miscellaneous

Question 1

In lieu of running their own contested election, proxy access

Answer 1

would not only allow certain shareholders to nominate directors to company boards but the shareholder nominees would be included on the company’s ballot, significantly enhancing the ability of shareholders to play a meaningful role in selecting their representatives. Glass Lewis generally supports affording shareholders the right to nominate director candidates to management’s proxy as a means to ensure that significant, long-term shareholders have an ability to nominate candidates to the board.

Question 2

Companies generally seek shareholder approval to amend company bylaws to adopt proxy access in response

Answer 2

to shareholder engagement or pressure, usually in the form of a shareholder proposal requesting proxy access, although some companies may adopt some elements of proxy access without prompting.

Question 3

Glass Lewis considers several factors when evaluating whether to support proposals for companies to adopt proxy access including

Answer 3

the specified minimum ownership and holding requirement for shareholders to nominate one or more directors, as well as company size, performance and responsiveness to shareholders.

Question 4

SEC Rule 14a-8(i)(9) allows companies to exclude shareholder proposals

Answer 4

“if the proposal directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting.”

Question 5

On October 22, 2015, the SEC issued Staff Legal Bulletin No. 14H (“SLB 14H”) clarifying its rule concerning the exclusion of certain shareholder proposals when similar items are also on the ballot. SLB 14H increased

Answer 5

increased the burden on companies to prove to SEC staff that a conflict exists; therefore, many companies still chose to place management proposals alongside similar shareholder proposals in many cases.

Question 6

During the 2018 proxy season, a new trend in the SEC’s interpretation of this rule emerged. Upon submission of shareholder proposals requesting that companies adopt a lower special meeting threshold, several compa-
nies petitioned the SEC for no-action relief under the premise

Answer 6

that the shareholder proposals conflicted with management’s own special meeting proposals, even though the management proposals set a higher threshold
than those requested by the proponent. No-action relief was granted to these companies; however, the SEC stipulated that the companies must state in the rationale for the management proposals that a vote in favor of management’s proposal was tantamount to a vote against the adoption of a lower special meeting threshold.

Question 7

In certain instances, shareholder proposals to lower an existing special meeting right threshold were excluded on the basis that

Answer 7

they conflicted with management proposals seeking to ratify the existing special meeting rights. We find the exclusion of these shareholder proposals to be especially problematic as, in these instances, shareholders are not offered any enhanced shareholder right, nor would the approval (or rejection) of the rati-
fication proposal initiate any type of meaningful change to shareholders’ rights.

Question 8

In instances where companies have excluded shareholder proposals, such as those instances where special meeting shareholder proposals are excluded as a result of “conflicting” management proposals, Glass Lewis
will

Answer 8

take a case-by-case approach, taking into account the following issues:
• The threshold proposed by the shareholder resolution;
• The threshold proposed or established by management and the attendant rationale for the thresh-old;
• Whether management’s proposal is seeking to ratify an existing special meeting right or adopt a bylaw that would establish a special meeting right; and
• The company’s overall governance profile, including its overall responsiveness to and engagement with shareholders.

Question 9

Glass Lewis generally favors ______special meeting right.

Answer 9

a 10-15% ; Accordingly, Glass Lewis will generally recommend voting for management or shareholder proposals that fall within this range.

Question 10

When faced with conflicting proposals,

Answer 10

Glass Lewis will generally recommend in favor of the lower special meeting right and will recommend voting against the proposal with the higher threshold.

Question 11

in instances where there are conflicting management and shareholder proposals and a company has not established a special meeting right,

Answer 11

Glass Lewis may recommend that shareholders vote in favor of the shareholder proposal and that they abstain from a management-proposed bylaw amendment seeking to establish a special meeting right. We believe that an
abstention is appropriate in this instance in order to ensure that shareholders are sending a clear signal regarding their preference for the appropriate threshold for a special meeting right, while not directly opposing the establishment of such a right.

Question 12

In cases where the company excludes a shareholder proposal seeking a reduced special meeting right by means of ratifying a management proposal that is materially different from the shareholder proposal,

Answer 12

we will generally recommend voting against the chair or members of the governance committee.

Question 13

In other instances of conflicting management and shareholder proposals, Glass Lewis will consider the following:

Answer 13

• The nature of the underlying issue;
• The benefit to shareholders of implementing the proposal;
• The materiality of the differences between the terms of the shareholder proposal and management proposal;
• The context of a company’s shareholder base, corporate structure and other relevant circumstances; and
• A company’s overall governance profile and, specifically, its responsiveness to shareholders as evidenced by a company’s response to previous shareholder proposals and its adoption of progressive shareholder rights provisions.

