasdaq proposals that – if approved – will accelerate delistings for stocks trading at low prices and for companies with low public float.
– Nasdaq amended its rules earlier this year to accelerate delistings for companies failing to meet the minimum bid price requirement.
So, a recent Deep Quarry newsletter caught my eye, where Olga Usvyatsky summarizes the most common reasons for delisting notices that are being reported on Form 8-K. Here’s what she found:
1. Listing Standards – Price, Market Value & Financial Condition. Non-compliance with quantitative listing standards, such as minimum bid price, market value, equity, or net income, comprises about 56% of the cases.
2. Late SEC Reports/Filing Deficiencies. Non-compliance with timely disclosure requirements, including a failure to file annual or quarterly reports, comprises about 21% of the cases.
3. Other – mostly M&A related withdrawals. Voluntary withdrawal requests, typically amid an M&A transaction, comprise about 16% of the cases. Note that this category refers to a voluntary withdrawal request amid a strategic decision and is not an acknowledgement of a deficiency.
4. Public-interest or SPAC-related concerns comprise about 5.1% of the cases, with common reasons including concerns about a company being a “public shell”, concerns about issuance of securities that cause a substantial dilution, Chapter 11 petitions, and SPAC-specific issues related to inability to complete an acquisition within a prescribed timeframe.
5. Governance and shareholder rights lapses category comprises about 4.5% of the cases, comprised primarily of failures to hold annual meetings (1.8% of the cases), deficient board compositions (1.4% of the cases), and failures to adopt compensation clawback policies (0.6% of the cases).
If you’re working with a company that’s received a delisting notice or is heading in that direction, I shared a template compliance plan last year that may help you chart a path out of the wilderness.
– Liz Dunshee
Courtney Kamlet and I are back with new season of our podcast – “Women Governance Trailblazers” – where we interview women in the corporate governance field about their career journeys, leadership in the boardroom & C-suite, and current corp gov issues. In this 21-minute episode, we caught up with Dr. Julie Williamson, who is CEO of Karrikins Group, host of “The Failure Gap” podcast, and author of Make HOW Matter: Key Conversations for Leaders to Build Alignment and Accelerate Growth. We discussed:
1. Julie’s journey to becoming the CEO of Karrikins Group, and why she decided to get her PhD in Organizational Communication.
2. Why the “how” of leadership matters.
3. Key conversations that help boards and executives navigate decisions, including the importance of naming short-term and long-term tradeoffs.
4. How building alignment at the board level impacts corporate culture and success.
5. How Julie’s experience as an Ironman triathlete affects her perspective.
6. Julie’s advice for the next generation of women governance trailblazers.
To listen to any of our prior episodes of Women Governance Trailblazers, visit the podcast page on TheCorporateCounsel.net or use your favorite podcast app. If there are governance trailblazers whose career paths and perspectives you’d like to hear more about, Courtney and I always appreciate recommendations! Drop me an email at liz@thecorporatecounsel.net.
– Liz Dunshee
