As the 2025 proxy season approaches, it is important that public companies be aware of the changes to the proxy voting guidelines of Institutional Shareholder Services (ISS) and Glass Lewis. Late in the fourth quarter of 2024, both proxy advisory firms announced changes to their guidelines that will go into effect for the 2025 proxy season.

Notably the guidelines were released shortly before, in the case of Glass Lewis, or shortly after, in the case of ISS, the United States Court of Appeals for the Fifth Circuit’s decision that vacated Nasdaq’s board diversity rules (see this DLA Piper alert). Neither proxy advisory firm made changes to their voting guidelines related to board diversity, both of which generally recommend voting against the chair of a company’s nominating committee (and in some cases other board or nominating committee members) where there is no gender or racial/ethnic diversity. It remains unclear whether these proxy advisory firms will discretionarily apply their voting guidelines to board diversity matters during the 2025 proxy season and whether they will modify them in the future.  

While the changes are not extensive compared to prior years, understanding them and how they may impact voting by a company’s institutional investors may be important as the firms’ views could significantly impact the outcome of proxy voting for annual meetings and set expectations for corporate governance best practices.  

Some of the key changes to ISS and Glass Lewis’ proxy voting guidelines for US public companies are addressed below.

ISS

• Short-term poison pills. ISS has clarified the factors it considers in its case-by-case evaluation of whether a board’s actions in adopting a short-term poison pill would warrant a recommendation to vote against directors.  The additional factors for consideration include the context in which the pill was adopted and  the company’s overall track record on corporate governance and responsiveness to shareholders.

• General Environmental Proposals and Community Impact Assessment. In connection with shareholder proposals regarding natural capital-related and/or community impact assessment reports, ISS has added the alignment of current disclosure and applicable policies, metrics, risk assessment report(s), and risk management procedures with relevant, broadly accepted reporting frameworks (eg, Task Force on Nature-Related Financial Disclosures) as a factor in its case-by-case recommendations.

• Special purpose acquisition companies (SPACs). ISS generally recommends support for extension requests of up to one year from the original termination date (inclusive of any built-in extension options that were included in the original governing documents). Multiple extension requests may be acceptable so long as such requests do not collectively exceed one year in total.  Additional factors that ISS may consider include: any added incentives, business combination status, other amendment terms, and, if applicable, use of money in the trust fund to pay excise taxes on redeemed shares.

Glass Lewis

• Artificial intelligence (AI). Glass Lewis has introduced a new policy on board oversight of AI stating that boards should be cognizant of and take steps to mitigate material AI-related risks.  Glass Lewis does not make voting recommendations based on a company’s oversight or disclosures related to AI issues, but where there is evidence that insufficient oversight and/or management of AI technologies has resulted in material harm to shareholders, it will review a company’s overall governance practices and identify which directors or board-level committees have been charged with oversight of AI-related risks. Such directors could be subject to negative vote recommendations if Glass Lewis finds the board’s oversight, response or disclosure regarding AI-related issues lacking.

• Change In Control Provisions. Glass Lewis has updated its policy to state that where a company allows a committee to exercise discretion in the treatment of unvested awards when a change in control occurs, the company needs to provide a clear rationale for the committee’s ultimate treatment of such awards.

• Board Responsiveness to Shareholder Proposals. Glass Lewis has clarified that if a shareholder proposal has received significant shareholder support (generally more than 30 percent but less than a majority of votes cast), the board should engage with shareholders on the issue and provide disclosure addressing shareholder concerns and outreach initiatives.  For controlled companies and companies that have multi-class share structures with unequal voting rights, Glass Lewis will carefully examine the level of approval or disapproval attributed to unaffiliated shareholders when determining whether board responsiveness is warranted.

• Reincorporation. Glass Lewis will review all proposals to reincorporate to a different state or country on a case-by-case basis. Its review will include review of changes in corporate governance provisions, especially changes relating to shareholder rights, material differences in corporate statutes and legal precedents, and financial benefits.

• Executive Pay Programs. Glass Lewis clarified and emphasized its holistic approach to analyzing executive compensation programs. It analyzes pay programs on a case-by-case basis and unfavorable factors are reviewed in the context of rationale, overall disclosure quality, the program’s ability to align executive pay with performance and the shareholder experience, and the trajectory of the pay program resulting from changes introduced by the compensation committee.

US public companies are encouraged to know their shareholder composition and whether their key investors are likely to follow or be influenced by ISS’s and Glass Lewis’s voting recommendations. For those companies that may be negatively impacted there may still be time to engage with their investors on any problematic issues before the start of the proxy season.