Glass, Lewis & Co. (Glass Lewis) recently released its 2014 proxy season guidelines. Noteworthy updates, which are discussed in more detail below, relate to:

Glass Lewis has updated its policy on majority-approved shareholder proposals that seek board declassification. If a company fails to implement a shareholder proposal seeking board declassification that received majority support from shareholders (excluding abstentions and broker non-votes) at the previous year's annual meeting, Glass Lewis will consider recommending that shareholders vote against all director nominees up for election that served throughout the previous year, whether or not they served on the company's governance committee.

Glass Lewis has refined its policy on poison pills having a term of one year or less (short-term poison pills). If a short-term poison pill is adopted without shareholder approval, Glass Lewis will consider recommending a vote against all members of the company's governance committee. If the board has extended the term of a poison pill by one year or less in two consecutive years, without seeking shareholder approval, Glass Lewis will consider recommending that shareholders vote against the entire board.

Glass Lewis has clarified its approach for companies with shares listed on exchanges in multiple countries. When these dual-listed companies seek shareholder approval of proposals in accordance with varying exchange and country-specific rules, Glass Lewis will apply the country-specific governance standards most relevant in each situation. Glass Lewis will consider various factors in determining which standards to apply, including, but not limited to:

Glass Lewis believes that companies should adopt strict policies prohibiting executives from hedging company shares they own. Glass Lewis takes the view that executive hedging of economic risk associated with company share ownership results in the interests of the executive and shareholders not being aligned.

However, Glass Lewis discourages a "one size fits all" policy on employee stock pledging and believes that shareholders should examine the facts and circumstances of each company before making a determination on this topic. It believes that shareholders benefit when employees, especially senior executives, have "skin in the game." Therefore, the risks of stock pledging may be outweighed by the fact that permitting pledging may encourage executive and employee stock ownership and the associated benefits. Glass Lewis reviews all relevant factors when evaluating proposed policies and limitations and prohibitions on pledging stock.

By the earlier of their first annual meeting after January 15, 2014 or October 31, 2014, NYSE and NASDAQ-listed companies must comply with enhanced independence standards applicable to compensation committee members. Generally, these standards require the board to consider, in determining that a compensation committee member is independent, the source of the director's compensation and affiliations between the director and the company, its subsidiaries or affiliates of its subsidiaries. Glass Lewis believes it is important for boards to consider these factors when determining the independence of compensation committee members. However, Glass Lewis points out that it applies its own standards when assessing the independence of directors, which also take into account a director's consulting and advisory fees as well as any affiliations the director has with the company or its subsidiaries and affiliates. Therefore, Glass Lewis may recommend voting against compensation committee members who are not independent based on Glass Lewis' standards.

In addition, NYSE and NASDAQ listing standards now require listed company compensation committees to consider six factors relevant to a compensation consultant's independence from company management before selecting or soliciting advice from that compensation consultant. Glass Lewis believes that evaluating these factors is an important process that every compensation committee should undertake. Glass Lewis indicated in the guidelines that it will note the potential for a conflict of interest when fees paid to an advisor or its affiliates for other services exceed the fees paid for compensation consulting.

For more on the new independence standards for compensation committees and compensation consultants, see Practice Note, Corporate Governance Standards: Compensation Committee.