ISS, Glass Lewis and BlackRock Issue 2025 Voting Guidelines

As companies begin preparing for the 2025 proxy season, Institutional Shareholder Services Inc. (ISS) and Glass Lewis, the leading providers of corporate governance solutions and proxy advisory services, recently issued updated benchmark policy changes for 2025, which may be found here and here, respectively. In addition, BlackRock also has issued its proxy voting guidelines for U.S. securities, effective as of January 2025. BlackRock’s voting guidelines may be found here. Taken together, the updated policies address emerging issues, relevant regulatory changes and notable trends since the conclusion of the 2024 proxy season. Companies are encouraged to review these updates and evaluate whether any changes are necessary or advisable in relation to existing corporate governance or compensation practices in light of these updates.

For its part, the changes announced by ISS for meetings held on or after February 1, 2025, relate to problematic takeover defenses (specifically poison pills); proposals to extend the termination date for special purpose acquisition corporations (SPACs) and shareholder requests for reports and/or policies in relation to the potential social and environmental impacts of company operations on communities. In addition, ISS also updated its FAQ's covering executive compensation matters covering executive compensation matters.

The updated guidance published by Glass Lewis, which applies from January 2025, covers board oversight of artificial intelligence (AI) issues; enhanced disclosures in relation to the treatment of unvested equity awards in connection with a change of control; board responsiveness to shareholders; reincorporation; and approval of executive compensation programs. Glass Lewis also issued a handful of clarifications regarding its approach to executive compensation guidelines.

BlackRock’s 2025 voting guidelines are largely consistent with its 2024 guidance; however, there are some noteworthy updates, particularly in relation to how it intends to approach boardroom diversity and composition. It is also noteworthy that BlackRock has added the word “financial” before the term “value creation” throughout its updated guidance to emphasize financial performance over non-financial metrics. BlackRock’s guidance is effective now.

ISS – Summary of 2025 Proxy Voting Guideline Updates (United States)

• Problematic Takeover Defenses, Capital Structures and Governance Structure - Poison Pills: Generally speaking, ISS’s guidance on this topic remains consistent with prior years in that ISS will generally vote against or withhold from all nominees (other than new nominees who will be considered on a case-by-case basis) where the company (i) has a poison pill with a “deadhand” or “slowhand” feature (i.e., features that limit a future board’s ability to remove a problematic provision by requiring that it can only be canceled or terminated by a majority of current directors or successors of their choosing); (ii) the board makes a material, adverse modification to an existing pill (including, but not limited to, an extension, renewal or lowering the threshold) without shareholder approval; or (iii) the company adopted a long-term pill (i.e., with a term of more than one year) that was not approved by shareholders. Additionally, ISS has clarified the factors it will consider when a board of directors adopts a short-term (i.e., a duration of one year or less) poison pill without shareholder approval. In those cases, ISS will vote case-by-case on nominees, taking into consideration:
  • The trigger threshold and other terms of the pill.
  • The disclosed rationale for adopting the pill.
  • The context in which the pill was adopted (e.g., factors such as the company's size and stage of development, sudden changes in its market capitalization and extraordinary industry-wide or macroeconomic events).
  • Whether the company has committed to any renewal of the pill to a shareholder vote.
  • The company’s overall track record on corporate governance and responsiveness to shareholders
  • Other factors as relevant.

In its commentary, ISS notes that this update is intended to reflect the fact that most poison pills adopted in the United States are now short-term pills that are rarely submitted to shareholders for approval. Further, ISS indicates that the additional factors enumerated above were already being considered by its analysts and that it is publishing them now in the interest of transparency. ISS underscores that there is no change at this time to its policy where a board adopts a long-term pill without a shareholder vote or when a board submits a pill to shareholders for approval or ratification.