Question 14

In recent years, we have seen the dynamic nature of the considerations given by the SEC when determining whether companies may exclude certain shareholder proposals. We understand that not

Answer 14

all shareholder proposals serve the long-term interests of shareholders, and value and respect the limitations placed on shareholder proponents, as certain shareholder proposals can unduly burden companies. However, Glass Lewis
believes that shareholders should be able to vote on issues of material importance.

Question 15

We view the shareholder proposal process as an important part of

Answer 15

advancing shareholder rights and encouraging responsible and financially sustainable business practices. While recognizing that certain proposals
cross the line between the purview of shareholders and that of the board, we generally believe that companies should not limit investors’ ability to vote on shareholder proposals that advance certain rights or promote beneficial disclosure.

Question 16

Accordingly, Glass Lewis will make note of instances where a company has

Answer 16

successfully petitioned the SEC to exclude shareholder proposals. If after review we believe that the exclusion of a shareholder proposal is detrimental to shareholders, we may, in certain very limited circumstances, recommend against members of the governance committee.

Question 17

The auditor’s role as gatekeeper is crucial

Answer 17

in ensuring the integrity and transparency of the financial information necessary for protecting shareholder value.

Question 18

Shareholders rely on the auditor to

Answer 18

ask tough questions and to do a thorough analysis of a company’s books to ensure that the information provided to shareholders is complete, accurate, fair, and that it is a reasonable representation of a company’s financial position.

Question 19

As such, shareholders should demand an objective, competent and diligent auditor who

Answer 19

performs at or above professional standards at every company in which the investors hold an interest. Like directors, auditors should be free from conflicts of interest and should avoid situations requiring a choice between the auditor’s interests and the public’s interests.

Question 20

Almost without exception, shareholders should be able to

Answer 20

annually review an auditor’s performance and to annually ratify a board’s auditor selection.

Question 21

Moreover, in October 2008, the Advisory Committee on the Auditing Profession went even further, and recommended that

Answer 21

“to further enhance audit committee oversight and auditor accountability … disclosure in the company proxy statement regarding shareholder ratification [should] include the name(s) of the senior auditing partner(s) staffed on the engagement.”

Question 22

As stated in the October 6, 2008 Final Report of the Advisory Committee
on the Auditing Profession to the U.S. Department of the Treasury:

Answer 22

“The auditor is expected to offer critical and objective judgment on the financial matters under consideration, and actual and perceived absence of conflicts is critical to that expectation. The Committee believes that auditors, investors, public companies, and other market participants must understand the independence requirements and their objectives, and that auditors must adopt a mindset of skepticism when facing situations that may compromise their independence.”

Question 23

On August 16, 2011, the PCAOB issued a Concept Release seeking public comment on ways that auditor independence, objectivity and professional skepticism could be enhanced, with a specific emphasis on mandatory audit firm rotation. The PCAOB convened several public roundtable meetings during 2012 to further discuss such matters. Glass Lewis believes

Answer 23

auditor rotation can ensure both the independence of the auditor and the
integrity of the audit; we will typically recommend supporting proposals to require auditor rotation when the proposal uses a reasonable period of time (usually not less than 5-7 years), particularly at companies with a history of accounting problems.

Question 24

On June 1, 2017, the PCAOB adopted new standards to enhance auditor reports by providing additional important information to investors. For companies with fiscal year end dates on or after December 15, 2017

Answer 24

reports were required to include the year in which the auditor began serving consecutively as the company’s auditor. For large accelerated filers with fiscal year ends of June 30, 2019 or later, and for all other companies with fiscal year ends of December 15, 2020 or later, communication of critical audit matters (“CAMs”) will also be required. CAMs are matters that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involve especially challenging, subjective, or complex auditor judgment.

Question 25

Glass Lewis believes the additional reporting requirements are

Answer 25

beneficial for investors. The additional disclosures can provide investors with information that is critical to making an informed judgment about an auditor’s
independence and performance. Furthermore, we believe the additional requirements are an important step toward enhancing the relevance and usefulness of auditor reports, which too often are seen as boilerplate compliance documents that lack the relevant details to provide meaningful insight into a particular audit.

Question 26

We generally support management’s choice of auditor except when

Answer 26

we believe the auditor’s independence or audit integrity has been compromised. Where a board has not allowed shareholders to review and ratify an auditor, we typically recommend voting against the audit committee chair. When there have been material restatements of annual financial statements or material weaknesses in internal controls, we usually recommend voting against the entire audit committee.

