Updated proxy voting guidelines

Institutional Shareholder Services (ISS) and Glass Lewis have published updates to their proxy voting guidelines for the 2023 AGM season.

Both ISS and Glass Lewis support the updated 2022 Pre-Emption Group Statement of Principles on the disapplication of pre-emption rights and will not recommend votes against resolutions for authorities sought and used in line with these principles (see our corporate blog post for more information on the 2022 Statement of Principles).

ISS Proxy Voting Guidelines

The key changes to the ISS UK proxy voting guidelines are set out in a policy updates document. The changes include:

• Audit committees – In light of the increased focus on the work of audit committees as part of the reform of audit in the UK (see our briefing on audit and corporate governance reform), ISS will note where there have been four or fewer meetings of the audit committee of FTSE 350 companies in the financial year. For FTSE All-Share companies, ISS will highlight where there have been three or fewer meetings; and

• Board diversity – For financial years beginning on or after 1 April 2022, ISS may consider recommending votes against the chair of the nomination committee, or other director on a case-by-case basis, of premium and standard listed companies that have not met the new board diversity and inclusion targets introduced by the FCA (see our corporate blog post for further details on these changes to the Listing Rules and the Disclosure Guidance and Transparency Rules).

The ISS Proxy Voting Guidelines 2023 are effective for meetings held on or after 1 February 2023.

ISS is expected to publish the full updated policy guidelines reflecting these changes later this month.

Glass Lewis 2023 Policy Guidelines

The key changes set out in the Glass Lewis 2023 Policy Guidelines include:

• Overboarding – Glass Lewis has clarified what it considers to be an excessive level of commitments and it will generally recommend voting against the election of an executive director who is serving on more than one public board or taking on more than one non-executive directorship of a FTSE 100 company (or similar level of appointment);

• Employee representatives – Glass Lewis does not include directors serving as representatives of employees when calculating what proportion of the board is independent;

• Director accountability for climate-related issues – Glass Lewis may recommend voting against the chair of the committee (or board) responsible for oversight of climate-related issues (or the chair of the governance committee if no such committee is responsible) if companies fail to make disclosures in line with the Recommendations of the Task Force on Climate-related Financial Disclosures or if they have not clearly and explicitly defined board oversight responsibility for climate-related issues; and

• Combined incentive plans – Glass Lewis will generally recommend voting against combined incentive plans (in lieu of more traditional structures which have both short- and long- term plans) unless certain conditions are met.

Glass Lewis is also monitoring how companies approach a number of other issues, including board diversity and cyber risk oversight, with a view to taking action should companies not respond appropriately to these developments.

The revised Glass Lewis guidelines will apply to meetings from 1 January 2023.