Shifts in proxy voting: an end to Glass Lewis guidelines, and the beginning of ExxonMobil’s novel program

Glass Lewis recently announced that it will, commencing with the 2027 proxy season, discontinue publishing its annual benchmark voting guidelines. Institutional Shareholder Services (ISS) has stated that it intends to maintain its benchmark guidelines but also recently announced expanded product options for investors, including advisory services that do not include a voting recommendation. If institutional shareholders embrace the move away from benchmark policies, voting outcomes may become more varied and less predictable. In the United States, the Securities and Exchange Commission (SEC) recently granted relief permitting ExxonMobil to implement an automatic voting program for retail investors, which is designed to facilitate retail voting participation at shareholder meetings in favour of the board’s recommendations.

What you need to know

• Glass Lewis, serving 1,300+ investors globally, will cease publishing a one-size-fits-all set of proxy voting guidelines in all jurisdictions beginning in 2027.
• Instead, Glass Lewis will offer a customized client-centric framework intended to provide investors with greater choice of voting policies aligned with their specific priorities.
• ISS, serving 4,200 clients globally, will maintain its benchmark policies and expand its product offering to include advisory services with no voting recommendation.
• The SEC has permitted ExxonMobil’s implementation of a novel automatic voting program, which allows retail investors to voluntarily elect to have their shares voted in line with board recommendations for each shareholder meeting (subject to opt-out).
• The ExxonMobil retail voting program is currently being challenged, and, absent relief, it is doubtful whether a similar program could be lawfully adopted by an issuer subject to Canadian proxy voting requirements.

Background

Ending one-size-fits-all benchmark voting guidelines

On October 15, Glass Lewis announced it will be discontinuing its annual benchmark voting guidelines, in favour of customized voting policies. Commencing in the 2027 proxy season, Glass Lewis will no longer issue voting recommendations based on a single “house” policy applicable to all issuers. Instead, Glass Lewis plans to offer a “highly customized, client-centric framework”, intended to provide institutional investors with greater choice in selecting voting policies aligned with their individual priorities. The announcement notes that the new approach remains under development but is expected to equip participating investors with a “spectrum of perspectives” to consider in making their voting decisions. The new policy will impact all jurisdictions, including Canada.

In announcing the change, Glass Lewis acknowledged that a shift away from a one-size-fits-all model of proxy advice is necessary in response to growing divergences in investor preferences regarding environmental and social matters. The announcement also follows escalating political pressure and criticism of proxy advisory firms in the United States. Institutional Shareholder Services (ISS) has stated that it intends to maintain its benchmark guidelines but also recently announced expanded product options for investors, including advisory services that do not include a voting recommendation.

The change also parallels the rise of pass-through voting programs gaining traction in the U.S. at some large institutional shareholders, such as BlackRock and Vanguard. These programs allow retail investors to select customizable voting policy preferences (for example, to align with thematic policies, such as ESG or other investment priorities), which then apply to their shares invested.

Pursuing a novel automatic voting program for retail investors

In the United States, ExxonMobil recently disclosed plans to pursue a novel automatic voting program that would give retail investors an option to automatically vote in line with the board’s recommendations. On September 15, the SEC granted “no-action relief” in respect of the program, indicating that it will not seek enforcement against ExxonMobil for violations of certain U.S. proxy rules (which apply to U.S. domestic companies) for implementing the plan. Some of the key features of the program include the following:

• voluntary participation is available to all retail shareholders (registered or beneficial);
• shareholders can give a standing authority requiring the company to vote their shares in accordance with board recommendations at any shareholders meeting;
• the program carries no cost to shareholders, and they may opt out at any time, including the ability to override instructions with respect to any particular proposal;
• shareholders have the choice of having standing instructions apply to all matters or all matters other than “special situations” (i.e., contested director elections or M&A transactions requiring a shareholder vote);
• participating shareholders will receive annual reminders about their enrollment, their standing voting instruction and the ability to opt out of the program; and
• disclosure of the program with the SEC upon initiation and any subsequent material changes.

The SEC has since received pushback from shareholder advocacy groups requesting it to rescind the no-action relief, and a class action lawsuit has also been filed in New Jersey federal court, challenging the program on the basis of an alleged breach of fiduciary duty by the ExxonMobil board, among other things. Although the SEC has granted no-action relief, it remains to be adjudicated whether the program is permissible under federal securities laws and under New Jersey and other state corporate laws.

The U.S. proxy rules for which ExxonMobil sought no-action relief do not apply to SEC foreign private issuers (FPIs), including Canadian companies reporting with the SEC under the Multijurisdictional Disclosure System (MJDS). Instead, these companies are subject to home country securities and corporate law regulations of shareholder meetings. In Canada, corporate statutes and securities law establish a regime for proxy solicitation and related requirements. Under Canadian federal and certain provincial corporate statutes, a proxy is only valid for the meeting for which it is given and, under others, a proxy ceases to be valid one year from its date. It is doubtful that an automatic voting program could be implemented by a Canadian company without exemptive relief or statutory amendments.