Question 27

Reasons why we may not recommend ratification of an auditor include:

Answer 27

1. When audit fees plus audit-related fees total less than the tax fees and/or other non-audit fees.
2. Recent material restatements of annual financial statements, including those resulting in the report-
   ing of material weaknesses in internal controls and including late filings by the company where the auditor bears some responsibility for the restatement or late filing.
3. When the auditor performs prohibited services such as tax-shelter work, tax services for the CEO or CFO, or contingent-fee work, such as a fee based on a percentage of economic benefit to the company.
4. When audit fees are excessively low, especially when compared with other companies in the same industry.
5. When the company has aggressive accounting policies.
6. When the company has poor disclosure or lack of transparency in its financial statements.
7. Where the auditor limited its liability through its contract with the company or the audit contract requires the corporation to use alternative dispute resolution procedures without adequate justification.
8. We also look for other relationships or concerns with the auditor that might suggest a conflict between the auditor’s interests and shareholder interests.
9. In determining whether shareholders would benefit from rotating the company’s auditor, where relevant we will consider factors that may call into question an auditor’s effectiveness, including auditor tenure, a pattern of inaccurate audits, and any ongoing litigation or significant controversies. When Glass Lewis considers ongoing litigation and significant controversies, it is mindful that such matters may involve unadjudicated allegations. Glass Lewis does not assume the truth of such allegations or that the law has been violated. Instead, Glass Lewis focuses more broadly on whether, under the particular facts and circumstances presented, the nature and number of such lawsuits or other sig-
   nificant controversies reflects on the risk profile of the company or suggests that appropriate risk mitigation measures may be warranted.

Question 28

An auditor does not audit interim financial statements. Thus, we

Answer 28

generally do not believe that an auditor should be opposed due to a restatement of
interim financial statements unless the nature of the misstatement is clear from a reading of the incorrect financial statements.

Question 29

Glass Lewis believes that poison pill plans are not generally in shareholders’ best interests. They can

Answer 29

reduce management accountability by substantially limiting opportunities for corporate takeovers. Rights plans can thus prevent shareholders from receiving a buy-out premium for their stock. Typically we recommend that shareholders vote against these plans to protect their financial interests and ensure that they have an opportunity to consider any offer for their shares, especially those at a premium.

Question 30

We believe boards should be given wide latitude in directing company activities and in charting the company’s course. However,

Answer 30

on an issue such as this, where the link between the shareholders’ financial interests and their right to consider and accept buyout offers is substantial, we believe that shareholders should be allowed to vote on whether they support such a plan’s implementation

Question 31

This issue is different from other matters that are typically left to board discretion.

Answer 31

Its potential impact on and relation to shareholders is direct and substantial.
It is also an issue in which management interests may be different from those of shareholders; thus, ensuring that shareholders have a voice is the only way to safeguard their interests.

Question 32

In certain circumstances, we will support a poison pill that

Answer 32

is limited in scope to accomplish a particular objective, such as the closing of an important merger, or a pill that contains what we believe to be a reasonable
qualifying offer clause.

Question 33

We will consider supporting a poison pill plan if the qualifying offer clause includes each of the following attributes:

Answer 33

• The form of offer is not required to be an all-cash transaction;
• The offer is not required to remain open for more than 90 business days;
• The offeror is permitted to amend the offer, reduce the offer, or otherwise change the terms;
• There is no fairness opinion requirement; and
• There is a low to no premium requirement. Where these requirements are met, we typically feel comfortable that shareholders will have the opportunity to voice their opinion on any legitimate offer.

Question 34

The Dodd-Frank Act also requires companies to allow shareholders a non-binding vote on the frequency of say-on-pay votes, i.e. every one, two or three years. Additionally, Dodd-Frank requires companies to

Answer 34

hold such votes on the frequency of say-on-pay votes at least once every six years.

Question 35

We believe companies should submit say-on-pay votes to shareholders

Answer 35

every year.

Question 36

We believe that the time and financial burdens to a company with regard to an annual vote

Answer 36

are relatively small and incremental and are outweighed by the benefits to shareholders through more frequent accountability.

Question 37

Implementing biannual or triennial votes on executive compensation

Answer 37

limits shareholders’ ability to hold the board accountable for its compensation practices through means other than voting against the compensation committee. Unless a company provides a compelling rationale or unique circumstances for say-on-pay votes less frequent than annually, we will generally recommend that shareholders support annual votes on compensation.

Question 38

Glass Lewis may consider supporting a limited poison pill in

Answer 38

the event that a company seeks shareholder approval of a rights plan for the express purpose of preserving Net Operating Losses (NOLs).

Question 39

While companies with NOLs can generally carry

Answer 39

these losses forward to offset future taxable income, Section 382 of the Internal Revenue Code limits companies’ ability to use NOLs in the event of a “change of ownership.

