Glass Lewis publishes UK proxy voting guidelines for 2023

Glass Lewis has published it 2023 proxy voting guidelines for the UK (the “2023 Guidelines“). The full guidelines can be read here. Updates made in the 2023 Guidelines reflect the trending topics at the forefront of investors and issuers’ minds, including oversight of climate and other environmental and social risks and board diversity and composition. Key changes to last year’s guidelines are summarised below.

External commitments of directors

The 2023 Guidelines stress that an uncommitted director can post a material risk to a company’s shareholders, particularly during periods of crisis.  

Glass Lewis will generally recommend that shareholders oppose the election of a director who:

  • serves as an executive officer of any public company while serving on more than one additional external public company board. (Glass Lewis previously considered a director to be overcommitted if they had more than two additional external roles on public company boards.) In addition, an executive officer should not take on more than one non-executive directorships in a FTSE 100 company or other significant appointment; or
  • serves as a non-executive director on more than five public company boards. (This remains unchanged from last year.)

Non-executive board chair positions at UK companies continue to count as two board seats given the increased time commitment associated with these roles. Accordingly, Glass Lewis would generally consider an executive officer of a public company that also serves as a non-executive chair of another UK company to have a potentially excessive level of commitments.

Guidance from last year remains – as executive directors will presumably devote their attention to the company where they serve as an executive, Glass Lewis will generally not recommend that shareholders vote against the election of a potentially overcommitted director at the company where they serve in an executive function. Similarly, Glass Lewis will generally not recommend that shareholders vote against the election of a potentially overcommitted director at a company where they hold the board chair position, except where the director:

• serves as an executive officer of another public company; or

• holds board chair positions at three or more public companies; or

• is being proposed for initial election as board chair at the company.

When is a director potentially overcommitted?

When determining whether a director’s service on an excess number of boards may limit the ability of the director to devote sufficient time to board duties, existing guidance remains. A company should consider relevant factors such as:

  • the size, location, and scope of operation of the other companies where the director serves on the board;
  • the nature of the role (including committee memberships) that the director holds at such other companies;
  • whether the director serves as an executive or non-executive director of any large privately-held companies; and
  • the director’s attendance record at all companies.

Mitigation – the right to reply

Pursuant to the 2023 Guidelines, if the company with a potentially overcommitted director provides:

  • a commitment that such director will sufficiently reduce their commitment level prior to the next annual general meeting; or
  • presents a compelling rationale for the director’s continued service on the board,

then Glass Lewis may refrain from recommending a vote against the election of such director.

Such rationale should allow shareholders to evaluate the scope of the director’s other commitments as well as their contributions to the board, including specialised knowledge of the company’s industry, strategy or key markets, the diversity of skills, perspective and background they provide, and other relevant factors.

Other exceptions to the recommended vote against election are:

  • a director who serves on an excessive number of boards within a consolidated group of companies in related industries; or
  • a director that represents a firm whose sole purpose is to manage a portfolio of investments which include the company.

In these cases, it is incumbent on companies to proactively address potential shareholder concerns regarding a director’s overall commitment level.

Director Accountability for Climate-related issues

In a new section of the guidelines, Glass Lewis has outlined its view that climate risk is a material risk for all companies and particularly those companies whose greenhouse gas emissions represent a financially material risk, should provide clear and comprehensive disclosure of their risks, including how they are being mitigated and overseen. Such information is crucial to allow investors to understand the company’s management of this issue, as well as the impact of a lower carbon future on the company’s operations.

For such companies with material exposure to climate risk stemming from their own operations, climate-related disclosures in line with the recommendations of the Task Force on Climate-related Financial Disclosures should be provided to shareholders. The boards of these companies should have explicit and clearly defined oversight responsibilities for climate-related issues. As such, in instances where Glass Lewis finds either (or both) of these disclosures to be absent or significantly lacking, it may recommend voting against the chair of the committee (or board) charged with oversight of climate-related issues, or if no committee has been charged with such oversight, the chair of the governance committee. Glass Lewis may extend its recommendation on this basis to additional members of the responsible committee in cases where the committee chair is not standing for re-election, or based on other factors, including the company’s size and industry and its overall governance profile. In instances where appropriate directors are not standing for election, Glass Lewis may instead recommend shareholders vote against other matters that are up for a vote, such as the accounts and reports proposal.

