Proxy Advisors Update Voting Guidelines for 2023 Focusing on Board Diversity, Officer Exculpation and ESG Oversight

By: David A. Bell , Dean Kristy , Julia Forbess , Ryan Mitteness , Ron C. Llewellyn

Institutional Shareholder Services (ISS) and Glass Lewis, the leading proxy advisors in the United States, have announced updates and clarifications for their voting guidelines for the 2023 proxy season. Their voting recommendations influence many institutional investors and play an important role in voting outcomes. This alert summarizes the key changes to their respective guidelines and suggests actions that companies can take to address them.


In December 2022, ISS announced its 2023 Benchmark Policy Updates, which will generally take effect for meetings on or after February 1, 2023. The most notable changes to its policy are discussed below.


ISS will recommend a vote against (or withhold from) the appropriate director(s) or other relevant voting items at high-emitting companies (currently defined as those companies on the current Climate Action 100+ Focus Group list), where the company does not:

  • provide adequate disclosure of climate-related risks, such as pursuant to the Taskforce on Climate-related Financial Disclosure (TCFD) framework, and
  • have either medium-term or Net Zero-by-2050 GHG emissions reduction targets, which should cover at least the vast majority (95%) of the company’s Scope 1 and Scope 2 emissions.

Board Gender Diversity

ISS extends its board gender diversity policy, currently applicable to Russell 3000 and S&P 1500 companies, which requires a company to have at least one woman director, to all companies covered under its U.S. policy, including Foreign Private Issuers.

Unequal Voting Rights

ISS eliminates the one-year grace period applied in 2022 for grandfathered companies with unequal voting rights and now recommends a vote against directors, committee members or the entire board (other than new nominees, which are evaluated on a case-by-case basis) for all companies with unequal voting rights, such as dual-class stock structures. This standard is subject to limited exceptions (such as newly public companies that adopt a seven-year sunset provision) and a de minimis exception for unequal voting rights of no more than 5% of total voting power.

Problematic Governance Structures

The ISS policy provides for a negative vote recommendation against directors, committee members or the entire board (other than new nominees, which would be evaluated on a case-by-case basis) of companies that include bylaw or charter provisions that provide for a classified board structure, supermajority voting for charter and bylaw amendments, or other egregious provisions. For newly public companies ISS will consider a “reasonable sunset provision” (defined as a maximum of seven years) as a mitigating factor that would be considered in the application of its problematic governance structure policy.

Officer Exculpation

Amendments to the Delaware General Corporation Law (DGCL) in August 2022 allow Delaware companies to amend their charters to provide for the exculpation of officers for breaches of their fiduciary duty of care in limited situations. ISS will support proposals providing for officer exculpation provisions in a company’s charter on a case-by-case basis, taking into account the stated rationale and other enumerated factors. Certain other states allow liability limitations beyond what the DGCL allows (e.g., breaches of duty of loyalty), and ISS has noted it will generally not support those provisions, even where permitted under state law. Under the DGCL, the exculpation of officers is limited to a company’s president, chief executive officer, chief operating officer, chief financial officer, chief legal officer, controller, treasurer or chief accounting officer, “named executive officers” identified in filings with the U.S. Securities and Exchange Commission (SEC) and individuals who have agreed to be identified as officers and does not extend to exculpation from liability for derivative claims. Based on its original proposed guidelines and the rationale for the change to the final guidelines and its prior recommendations with respect to the earliest adopters under the DGCL, we expect that ISS will generally support amendments providing for officer exculpation consistent with the DGCL provision.

Authorization of Common Stock Issuance for Non-U.S. Entities

For companies incorporated outside the U.S. and listed solely on a U.S. exchange, ISS will generally vote for resolutions to authorize the issuance of common shares up to 20% of currently issued common share capital, if they are not connected with a specific transaction or financing proposal. This policy applies to companies that are required by the laws of the country of their incorporation to seek approval for all share issuances.

Shareholder Proposals Regarding Political Spending/Lobbying Alignment

ISS will generally vote on a case-by-case basis for proposals requesting disclosure of the alignment between the company’s political spending/lobbying and publicly stated values and policies, subject to enumerated considerations.