Question 40

a company may adopt or amend a poison pill (“NOL pill”) in order to

Answer 40

prevent an inadvertent change of ownership by multiple investors purchasing small chunks of stock at the same time, and thereby preserve the ability to carry the NOLs forward. Often such NOL pills have trigger thresholds much lower than the common 15% or 20% thresholds, with some NOL pill triggers as low as 5%.

Question 41

Glass Lewis evaluates NOL pills on a strictly case-by-case basis taking into consideration

Answer 41

among other factors, the value of the NOLs to the company, the likelihood of a change of ownership based on the size of the holding and the nature of the larger shareholders, the trigger threshold and whether the term of the plan is limited in
duration (i.e., whether it contains a reasonable “sunset” provision) or is subject to periodic board review and/or shareholder ratification. In many cases, companies will propose the adoption of bylaw amendments specifically restricting certain share transfers, in addition to proposing the adoption of a NOL pill. In general, if we
support the terms of a particular NOL pill, we will generally support the additional protective amendment in the absence of significant concerns with the specific terms of that proposal.

Question 42

(NOL) we believe that shareholders should be offered the opportunity to vote on

Answer 42

any adoption or renewal of a NOL pill regardless of any potential tax benefit that it offers a company. As such, we will consider recommending voting against those members of the board who served at the time when an NOL pill was adopted without shareholder approval within the prior twelve months and where the NOL pill is not subject to shareholder ratification.

Question 43

Fair price provisions, which are rare, require that

Answer 43

certain minimum price and procedural requirements be ob-served by any party that acquires more than a specified percentage of a corporation’s common stock.

Question 44

The provision is intended to

Answer 44

protect minority shareholder value when an acquirer seeks to accomplish a merger or other transaction which would eliminate or change the interests of the minority shareholders.

Question 45

The fair price provision is generally applied

Answer 45

against the acquirer unless the takeover is approved by a majority of ”continuing directors” and holders of a majority, in some cases a supermajority as high as 80%, of the combined voting power of all stock entitled to vote to alter, amend, or repeal the above provisions.

Question 46

The effect of a fair price provision is to require

Answer 46

approval of any merger or business combination with an “interested shareholder” by 51% of the voting stock of the company, excluding the shares held by the interested shareholder. An interested shareholder is generally considered to be a holder of 10% or more of the company’s outstanding stock, but the trigger can vary.

Question 47

Generally, fair price provisions are put in place for the ostensible purpose of

Answer 47

preventing a back-end merger where the interested shareholder would be able to pay a lower price for the remaining shares of the company than he or she paid to gain control.

Question 48

The effect of a fair price provision on shareholders, however, is

Answer 48

to limit their ability to gain a premium for their shares through a partial tender offer or open market acquisition which typically raise the share price, often significantly. A fair price provision discourages such transactions because of the potential costs of seeking shareholder approval and because of the restrictions on purchase price for completing a merger or other transaction at a later time.

Question 49

Glass Lewis believes that fair price provisions, while sometimes protecting shareholders from abuse in a take-over situation, more often

Answer 49

act as an impediment to takeovers, potentially limiting gains to shareholders from a
variety of transactions that could significantly increase share price. In some cases, even the independent directors of the board cannot make exceptions when such exceptions may be in the best interests of shareholders. Given the existence of state law protections for minority shareholders such as Section 203 of the Delaware
Corporations Code, we believe it is in the best interests of shareholders to remove fair price provisions.

Question 50

Glass Lewis believes that a company’s quorum requirement should be set

Answer 50

at a level high enough to ensure that a broad range of shareholders are represented in person or by proxy, but low enough that the company can transact necessary business.

Question 51

(quorum) Companies in the U.S. are generally subject to

Answer 51

quorum requirements under the laws of their specific state of incorporation.

Question 52

(quorum)those companies listed on the NASDAQ Stock Market are required

Answer 52

to specify a quorum in their bylaws, provided however that such quorum may not be less than one-third of outstanding shares

Question 53

Prior to 2013, the New York Stock Exchange required a quorum of 50% for
listed companies, although

Answer 53

this requirement was dropped in recognition of individual state requirements and
potential confusion for issuers. Delaware, for example, required companies to provide for a quorum of no less than one-third of outstanding shares; otherwise such quorum shall default to a majority.

Question 54

(quorum)We generally believe a majority of outstanding shares entitled to vote is

Answer 54

an appropriate quorum for the transaction of business at shareholder meetings. However, should a company seek shareholder approval of a lower quorum requirement we will generally support a reduced quorum of at least one-third of shares entitled to vote, either in person or by proxy. When evaluating such proposals, we also consider the specific facts and circumstances of the company, such as size and shareholder base.