• SPACs - Proposals for Extension: In an effort to codify its current approach to SPAC extension recommendations, ISS will generally support requests to extend the termination date for a SPAC by up to one year beyond the SPAC’s original termination date. In evaluating these extension requests, ISS may consider factors such as any added incentives, the status of the many business combinations, the terms of any other amendments and, if applicable, the use of money on deposit in the SPAC’s trust fund to pay excise taxes on redeemed shares. ISS notes that it also will consider these requests inclusive of any built-in extension options set forth in the SPAC’s governing documents and whether a SPAC requested any prior extensions.
• General Environmental Proposals and Community Impact Assessments: In its commentary to this policy update, ISS acknowledges that there has been a growing number of shareholder proposals focused on biodiversity, or otherwise related to environmental issues such as water pollution, deforestation or other topics that ISS characterizes as “natural capital.” ISS notes that shareholder proposals regarding these issues are typically offered to enable investors to consider how the loss of natural capital can lead to societal risks, as well as adverse economic and business risks. On that basis, ISS has adopted this policy update to ensure that its voting recommendations reflect increasing shareholder interest and action on these topics and to better reflect the variety of nature-related shareholder proposals that may be submitted to companies in the future. In terms of the policy itself, ISS will vote on a case-by-case basis on requests for reports on policies and/or the potential (community) social and/or environmental impact of a company’s operations, taking into consideration (where relevant):

• • Alignment of current disclosure of applicable policies, metrics, risk assessment report(s) and risk management procedures with relevant, broadly accepted reporting frameworks.
  • The impact of regulatory non-compliance, litigation, remediation or reputational loss that may be associated with failure to manage the company’s operations in question, including the management of relevant community and stakeholder relations.
  • The nature, purpose and scope of the company’s operations in the specific region(s).
  • The degree to which company policies and procedures are consistent with industry norms.
  • The scope of the resolution.
• FAQs: In addition to the foregoing, ISS also has released its annual “frequently asked questions” (FAQs) on executive compensation policies, adding two new FAQs. The FAQs (which may be found here) are intended to provide the market with general guidance regarding how ISS analyzes the issues covered therein when ISS is evaluating proxy statements and determining voting recommendations for public companies in the U.S. For ease of reference, new or updated FAQs are highlighted in yellow. The new and updated FAQs are excerpted below. Specifically:
  • Question 24: How is realizable pay computed?
  • Question 34: ISS previously announced adaptations to the pay-for-performance qualitative review effective for the 2025 proxy season, relating to the evaluation of performance-vesting equity awards. What does this entail?
  • Question 39: How does ISS evaluate incentive program metrics, and does ISS prefer companies use TSR as a metric?
  • Question 42: How does ISS view changes to in-progress incentive programs?
  • Question 46: What is needed in order for ISS to consider a clawback policy “robust,” as displayed in the “Executive Compensation Analysis” section of the research report?

The two new FAQs are noteworthy. Question 34 deserves heightened consideration because ISS intends to place greater focus on performance-vesting equity disclosure and design aspects, particularly for companies ISS believes are exhibiting a quantitative pay-for-performance misalignment. ISS notes that investors have been increasingly focused on “pitfalls” associated with performance equity programs. ISS indicates that an adverse voting recommendation is more likely where ISS identifies multiple concerns with respect to these programs.

In addition, Question 46 states plainly that a clawback policy will be considered “robust” if it extends beyond the minimum requirements set forth in Dodd-Frank and explicitly covers all time-vesting equity awards. If all time-vesting equity awards are not covered, then that clawback policy will not be considered robust.

Glass Lewis - Summary of 2025 Proxy Voting Guideline Updates (United States)