Our thoughts

External commitments / overboarding – the change aligns Glass Lewis with the current Institutional Shareholder Services (ISS) Proxy Voting Guidelines which consider an executive director to be overboarded if they are also a non-executive chair at another company. We expect to see a continued focus on director overboarding in years to come and many companies are now implementing policies that address overboarding and tracking compliance with such policies. Companies should consider whether to incorporate provisions into their corporate governance framework to require pre-approval or otherwise notification of any changes in a director’s outside commitments.

We acknowledge that directors who serve on several boards can share their expertise and experiences across more companies. In addition, directors tend to see trends when they serve on more than one board. However, board service is a significant undertaking with much responsibility and board directors must, at a minimum, be able to dedicate the requisite amount of time to the task in hand without the company and its shareholders bearing the brunt of any potential over-commitments.    

Accountability for climate-related issues – we welcome this change which reinforces the importance of adequate and meaningful non-financial reporting. Earlier this year the FCA and FRC each published their observations following a review of the first TCFD aligned disclosures made by premium listed companies. The FRC’s thematic report included examples of better practice disclosures to be used as reference points. It is worth noting that last month ISS published its annual benchmark policy consultation seeking views on its approach to the 2023 AGM season. ISS proposes to extend its existing policy on climate board accountability globally. The policy was introduced to selected markets, including the UK last year and included a vote against the board chair. New changes may include the extension of a vote against what ISS considers to be the appropriate director(s) and/or other voting items available.   

Cross-Border Corporate Transformations in Germany – Important Changes Ahead

Germany will implement the EU company law directive (EU) 2017/1132 (latest government proposal: The new law will serve as a basis for EU-wide corporate mergers, divisions and transformations of German companies. In addition, it will provide for essential improvements to mergers and other company reorganizations. Below are some key topics and changes.

Cross-Border Transactions

In accordance with the directive, cross-border mergers, divisions and transformations of companies will be regulated by the new German law in a separate chapter of the German Umwandlungsgesetz. Eligible to participate in EU cross-border mergers, divisions and transformations are – in principle – all corporations within the meaning of the company law-directive as amended, which have been established in a EU- or EEA-member state and which have their corporate seat, their place of management or their main branch in the EU- or an EEA-member state (EU companies). The new German regime restricts the application for certain constellations to protect co-determination rights (see below).

Shareholder Opt Out for Cross-Border Transactions

A company proposing to change its nationality by means of a merger, division or transformation (e.g., a German stock corporation – AG – wants to change its legal structure to become a French SA) must offer dissenting shareholders the option to redeem their shares for adequate compensation.

Shareholders of Surviving Company

Under the current merger rules, the shareholders of the surviving company need to challenge the validity of the merger resolution in court, even if their only concern was relating to the level of compensation being adequate. The shareholders of the company, which merged into the surviving company, were barred from challenging the merger resolution in court by virtue of compensation deficiencies but could use the appraisal process (Spruchverfahren) to have the compensation reviewed. Under the new law, both shareholder groups will be treated equally. No shareholder may challenge the validity of the merger resolution just for inadequacy of the compensation and all shareholders may call for an appraisal process.

Shareholders Compensation – Retrospective Adjustments

Stock corporations will have more flexibility to offer additional shares in lieu of cash, where the post-transaction appraisal process requires an adjustment of the conversion rate due to amended evaluations of the relevant businesses. The new law provides for an option to issue and/or sell reserved shares to shareholders to establish participations as if the appraisal court’s final assessment of the adequate compensation ratio had been applied when the transaction was executed. Thus, stock corporations can avoid having to hold large cash reserves for potential adjustments of the compensation by an appraisal court.

Technical Reorganizations – Group Internal and Young Stock Corporations

A lot of international groups are organized through various jurisdictions in the EU. Changing the company structure within the same group of companies throughout the EU will be made easier. In the course of a group reorganization reporting, evaluation and other formal requirements, and the requirements for capital raises and the issuance of new shares, may be waived, which the new law makes clear for even more scenarios.

Under the current law, stock corporations could not be merged into other companies prior to their second anniversary of registration. This will be amended to allow mergers of stock corporations regardless of their age.