Question 55

While Glass Lewis strongly believes that directors and officers should be held to the highest standard when carrying out their duties to shareholders,

Answer 55

some protection from liability is reasonable to protect them against certain suits so that these officers feel comfortable taking measured risks that may benefit shareholders. As such, we find it appropriate for a company to provide indemnification and/or enroll in liability insurance to cover its directors and officers so long as the terms of such agreements are reasonable.

Question 56

In general, Glass Lewis believes that the board is in the best position to determine the appropriate jurisdiction of incorporation for the company. When examining a management proposal to reincorporate to a different
state or country, we review

Answer 56

the relevant financial benefits, generally related to improved corporate tax treat-
ment, as well as changes in corporate governance provisions, especially those relating to shareholder rights, resulting from the change in domicile. Where the financial benefits are de minimis and there is a decrease in shareholder rights, we will recommend voting against the transaction.

Question 57

shareholder-initiated reincorporations are typically not the best route to achieve the furtherance of shareholder rights. We believe shareholders are

Answer 57

generally better served by proposing specific shareholder resolutions addressing pertinent issues which may be implemented at a lower cost, and perhaps even
with board approval.

Question 58

when shareholders propose a shift into a jurisdiction with enhanced shareholder rights, Glass Lewis examines the significant ways would the company benefit from shifting jurisdictions including the following:

Answer 58

• Is the board sufficiently independent?
• Does the company have anti-takeover protections such as a poison pill or classified board in place?
• Has the board been previously unresponsive to shareholders (such as failing to implement a share-
holder proposal that received majority shareholder support)?
• Do shareholders have the right to call special meetings of shareholders?
• Are there other material governance issues of concern at the company?
• Has the company’s performance matched or exceeded its peers in the past one and three years? • How has the company ranked in Glass Lewis’ pay-for-performance analysis during the last three
years?
• Does the company have an independent chair?
We note, however, that we will only support shareholder proposals to change a company’s place of incorporation in exceptional circumstances.

Question 59

Glass Lewis recognizes that companies may be subject to frivolous and opportunistic lawsuits, particularly in conjunction with a merger or acquisition, that are expensive and distracting. In response,

Answer 59

companies have sought ways to prevent or limit the risk of such suits by adopting bylaws regarding where the suits must be brought or shifting the burden of the legal expenses to the plaintiff, if unsuccessful at trial.

Question 60

Glass Lewis believes that charter or bylaw provisions limiting a shareholder’s choice of legal venue

Answer 60

are not in the best interests of shareholders. Such clauses may effectively discourage the use of shareholder claims by increasing their associated costs and making them more difficult to pursue. As such, shareholders should be
wary about approving any limitation on their legal recourse including limiting themselves to a single jurisdiction (e.g., Delaware) without compelling evidence that it will benefit shareholders.

Question 61

For this reason, we recommend that shareholders vote against any bylaw or charter amendment seeking to adopt an exclusive forum provision unless the company:

Answer 61

(i) provides a compelling argument on why the provision would directly benefit shareholders; (ii) provides evidence of abuse of legal process in other, non-favored
jurisdictions; (iii) narrowly tailors such provision to the risks involved; and (iv) maintains a strong record of good corporate governance practices.

Question 62

in the event a board seeks shareholder approval of a forum selection clause pursuant to a bundled bylaw amendment rather than as a separate proposal, we will weigh

Answer 62

the importance of the other bundled pro-visions when determining the vote recommendation on the proposal. We will nonetheless recommend voting
against the chair of the governance committee for bundling disparate proposals into a single proposal (refer to our discussion of nominating and governance committee performance in Section I of the guidelines).

Question 63

Similarly, some companies have adopted bylaws requiring plaintiffs who sue the company and fail to receive a judgment in their favor pay the legal expenses of the company. These bylaws, also known as “fee-shifting”
or “loser pays” bylaws, will likely have a

Answer 63

chilling effect on even meritorious shareholder lawsuits as sharehold-
ers would face an strong financial disincentive not to sue a company. Glass Lewis therefore strongly opposes the adoption of such fee-shifting bylaws and, if adopted without shareholder approval, will recommend voting against the governance committee. While we note that in June of 2015 the State of Delaware banned the
adoption of fee-shifting bylaws, such provisions could still be adopted by companies incorporated in other
states.

Question 64

Glass Lewis believes that adequate capital stock is important to a company’s operation. When analyzing a request for additional shares

Answer 64

we typically review four common reasons why a company might need additional
capital stock

Question 65

Stock Split

Answer 65

We typically consider three metrics when evaluating whether we think a stock split is likely or necessary: The historical stock pre-split price, if any; the current price relative to the company’s most common trading price over the past 52 weeks; and some absolute limits on stock price that, in our view, either always make a stock split appropriate if desired by management or would almost never be a reasonable price at which to split a stock.