Glass Lewis 

In November 2022, Glass Lewis announced the release of its 2023 Policy Guidelines and its Policies for ESG Initiatives, which will generally apply to meetings held after January 1, 2023. Most noteworthy changes for 2023 are outlined here.

Board Diversity

Glass Lewis will generally recommend against the chair of the nominating committee if the board of a Russell 3000 company is not at least 30% gender diverse and against the chair of the nominating committee if the board of a company outside the Russell 3000 does not have a minimum of one gender diverse director.

Glass Lewis will also generally recommend against the chair of the nominating committee of a board of a Russell 1000 company that lacks at least one director from an underrepresented community. A director from an “underrepresented community” means a director who self-identifies as Black, African American, North African, Middle Eastern, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian or Alaskan Native, or who self-identifies as gay, lesbian, bisexual or transgender. Glass Lewis will rely solely on the self-identified demographic information provided in a company’s proxy statement in making its determination.

In addition, if a Russell 1000 company does not disclose director diversity and skills in its proxy statement, Glass Lewis will generally recommend against the chair of the nominating and/or governance committee. Similarly, if a Russell 1000 company does not provide individual or aggregate racial/ethnic minority demographic information, Glass Lewis will recommend against the chair of such company’s nominating and/or governance committee.

ESG Oversight

Glass Lewis will generally recommend against the chair of the governance committee of a Russell 1000 company if it fails to provide explicit disclosure concerning the board’s role in overseeing environmental and social issues. Glass Lewis will also expand its tracking and reporting of the disclosure of such oversight to Russell 3000 companies. In its tracking, Glass Lewis will review a company’s proxy statement and governing documents such as committee charters or corporate governance guidelines.


Glass Lewis will generally recommend against:

  • any director who serves as an executive officer (other than executive chair) of a public company while serving on more than one public company board in addition to the board of the subject company,
  • an executive chair of any public company who simultaneously serves on more than two public company boards in addition to the board of the subject company, and
  • any director who serves on more than five public company boards.


Glass Lewis provides a new discussion on its approach towards oversight of cybersecurity risks and related disclosures and encourages companies to provide clear disclosure regarding the board’s role in overseeing cybersecurity risks. Glass Lewis notes the recent regulatory focus on cybersecurity (for a discussion of the U.S. Security and Exchange’s proposed rule related to cybersecurity, see our alert). Although Glass Lewis will generally not make a voting recommendation based on a company’s oversight or disclosure of its cybersecurity risks, if there is a cybersecurity incident resulting in significant harm to shareholders, Glass Lewis may recommend against relevant directors if it determines a company’s oversight or disclosure of cybersecurity risks is insufficient.

Climate-Related Issues

Glass Lewis may recommend voting against responsible directors where a company with material exposure to climate risk, such as companies identified by groups including Climate Action 100+, fails to provide thorough climate-related disclosures aligned with the TCFD framework or fails to disclose clearly defined board oversight of climate risk. Glass Lewis includes a new section to its guidelines discussing the board’s role in providing oversight for climate risk.

Disclosure of Shareholder Proponents

Glass Lewis adds a new discussion regarding the disclosure of shareholder proponents explaining that it will generally recommend voting against the governance committee chair in cases where the identity of a proponent is not provided. The SEC’s proxy rules provide companies with the option of disclosing a shareholder proponent’s name, address and share ownership in its proxy statement or providing a statement that the company will provide such information upon request. Providing proponent information can assist shareholders with better understanding the rationale for a proposal and the ultimate intentions of the proponent. In the case of certain ESG proposals, opponents of ESG initiatives have submitted similarly worded proposals to those of ESG advocates, sometimes confusing shareholders regarding which proposal to support. Such information may also help Glass Lewis and shareholders to better assess how the proponent’s interests are aligned with the company’s long-term interest.

Racial Equity Audits

Glass Lewis will generally recommend in favor of well-crafted proposals requesting that companies undertake a racial or civil rights-related audit if it believes that doing so could help a company identify and mitigate potentially significant risks. In deciding whether to support racial equity or civil rights audit proposals, Glass Lewis will evaluate:

  • the nature of the company’s operations,
  • the level of disclosure provided by the company and its peers on its internal and external stakeholder impacts and the steps it is taking to mitigate any attendant risks, and
  • any relevant controversies, fines or lawsuits.

