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Going back to pre-coronavirus corporate governance? Think again.

Apr 2, 2020

As the COVID-19 pandemic has evolved, and as we noted in our prior blog post regarding virtual annual meetings, both ISS and Glass Lewis have issued guidance on virtual meetings and annual meeting best practices in response to COVID-19. Pivoting from its focus on annual meetings, Glass Lewis has issued a new release that highlights certain key governance areas that they will be paying close attention to in the coming months.

• Executive Compensation - Glass Lewis noted that (i) they are already seeing a variety of approaches with regard to changing executive compensation programs in light of COVID-19, and (ii) companies should expect increased shareholder scrutiny regarding the impact of these changes. Although many companies will be forced to make certain adjustments to conserve capital, companies that take a “business as usual” approach to executive compensation will likely face opposition if their actions disproportionately impact the company’s employees and shareholders in favor of management.
• Board Composition and Effectiveness - COVID-19 has the potential to impact board attendance rates and directors’ health. Specifically, Glass Lewis noted that boards that have adopted fulsome succession planning and that have board renewal and diversity  policies will more successfully respond to director absences, vacancies, and other disruption issues caused by COVID-19. Further, boards must ensure that their directors are ready and able to participate and be effective members of the board issues as a result of transitions to remote working arrangements and social distancing.
• Shareholder Participation in Annual Meetings - Given the timing of COVID-19 in relation to proxy season, Glass Lewis noted that shareholder proposals this year are not likely going to adequately account for companies’ current circumstances or constraints. Accordingly, companies should be mindful not to use the crisis to dismiss or dissuade the ability of shareholder proponents to put forward their resolutions, speak at virtual meetings and have shareholders vote on such matters.

In assessing areas of corporate governance concern, Glass Lewis noted that it uses “context, discretion and pragmatism” to assess the reasonableness of companies proposed changes in light of the pandemic. Moreover, companies that have historically been known for good corporate governance and board level practices will be afforded more discretion when being reviewed.  As Glass Lewis noted, “[g]ood governance is relevant in all types of weather, boom or bust, but there is no better way to observe the effectiveness of governance than in a crisis.”

As you are making decisions in order to adjust to developments in real-time, be particularly mindful of your executive compensation, board composition, shareholder participation and overall corporate governance practices, and the ways that you enhance them because COVID-19 may reveal or highlight an unknown or previously overlooked weakness or weaknesses in unexpected ways.

If you have any questions or need assistance please contact any of the Related Professionals, any other member of Waller’s Capital Markets & Securities practice or your regular Waller contact at (615) 244-6380.