Question 66

Shareholder Defenses

Answer 66

Additional authorized shares could be used to bolster takeover defenses
such as a poison pill. Proxy filings often discuss the usefulness of additional shares in defending against or discouraging a hostile takeover as a reason for a requested increase. Glass Lewis is typically against such defenses and will oppose actions intended to bolster such defenses.

Question 67

Financing for Acquisitions

Answer 67

We look at whether the company has a history of using stock for acquisitions and attempt to determine what levels of stock have typically been required to accomplish such transactions. Likewise, we look to see whether this is discussed as a reason for additional shares in the proxy.

Question 68

Financing for Operations

Answer 68

We review the company’s cash position and its ability to secure fi-
nancing through borrowing or other means. We look at the company’s history of capitalization and whether the company has had to use stock in the recent past as a means of raising capital.

Question 69

Issuing additional shares generally

Answer 69

dilutes existing holders in most circumstances

Question 70

the availability of additional shares, where the board has discretion to implement a poison pill

Answer 70

can often serve as a deterrent to interested suitors

Question 71

here we find that the company has not detailed a plan for use of the
proposed shares, or where the number of shares far exceeds those needed to accomplish a detailed plan

Answer 71

we typically recommend against the authorization of additional shares. Similar concerns may also lead us to recommend against a proposal to conduct a reverse stock split if the board does not state that it will reduce the number of authorized common shares in a ratio proportionate to the split.

Question 72

While we think that having adequate shares to allow management to make quick decisions and effectively operate the business is critical, we prefer that

Answer 72

for significant transactions, management come to shareholders to justify their use of additional shares rather than providing a blank check in the form of a large pool of unallocated shares available for any purpose.

Question 73

We typically recommend that shareholders vote against

Answer 73

proposals that would require advance notice of shareholder proposals or of director nominees.

Question 74

These proposals typically attempt to

Answer 74

require a certain amount of notice before shareholders are allowed to place proposals on the ballot.

Question 75

Notice requirements typically range between

Answer 75

three to six months prior to the annual meeting.

Question 76

Advance notice requirements typically make it

Answer 76

impossible for a shareholder who misses the deadline to present a shareholder proposal or a director nominee that might be in the best interests of the company and its shareholders.

Question 77

We believe shareholders should be able to

Answer 77

review and vote on all proposals and director nominees. Shareholders can always vote against proposals that appear with little prior notice. Shareholders, as owners of a business, are capable of identifying issues on which they have sufficient information and ignoring issues on which they have insufficient information. Setting arbitrary notice restrictions limits the opportunity for shareholders to raise issues that may come up after the window closes.

Question 78

A growing contingent of companies have elected to hold shareholder meetings by virtual means only. Glass Lewis believes that virtual meeting technology can be

Answer 78

a useful complement to a traditional, in-person shareholder meeting by expanding participation of shareholders who are unable to attend a shareholder meeting 
in person (i.e. a “hybrid meeting”). However, we also believe that virtual-only meetings have the potential to curb the ability of a company’s shareholders to meaningfully communicate with the company’s management.

Question 79

Prominent shareholder rights advocates, including the Council of Institutional Investors, have expressed concerns that

Answer 79

such virtual-only meetings do not approximate an in-person experience and may serve to reduce the board’s accountability to shareholders. When analyzing the governance profile of companies that choose to hold virtual-only meetings, we look for robust disclosure in a company’s proxy statement which assures shareholders that they will be afforded the same rights and opportunities to participate as they would at an in-person meeting.

Question 80

Examples of effective disclosure include:

Answer 80

(i) addressing the ability of shareholders to ask questions during the meeting, including time guidelines for shareholder questions, rules around what types of questions are allowed, and rules for how questions and comments will be recognized and disclosed to meeting participants;
(ii) procedures, if any, for posting appropriate questions received during the meeting and the company’s answers, on the investor page of their website as soon as is practical after the meeting; (iii) addressing technical and logistical issues related to accessing the virtual meeting platform; and (iv) procedures for accessing
technical support to assist in the event of any difficulties accessing the virtual meeting.

Question 81

the board is planning to hold a virtual-only shareholder meeting and the company does not provide such disclosure.

Answer 81

We will generally recommend voting against members of the governance committee

Question 82

We typically recommend that shareholders not give their proxy

Answer 82

to management to vote on any other business items that may properly come before an annual or special meeting. In our opinion, granting unfettered discretion is unwise.

Question 83

Glass Lewis will support proposals to adopt a provision preventing the payment of greenmail

Answer 83

which would serve to prevent companies from buying back company stock at significant premiums from a certain shareholder.

