We have seen a change this year in the application by Glass Lewis of its policy relating to Post-IPO Governance. Historically, Glass Lewis was more lenient than ISS in issuing automatic withhold recommendations on directors based on governance provisions adopted at the time of the IPO.
We have seen several companies that went public last year receive withhold recommendations from Glass Lewis for all of their directors due to their Post-IPO Governance. Glass Lewis has specifically cited a combination of the following governance provisions as being problematic: a classified board; plurality voting standard for director elections; director removal from office only “for cause” and by a supermajority vote; supermajority vote requirements for amendments to the Company’s governing documents; exclusive forum provisions; no right for shareholders to call special meetings or act by written consent; and an equity plan with an “evergreen” provision. It appears to us from the Glass Lewis reports that we have reviewed that having a classified board without either committing to submit it to a shareholder vote or providing a reasonable pre-determined date at which the classified board sunsets, is the most problematic of the above referenced governance provisions in Glass Lewis’ view.
Obviously, we are nearing the end of annual meeting season for calendar year-end companies. However, if a company that went public last year has not yet held its annual meeting, it should be aware of this development. It will also be important on a go-forward basis for companies that are going through the IPO process or are newly-public to be aware that all of their directors will likely receive a withhold recommendation from both ISS and Glass Lewis at their first annual meeting if they put in place certain governance provisions at the time of their IPO.