Officer Exculpation

Like ISS, Glass Lewis adds a new section to its guidelines that addresses officer exculpation. Glass Lewis will evaluate proposals to adopt such provisions to company charters on a case-by-case basis but will generally recommend voting against provisions that would eliminate monetary breaches of the duty of care for certain corporate officers unless there is a compelling rationale provided by the board and the provisions are reasonable. It is unclear what Glass Lewis will find compelling or reasonable in this context.

Long-Term Incentives

Glass Lewis increases its minimum threshold for the performance-based component of long-term incentive grants from 33% to 50%. Under its new policy, it will raise concerns with executive compensation programs where less than half of the long-term incentive awards are performance-based, although it may not provide a negative recommendation unless other significant issues with design or operation of the compensation program exist or there is a negative trajectory in amounts allocated to performance-based awards.

Clarifying Amendments

In addition, the 2023 guidelines clarify Glass Lewis’s policies on the following topics:

  • Board Responsiveness. Glass Lewis believes that a company should engage shareholders if 20% or more vote contrary to management and that a more robust response is required if a majority of shareholders voted contrary to management.
  • Compensation Committee Performance. Glass Lewis clarifies the conditions under which it will recommend voting against the chair of the compensation committee in connection with outsized awards or “mega-grants.”
  • Company Responsiveness for Say-on-Pay. Glass Lewis provides additional information regarding how it will assess shareholder support for say-on-pay votes and a company’s response to low support levels, including scrutinizing the robustness of a company’s stated rationale for not making changes to its pay program that caused the low level of shareholder support.
  • One-Time Awards. Glass Lewis clarifies that it expects a company to discuss its determination of the quantum and structure for one-time awards to be considered reasonable disclosure under its policies.
  • Grants of Front-Loaded Awards. Glass Lewis discusses the use of mega grants and its concerns regarding the lack of flexibility for boards to respond to unforeseen factors when such awards are used.
  • Pay for Performance. Glass Lewis notes that its pay-for-performance methodology has not changed because of the SEC’s recently adopted pay versus performance rule (see our alert related FAQ), but it may consider a company’s disclosure under the rule in evaluating a company’s executive pay program.
  • Short- and Long-Term Incentives. Glass Lewis believes that companies should provide thorough disclosure regarding their exercise of, or failure to exercise, discretion regarding incentive payouts. Accordingly, it has added a new discussion regarding its views on the compensation committee’s exercise of discretion such as when significant events that would otherwise be excluded from performance results occur.
  • Recoupment. Glass Lewis discusses the SEC’s recent adoption of “claw back” rules for executive compensation (see our alert) and notes that it will continue to express concerns for companies that have clawback policies that only meet the less onerous requirements under Section 304 of the Sarbanes-Oxley Act during the period while companies wait for the listing exchanges to enact their respective clawback rules.

Key Takeaways

Companies should assess how the changes to these voting guidelines and policies may impact shareholder voting for any proposals on the agenda or the election of their directors for their annual meetings.

If a company identifies any issues that may result in a negative recommendation from ISS or Glass Lewis, it should consider engaging with its key shareholders on these issues prior to the proxy season. If applicable, companies should also look to expand upon their last proxy statement disclosure on key topics to address some of these concerns even though not mandated by SEC rules, as the proxy advisory firms may only rely on a company’s proxy statement disclosure and not on other disclosures provided by a company such as on its website for such information.

In particular, companies should examine their disclosure of climate risk, cyber risk and risk oversight generally as well as board diversity and oversight of ESG, and make any necessary enhancements to avoid adverse recommendations to their nominating and corporate governance committee chairs or other board members. For companies that choose to amend their charters to provide for officer exculpation, they should consider the respective influence of the proxy advisors on their institutional shareholder base and the level of engagement that may be required to ensure the successful approval of such proposals.

Companies may also wish to engage with shareholder proponents on any shareholder proposals that may garner support based on proxy advisor recommendations.