Question 84

Since a large or majority shareholder could attempt to compel a board into purchasing its shares at a large premium, the anti-greenmail provision

Answer 84

would generally require that a majority of shareholders other than the majority shareholder approve the buyback.

Question 85

if they can not complete a proposed private placement, stock split
or merger (provided we’re supporting the accompanying transaction)

Answer 85

Vote “For” an IAS proposal

Question 86

“Cushion Ratio”

Answer 86

Numeric value that measures at the total level of authorized but unissued shares that would result from a company’s request

Question 87

Low stock price exception

Answer 87

Generally we’ll rec “For” if Company’s share price is below $1.00

Question 88

Cushion ratio =

Answer 88

(total proposed shares/ current obligations) - 1

Question 89

IAS scenario DOES NOT apply to

Answer 89

preferred stock increases

Question 90

Preferred shares should be excluded from everything in the model UNLESS

Answer 90

there are preferred shares outstanding that the Company explicitly states
are convertible into common shares (put these into the “obligations” line)

Question 91

Generally, we will vote against preferred share increases (stock text)

Answer 91

– “Blank check” preferred shares can be used for poison pills, or in ways that generally will make them senior to common shareholders. Good for raising capital, but bad for shareholders who could end up further back in the queue
– Exception: “de-clawed” language stating that the board will seek shareholder approval if preferred shares are to be used as anti-takeover mechanism

Question 92

Reverse stock splits will reduce outstanding shares significantly. When the RSS does not proportionally reduce authorized shares, it therefore is effectively a “back door” IAS. Generally, if both of these are on a ballot and RSS doesn’t include a proportional authorized share decrease,

Answer 92

vote AGAINST the IAS and FOR the RSS

Question 93

We are generally more lenient on IAS for pre-revenue biotechnology and pharmaceutical companies.

Answer 93

When their products are in clinical trials, they are not generating revenue. The way that they can raise money is by selling shares, so they need a large pool of shares available to sell.

Question 94

Special Meeting Rights

Answer 94

Allows a shareholder/group of shareholders to call a special meeting, provided
that they hold a certain % of the Company’s shares
– Special meetings could be used to remove directors or approve special transactions not
favored by the board
– Shareholders like having this right

Question 95

Shareholder Action by Written Consent

Answer 95

Allows shareholders to take corporate action without an annual or special meeting
– Instead, shareholders must provide notice that they “consent” to a particular action being taken
– Could be used by activists if board is unresponsive and shareholders can’t call a special meeting
– Generally found in the bylaws. Search “written consent” or “without meeting” or “without a meeting”
– BEWARE: most bylaws allow directors to conduct board business by written consent, which is different

Question 96

Shareholders Right to Amend Bylaws

Answer 96

This provides for the vehicle through which shareholders can propose and adopt an
amendment to the bylaws:
– Typically we are looking for an amendment by a majority vote;
– Shareholders may prescribe a supermajority voting structure.

Question 97

Removal of Directors

Answer 97

• Ideally, shareholders should be able to actively remove directors from office with the vote of a majority of outstanding shares
– Some companies only allow shareholders to remove directors for/with “cause” and may invalidate a director removal resolution accordingly
– Legal standard for “cause” is incredibly high, making this right impractical/hard to use
– Generally found in the certificate

Question 98

Supermajority Voting Provisions

Answer 98

Require greater than 50% approval in order to alter certain provisions
– Example: Article 2 states that the board of directors is classified. In order to amend article 2, it must be approved by the affirmative vote of 75% of shares outstanding
– Example 2: in order for shareholders to amend bylaws without board approval, the changes must be approved by two-thirds of outstanding shares
• Generally speaking, these are bad as they prevent shareholders from approving things in their interests
– In extreme examples (75%/80% of outstanding requirement), even if every share voted is in favour of the proposal, it still won’t pass bc of a lack of participation

Question 99

“Evergreen” Provisions in Equity Plans

Answer 99

• An equity plan provision stating that additional shares are automatically added to the pool every year without shareholder approval
– Usually based on set percentage of outstanding shares (e.g. 5%)
– This is bad, as shareholders don’t get to vote on the plan
• If the Company has an equity plan up for approval at the meeting you can almost certainly answer “No”
• Try searching for a summary of the plan in the Form 10-K and DEF 14A. The equity plan itself will also be attached
as an exhibit Form 10-K.
– Try searching “annual increase” or “automatically increase” in DEF 14A and 10-K
– In the plan test itself, evergreen provisions will be found in a section titled something like “Number of Shares” or “Shares Subject
to the Plan”
• Try searching for “%” and “percent”

Question 100

When to Withhold IPO

Answer 100

When a company’s governing documents include several negative
provisions; withhold from all members of the nominating and corporate governance committee• Dual class stock w/ no sunset = withhold from nom/gov committee
• Poison pill = withhold from entire board (just like with non-IPO
companies)