• Board Oversight of AI Issues: Glass Lewis added a new section to its policy that outlines the firm’s approach to overseeing risks related to AI. Glass Lewis observes that over the past few years, companies have increasingly integrated AI technologies into their operations, which can significantly enhance efficiency and productivity when managed well. However, the growing use of AI also has brought about new risks. Glass Lewis’s benchmark policy emphasizes that boards should be aware of these risks and take proactive steps to mitigate them. If a company has not experienced any significant issues related to AI, Glass Lewis’s policy generally will not influence voting recommendations based on AI oversight or disclosure. However, if there is evidence that inadequate oversight or management of AI has led to material harm for shareholders, Glass Lewis will undertake a more thorough review of that company’s governance practices. Additionally, Glass Lewis will identify the directors or board committees responsible for AI risk oversight and closely evaluate their response and management of AI issues, along with any relevant disclosures. If Glass Lewis finds the board’s oversight, response or disclosure to be insufficient, it may recommend voting against the appropriate directors.
• Change-in-Control Issues: Glass Lewis has updated its discussion of change-in-control issues in a section titled “The Link Between Compensation and Performance.” The updated guidance clarifies Glass Lewis’s policy view that companies that vest a relevant board committee with discretion over the treatment of unvested equity awards should also commit to providing clear, subsequent disclosures setting forth the rationale for how such awards will be treated upon the occurrence of an actual change-in-control.
• Board Responsiveness to Shareholder Proposals: Glass Lewis’s updated policy on responsiveness to shareholder proposals emphasizes the importance of engaging with shareholders and providing detailed disclosure when proposals receive substantial support, typically more than 30% but less than a majority of votes cast. The policy maintains the expectation that companies should either implement proposals that gain majority support or provide thorough disclosure on their engagement with shareholders regarding these proposals. Additionally, the 2025 guidelines continue to stress the need for board responsiveness when more than 20% of shareholders withhold their votes or vote against director nominees or management proposals.
• Reincorporation: Glass Lewis has revised its policy on management proposals to reincorporate companies in different states or countries, emphasizing a case-by-case evaluation approach. The updated policy highlights several key factors to consider when assessing the impact of reincorporation on shareholder rights, such as material differences in corporate statutes and case law, changes in corporate governance provisions, variations in fiduciary duty standards, and whether the new jurisdiction is deemed a “tax haven.” This revision may be a response to the February 2024 Delaware Court of Chancery decision in the lawsuit challenging TripAdvisor's reincorporation from Delaware to Nevada. For controlled companies seeking to change their domicile, Glass Lewis will closely examine how independent board members arrived at their recommendation, whether the controlling shareholder had any influence over the board and if the proposal is also subject to a vote by disinterested shareholders.
• Approach to Executive Pay Program: The updated guidelines provide clearer language on Glass Lewis's approach to Say-on-Pay recommendations, emphasizing that executive compensation programs are evaluated on a case-by-case basis. This includes a comprehensive review of quantitative analyses, structural features, best practice policies, disclosure, quality, pay trends and the company's ability to align executive pay with performance and shareholder interests. Generally, no single factor will lead to a negative vote recommendation unless it involves “particularly egregious pay decisions and practices.” Glass Lewis’s policy continues to stress the importance of company disclosures. The new guidelines also highlight that even smaller reporting companies, which are subject to scaled disclosure requirements, should ensure their proxy disclosures contain enough information to support informed shareholder voting.

In addition, Glass Lewis has made a handful of clarifying updates to its compensation-related guidelines, including:

• Emphasizing “adjustments to performance results that lead to problematic pay outcomes” as an example of a compensation practice that may contribute to a negative vote recommendation.
• Indicating that including post-vesting holding periods as part of a long-term incentive plan is best practice.
• Observing that minimum share ownership requirements for executives should be “meaningful.
• Noting that new and excessive single-trigger entitlements introduced in a golden parachute proposal are considered a problematic golden parachute feature.