If a company divides to create and transfer its assets to several new or existing companies, the debt will be transferred in accordance with the division scheme to just one entity, the liability of the other entities will be extended for five years but will be capped by the net asset value of the business transferred in the course of the division. Interestingly, neither Directive (EU) 2017/1132 nor the German law define the term “net asset value”. It is therefore unclear which accounting and which evaluation rules will need to be applied to determine the net asset value for the purposes of the new provision.

Creditors of foreign companies which are merged into German companies will need to apply for securities in course of the formal merger, division or transformation procedure, if the financial situation of the merging companies requires their claims to be safeguarded. This right to obtain protection, where the need for securities has been demonstrated by the creditor, will expire three months after the publication of the merger plan. Creditors of participating German companies can still file for securities up to six months after the publication of the registration of the transaction, if they can demonstrate that settlement of their claims is at risk.


The new law aims to harbor co-determination (Unternehmensmitbestimmung) of German business by its employees and to prevent international reorganizations which are designed to abusively circumvent a co-determination (German co-determination rules only apply to German corporations and only subject to certain headcount thresholds). German commercial partnerships will be allowed to assume other entities as a surviving entity if they have not more than 500 employees. Cross-border divisions will be available for EU companies. If made for transfer to existing companies, divisions can also be executed by a German company dividing its assets, if less than 400 staff are employed by all participating companies, and, if a German company assumes assets, less than 80% of the staff are employed by all participating companies under the relevant co-determination regime of the transferring company.

Appraisal Procedures

With the new law, the often long and painful appraisal procedures to review and amend shareholders’ compensation (Spruchverfahren) will see certain improvements. Court competencies will be determined in a clear procedure and – rather than the catch all settlement required today – the court will be allowed to assess relevant business values based on an evaluation agreed by a majority of applicants. The conflicting procedures for shareholders of the company absorbed by the surviving entity and the shareholders of the surviving entity will be combined.

All applicants in an appraisal process will now require representation by a German Rechtsanwalt for applications and statements to the competent court.

Focus on ESG Disclosures Ramping Up – Examples From the US

The U.S. Securities and Exchange Commission (“SEC”) announced in March 2021 the formation of a Climate and ESG Task Force in the Division of Enforcement with a mandate to identify material gaps or misstatements in issuers’ ESG disclosures.

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Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022

On 19 January 2022 the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (“CFD Regulations”) were published. They will come into force on 6 April 2022 and apply in respect of any financial year of a company which commences on or after that date.

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Climate Related Disclosures

The Financial Conduct Authority (“FCA”) published its Primary Market Bulletin 36 yesterday.

It introduces specific Task Force on Climate-related Financial Disclosures (TCFD) aligned climate-related disclosure requirements for listed companies and sets out the FCA’s disclosure expectations and supervisory strategy. Transparency remains key to the FCA’s ESG Strategy which was released at COP26.

The listing rule for premium listed commercial companies is set out in LR 9.8.6R(8) and came into force for financial years beginning on or after 1 January 2021. The first annual financial reports including disclosures subject to this rule will therefore be published from January 2022. As these disclosures are deemed to be an ‘accounting requirement’, the Financial Reporting Council (“FRC”) is responsible for keeping these disclosures under review. From 2022, the review of TCFD-aligned disclosures will be embedded into the FRC’s routine reviews of premium listed company annual financial reports.

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London Readies for SPACs

Stock Market

The Financial Conduct Authority has published its final changes to the Listing Rules in order to encourage SPACs (special purpose acquisition companies) to list on the London Stock Exchange. The new rules will come into force on 10 August 2021.

The FCA consulted previously on the listing of SPACs, noting the need to balance investor protection with the desire to encourage SPACs to list on the Main Market.

A SPAC (or blank cheque company) is a shell company which raises cash through an initial public offering of its shares and lists, with the aim of using the funds raised to buy one or more companies later on. Prior to the new rules coming into force, there was a presumption that the FCA would suspend the listing of a SPAC when the SPAC identified a potential acquisition target. This was to protect investors from disorderly markets due to there being insufficient information available to the public at that stage. However, investors saw the suspension as detrimental as they could not then sell their shares, possibly for months.

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