Question 101

Share Consolidation/Reverse Stock Split

Answer 101

• Example: ‘If approved, shareholders will receive one new ordinary share for every ten ordinary shares (one-for-ten basis) held.’
• We generally vote FOR this proposal.
– A higher share price may help increase investor interest, attract and retain employees and improve the Company’s ability to raise additional capital through equity offerings (Low share price = Stigma of “penny stocks”)
– A Company may have to increase its share price via a share consolidation to retain its listing on an exchange
• What we look for in the plan terms:
– Exchange ratio
– Effect on authorized but unissued shares
• Example: 100 million shares outstanding → 10 million shares outstanding; stock price of $0.30 → $3.00
• This is one of the more common miscellaneous proposals you will encounter on a ballot.
• There will be stock text for this proposal, so follow along!

Question 102

Reincorporations

Answer 102

• A Company wants to be governed by the corporation laws of a different state or country.
– Let’s move to Delaware!
– Tax inversions to Netherlands, Ireland
• The Company will list out the differences in corporate law between the two places (and additional governance changes), and we will compare positive changes to negative changes to shareholder rights.
– Positive: Established rules providing for special meetings, action by written consent, de-staggered boards or director nominations.
– Negative: Staggered boards, impediments to removal of directors, supermajority provisions.
• Beware: sometimes the most important changes aren’t between the different places of incorporation,
but in the company’s bylaws
– As the reincorp. is technically a merger, the “new” company has a new set of bylaws

Question 103

Bundled Bylaw/Article Amendments

Answer 103

• Occasionally, companies will request to amend their Articles of Incorporation or Bylaws (the documents governing the Company’s operation) to effect numerous amendments, all in one proposal
– Board declassification
– Updating language to reflect regulatory changes
– Change voting standard
– Change in fiscal year end
• Examine the amendments in aggregate and determine whether the bundled amendments are beneficial or detrimental to shareholder rights.

Question 104

Bylaw Amendments without a Proposal

Answer 104

• U.S. boards may amend a Company’s bylaws without shareholder approval
– Ex: Exclusive forum provisions, adopt majority voting, fee shifting bylaws, proxy access, ability of shareholders to call special meetings
– Generally, articles of incorporation cannot be unilaterally amended
• When this happens (and the amendments are material) we want to make sure we capture this in theEoD write up
• The key consideration: did this change negatively impact shareholder rights?
– Shareholders should be able to weigh in on matters pertaining to their rights

Question 105

Proxy Access

Answer 105

• Incredibly popular shareholder proposal (SHP) for two years running
• Allows for shareholder-nominated director candidates to be included on management’s ballot
– Generally if you want to elect your own director
• General requirement: you must have owned at least 3% of the Company’s shares for 3 years
– Groups of shareholders can participate, generally up to a limit of 20 shareholders
– Shareholders/companies still scrapping over smaller restrictions
• “Resubmission threshold”: if your nominee fails to get 25% support, you can’t nominate them for the next two years
• Management proposals written by Governance team
• If you see one of these proposals talk to your lead
• If management unilaterally adopted proxy access, there’s stock text we’ll throw into the EOD
– Don’t worry too much about the complex table that pops up (for now)

Question 106

GL Policy for Restatements

Answer 106

As with MWs, GL believes restatements are indicative of weak accounting policies for which the audit committee should be held responsible

Question 107

What is Putnam?

Answer 107

– Director or family member receives compensation for professional services

Question 108

When do I mark “Putnam” in the board table?

Answer 108

– The relationship is current/ongoing, or ended in the past fiscal year.
• If the director will receive compensation for professional services in the current fiscal year, or if they received fees in the fiscal year in review, consider this to be an ongoing relationship.
– When any money is paid: no threshold.
– It involves legal, brokerage, financial, accounting or consulting services.
– The director is directly compensated or partner, member, officer, managing member or partial owner of the firm that is
compensated.

Question 109

What is not included in putnam?

Answer 109

– Leasing arrangements or property deals.

Question 110

Charitable Donations

Answer 110

Use the $120K threshold based
on donations within the past year.
- Mark “Other” for affiliation
reason, Do Not Withhold

Question 111

Aircraft and Real Estate purchases, Leases and Brokerage

Answer 111

Mark “business relationship” as
affiliation reason
- Withhold if amount exceeds
thresholds within past year
-Brokerage, and only brokerage,
may qualify for Putnam; 120 THOUSAND THRESHOLD

Question 112

RPT: Only withhold from inside directors if they receive

Answer 112

more from RPTs with the Company than through compensation paid to them by the
Company (i.e., salary, bonus, etc.as employee of Company).