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Going Beyond: Corporate Governance

How to manage an adverse proxy advisory firm recommendation.

Winning favorable vote recommendations from the proxy advisors, ISS and Glass Lewis, certainly make a company’s annual shareholder meeting easier. However, when faced with an adverse vote recommendation, issuers should know there are still options on the table. The window for action is tight though, so preparing in advance is critical. Issuers can begin thinking through the following steps, so they can quickly move into action should there be opposition to any ballot items.


Know your shareholder base

The first step is understanding your company’s ownership structure as of the record date. This is crucial because knowing whether your company’s ownership is heavily institutional or retail may determine what strategies to implement in your solicitation efforts.

For example, if your company has a large retail base, an analysis can tell you if you have enough retail votes to offset the against voting from institutions. A good rule of thumb is a 3 to 1 ratio, if you need to offset 10% in negative votes you need to have at least 30% represented on the retail register. Retail votes generally come in for management at a better than 9 to 1 ratio.


Determine the level of influence the independent advisory firms have on your institutional shareholder base.

Knowing which institutional investors are influenced by ISS, Glass Lewis, or their own internal proxy voting guidelines will assist in understanding the level of impact the adverse recommendation may have on the overall voting and help identify who you need to solicit support from.

Percentages based on Top Institutional Investors detailed below

While several well-known large institutional investors maintain their own voting guidelines, they may still review the proxy advisory firms’ recommendations prior to making voting decisions. When both advisory firms recommend Against Remuneration resolutions, for example, significant effort is required to lobby investors (including those that rely on their own internal guidelines) to support the proposal.


Consider a supplemental filing to “tell your side of the story”

Institutional investors’ Stewardship teams customarily control the vote decision making process and may seek input from the investment side of the house (PM or analysts) on certain matters. Drafting, filing, and sharing supplemental information with investors may help counter an against recommendation when companies are able to provide additional context and/or the rationale behind the issue that led the proxy advisory firm to recommend against a proposal. Articulating the rationale on why shareholders should support the contentious proposal in a public filing has a secondary benefit in that it provides management the ability to present arguments to investors who declined engagement offers before they vote.

Companies should argue why supporting the proposal is in shareholders’ best interests rather than focusing on disagreeing with ISS’ or Glass Lewis’ rationale.


Assemble your Team & Engage with Investors

Ensure that you have the appropriate team of internal and external subject matter experts to navigate and advise you. An effective team often includes representatives from legal, , sustainability, and someone who can articulate compensation practices.

The external advisory team should include outside counsel, a /proxy solicitation firm, and if required, a remuneration consultant.

The key to overcoming an adverse proxy advisory recommendation is to have an organized engagement program to engage with and help quell investors’ concerns and lobby for their support. Preparing in advance of investor calls is critical and should include reviewing their historical voting at your firm, understanding their proxy voting policies, and researching their historical track record on similar proposals.

Some investors may request future commitments that the issuer may need Board approval on.

Identifying large investor votes as they come in is another crucial part of the process to help determine if strategies need to be adjusted in real time. Companies should closely monitor the vote and consider additional solicitation tools to help maximize support as needed.


Receiving an adverse recommendation from ISS or Glass Lewis can be stress inducing, but utilizing advisors who are experienced in navigating similar situations will ensure the best possible outcome while allowing company personnel to focus on running the company’s core business.

Article by

Domenick is Chief Strategy Officer at Al…

With Alliance Advisors Going Beyond research series, we bring to the forefront pivotal discussions and content that are shaping the world of Corporate Governance, Executive Compensation, ESG, Shareholder Activism, Retail Outreach and M&A.

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