Recently, Glass Lewis announced it’s looking to change its business model in a big way by moving to bespoke policies for its investor clients rather than a uniform benchmark policy. It expects to make this move over the course of the next two years, eventually offering clients four different perspectives rather than a ‘house’ benchmark view. Glass Lewis says it can do this due to the ability of technology to ease this transition, including AI. [ISS says it has no plans to scrap its benchmark recommendations.]
Specifically, the press release breaks this change into two buckets that are closely intertwined:
- Helping clients move beyond standard policies, guiding them in creating voting frameworks that reflect their individual investment philosophies and stewardship priorities. A majority of the firm’s clients already use their own custom policy guidelines or a specific thematic policy. The goal is to enable all clients to vote according to their own policies.
- Moving away from singularly-focused research and vote recommendations based on its house policy and shift to providing multiple perspectives that reflect the varied viewpoints of clients. While still under development, the spectrum of perspectives could range from one that leans toward management and others that reflect more governance fundamentals. Beginning in 2027, clients will be able to access any or all of these perspectives to inform their proxy voting decisions.
The upshot of all this is captured in this excerpt from this Cooley Alert penned by Brad Goldberg, Beth Sasfai, Michael Mencher, Vince Flynn and Stephanie Gambino:
“Some companies will greet the end of Glass Lewis’ “house view” voting policies as a welcome development, expecting that participating investors will be more inclined to select management-aligned policies. Nonetheless, if customized voting policies at institutional shareholders and proxy advisory firms become the norm, companies may face less predictability than in previous proxy seasons. Voting outcomes may become more opaque, with fewer uniform “against” waves driven by a single benchmark and more investor by investor variability. As a result, companies may have difficulties interpreting negative annual meeting results and anticipating support for directors, executive compensation, and other management and shareholder proposals.
Shareholder engagement will also likely take on heightened importance. Assuming fewer investors default to the same recommendation, companies may need to hold meetings with a wider set of investors than in the past. Engagement challenges may be compounded by the growing trend of investors splitting stewardship teams by fund focus, such as BlackRock’s recent splitting of BlackRock Investment Stewardship and BlackRock Active Investment Stewardship, and similar changes made by State Street and Vanguard.
With the rise of fragmented voting policies across institutional shareholders and proxy advisory firms, it will be critical for companies to engage early and often with investors. Companies may also consider mapping their shareholders to various policy sets in order to discern which holders follow which policies and where each stands on governance issues impacting the company.
Disclosure quality and proxy design may also become even more critical. As voting policies fragment and voting becomes less predictable, companies may have to increasingly rely on well-organized and decision useful disclosure to make their case to a fractured voting base.”
This Financial Times ‘Moral Money’ column (paid content) has an interview with Glass Lewis CEO Bob Mann about the change…
Authored by
Broc Romanek