Glass Lewis to Revamp Voting Recommendations by 2027

Proxy adviser Glass Lewis has announced that it will discontinue its “benchmark” voting recommendations by 2027, opting instead for a more tailored approach to client needs. This shift comes amid increasing scrutiny and criticism from U.S. Republican politicians regarding the firm’s advice on environmental, social, and governance (ESG) matters.

In a statement released on Tuesday, a spokesperson for Glass Lewis detailed that the decision stems from a growing divergence between the perspectives of U.S. and European investors on issues such as fiduciary duty and sustainability. The spokesperson noted, “The whole geopolitical environment is attached to this,” indicating that external pressures have influenced the company’s strategy moving forward.

Impact of Political Scrutiny

Glass Lewis, along with its competitor Institutional Shareholder Services (ISS), has faced mounting pressure from politicians who align with corporate managers. This focus on executive compensation and climate policies has intensified discussions at corporate annual meetings.

In Texas, both firms are currently under investigation by the state’s Republican Attorney General for potential violations of consumer-protection laws, specifically regarding the disclosure of material facts. Both companies have denied any wrongdoing and have successfully obtained preliminary injunctions against a new state law. This law would have required them to inform clients that their ESG-focused advice does not solely cater to shareholders’ financial interests.

Future Directions for Voting Frameworks

In its recent position paper, Glass Lewis outlined plans to utilize artificial intelligence to develop a “highly customized, client-centric framework” for voting recommendations. This new model will allow clients to create their own voting frameworks, offering research that supports various perspectives on governance, management, and sustainability priorities.

In contrast, an ISS spokesperson confirmed that the firm will retain its benchmark policy while also introducing new products for investors, which include research devoid of voting recommendations.

Aaron Bertinetti, CEO of Investor Engagement, North America for Computershare, highlighted the shifting dynamics in proxy voting. He noted that as the blocs of investor votes influenced by proxy adviser recommendations become smaller, companies will find it increasingly challenging to identify which investors to engage. “Now the influence is getting dispersed and much harder to track,” Bertinetti remarked, emphasizing the evolving landscape of shareholder engagement.

As Glass Lewis prepares for these changes, the implications for corporate governance and investor relations will be significant, reshaping how companies interact with their shareholders in the coming years.