Glass Lewis Releases 2025 U.S. Policy Updates

Proxy advisor Glass Lewis has published 2025 updates to its U.S. benchmark policy and its policies on shareholder proposals and environmental, social and governance (ESG) issues¹. The revised guidelines are effective for annual meetings on or after Jan. 1, 2025.

The changes, which are summarized below, largely address artificial intelligence (AI) – specifically board oversight and shareholder proposals. Glass Lewis also updated its discussion on the treatment of unvested awards under a change in control and clarified its approach to problematic executive pay factors, reincorporations, and board responsiveness to shareholder proposals.

Board Oversight of AI

In view of the rapid development and adoption of AI technologies, Glass Lewis has added a new discussion on its approach to AI-related risk oversight.

Glass Lewis believes that all companies that develop or employ the use of AI in their operations should provide clear disclosure concerning the board’s role in overseeing AI matters, including how they ensure that directors are fully versed on this issue. Oversight may be conducted by the entire board, specific directors, or a separate or existing board committee.

Glass Lewis will generally not make voting recommendations on the basis of a company’s oversight or disclosure of AI-related issues unless there is a material incident related to the company’s use or management of AI technologies. In such instances, Glass Lewis may recommend against the responsible directors if their oversight, response or disclosure concerning AI-related issues is insufficient.

Shareholder Proposals on AI

Glass Lewis has added a section to its benchmark policies on its approach to shareholder proposals dealing with companies’ use of AI in their operations and any ethical considerations. It evaluates such proposals on a case-by-case basis, taking into account the following:

• The proposal’s request,
• Disclosures provided by the company and its peers concerning their use of AI and the oversight afforded to
  AI-related issues, and
• Any lawsuits, fines or high-profile controversies concerning the company’s use of AI and whether the company’s management of this issue presents a clear risk to shareholder value.

Comments: In 2024, Glass Lewis supported seven out of nine AI-related shareholder proposals. Over half were requests for a transparency report on the company’s use of AI in its business operations, board oversight, and any related ethical guidelines. Glass Lewis also supported resolutions on AI-driven targeted advertising, the workforce implications of AI and automation, and amendments to audit/compliance committee charters to clarify their responsibility for AI activities.

Change-in-Control Provisions

Glass Lewis has clarified that in a change-in-control scenario, companies should provide a clear rationale for compensation committee discretion over the treatment of unvested awards.

Clarifying Amendments

Board Responsiveness to Shareholder Proposals

Glass Lewis has added a new section on board responsiveness to shareholder proposals to reflect its expectations when proposals receive significant (over 30%) but less than majority support, based on votes cast for and against. In these situations, Glass Lewis believes the board should engage with shareholders on the issue and provide disclosure of its outreach and how it is addressing shareholder concerns.

Reincorporations

Glass Lewis has clarified that it evaluates all proposals to reincorporate to a different state or country on a case-by-case basis, taking into account changes in governance provisions, material differences in cor- porate statutes and legal precedents, and relevant financial benefits. Under its current policy, Glass Lewis recommends against management-sponsored reincorporation proposals if the financial benefits, such as improved corporate tax treatment, are de minimis and there is a decrease in shareholder rights.

Glass Lewis has delineated the factors it examines when reviewing a proposal to reincorporate:

• If shareholders will gain or retain certain rights (such as the right to call special meetings, act by written consent or remove directors),
• If the new jurisdiction permits director and officer (D&O) exculpation and/or exclusive forum provisions,
• The fiduciary duties of directors, officers and majority shareholders under the new jurisdiction’s statutes,
• Material differences in corporate statutes, case law and judicial systems, and
• If the new jurisdiction is considered to be a tax haven.

Glass Lewis has also revised the governance factors it considers in reincorporation proposals. In addition to anti-takeover protections, board responsiveness to shareholders, company performance relative to peers, and pay-for-performance, Glass Lewis has added two additional factors:

• If the company has an independent board chair.
• If the company has a significant shareholder or is otherwise considered controlled.
• If a controlled company is seeking to change its domicile, Glass Lewis will closely evaluate how the independent board members came to their recommendation, if the controlling shareholder had any ability to influence the board, and if the proposal is also being put to a vote of the disinterested shareholders.

Comments: The revisions appear to have been driven by Tesla’s 2024 proposal to reincorporate from Delaware to Texas, which Glass Lewis opposed even though in the past it had supported a similar shift in domicile by other companies on the basis that shareholder rights would not be weakened². The factors relating to D&O exculpation and exclusive forums reflect Glass Lewis’ general distaste for such provisions

Approach to Executive Pay Program

Glass Lewis has clarified its discussion of say-on-pay (SOP) recommendations to emphasize that it takes a holistic approach to executive compensation programs. Few program features, on their own, would lead to an unfavorable recommendation. Glass Lewis does not utilize a pre-determined scorecard approach when considering individual features, such as the allocation of long-term incentives between performance-based and time-based awards. Unfavorable factors in a pay program are reviewed in the context of rationale, overall structure, 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 made by the compensation committee.

Glass Lewis has delineated two additional program features that it views negatively in its review of SOP:

• Egregious or excessive perquisites.
• Adjustments to performance results that lead to problematic pay outcomes.

Glass Lewis has also indicated that it expects smaller reporting companies to provide sufficient information for shareholders to vote in an informed manner even though disclosure standards may condone their omission of key executive compensation information.

Comments: In its 2024 policy survey, Glass Lewis noted that in recent years the value of CEO perquisites has increased dramatically. Over half (55.8%) of investor respondents viewed perquisites as indicative of broader pay issues.