BlackRock – Summary of 2025 U.S. Proxy Voting Guidelines

• Boards and Directors: The asset manager continues to emphasize the importance of companies having boards that “are comprised of appropriately qualified and engaged directors [who] are best equipped to establish the corporate governance practices that support long-term financial value creation.” BlackRock will continue to engage with members of a board’s nominating and/or governance committee to assess the appropriateness of a company’s governance practices and composition in relation to its business model and other factors (e.g., sector, market, etc.). An additional factor BlackRock will consider during 2025 includes seeking to understand “management's long-term strategy and the milestones against which investors should assess its implementation.” Where strategic targets are missed or misstated, then BlackRock will expect a company to provide disclosures setting forth a detailed explanation of the changes and an indication of the board's role in reviewing the revised targets. Relatedly, in order to ensure that investors are able to understand and assess how effectively management is identifying, managing and mitigating material risks, BlackRock expects a board to “articulate the effectiveness of…mechanisms in overseeing the management of business risks and opportunities and the fulfillment of the company’s strategy.”
  If a company has not, in BlackRock’s estimation, adequately disclosed and demonstrated that its board has fulfilled these corporate governance and risk oversight responsibilities, then BlackRock may consider voting against the election of certain directors who have particular responsibility for these issues. BlackRock notes that while “our votes may signal concerns with a director’s suitability for service on a particular board, those votes may also signal our concerns with the particular role an otherwise qualified and effective director serves on a particular board.”

• Oversight Role of the Board: Consistent with its 2024 voting guidance, BlackRock remains focused on boards exercising appropriate risk oversight of management and a company’s operations and activities. Where BlackRock determines that a board has failed to do so in a way that “impedes a company’s ability to deliver long-term financial value,” then it may vote against the responsible committees and/or individual directors. In its 2025 guidance, BlackRock indicates that it may vote against members of the audit committee where a board fails to facilitate “quality, independent auditing or accounting practices” or the timely disclosure of how material weaknesses have been remediated.
• Board Composition and Effectiveness – Board Term Limits and Director Tenure: BlackRock has clarified that it may oppose the election of certain directors who serve on boards that do not, in BlackRock’s estimation, have a sufficient mixture of directors with varying tenure (i.e., short-, medium- and long-tenured directors).
• Board Composition and Effectiveness – Board Composition: In what may be the most notable update to its voting guidance, BlackRock has eliminated its recommendation that a board target having directors representing at least 30% of demographic diversity, inclusive of having at least two women directors and a director from an underrepresented group. In addition, voting guidance now focuses on what is referred to as “board composition” (as opposed to “diversity”). In this regard, BlackRock states that it is “interested in a variety of experiences, perspectives, and skillsets in the boardroom.” BlackRock assesses board composition on a case-by-case basis, considering board size, business model, strategy, location and market capitalization, and expects companies to disclose how their approach to composition supports its governance practices.
  Relying on data published by ISS, BlackRock notes that more than 98% of S&P 500 companies have diversity in the boardroom and indicates that where an S&P 500 company is an “outlier and does not have a mix of professional and personal characteristics that is comparable to market norms,” then it may vote on a case-by-case basis against members of the nominating or governance committee. It is worth noting that BlackRock includes an explanatory footnote stating that in the 98% of S&P companies with diverse boardrooms, such diverse representation stands at 30% or greater (i.e., a percentage that is consistent with the prior guidance it has eliminated). Also, for these purposes, “personal characteristics” include, but are not limited to, gender, race/ethnicity, disability, veteran status, LGBTQ+ and national, Indigenous, religious or cultural identity. Finally, BlackRock acknowledges that companies with smaller market capitalizations or those operating in certain sectors may face challenges nominating directors with diverse backgrounds and, therefore, looks for a relevant mix of “professional and personal characteristics.”
• Capital Voting Structures – Equal Voting Rights: BlackRock has long been a proponent of “one share, one vote” when it comes to shareholder voting rights and generally supports shareholder proposals to recapitalize stock into a single voting class. In its 2025 guidance, BlackRock clarified that management proposals to collapse multiple share class capital structures for a premium are evaluated on a case-by-case basis.
• Clawback Proposals: BlackRock generally favors the “prompt recoupment from any senior executive whose compensation was based on faulty financial reporting or deceptive business practices.” In its 2025 guidance, BlackRock now indicates that it expects boards to “exercise limited discretion in foregoing, releasing or settling amounts subject to recovery for executive officers and no indemnification or insurance coverage for losses incurred by executive officers.”
• Equity Compensation Plans: BlackRock has updated its guidance, noting that it finds it “helpful when companies submit their equity compensation plans for shareholder approval more frequently than required by listing exchange standards to facilitate the timely consideration of evolving plan governance practices.” In particular, when a company asks shareholders to approve share reserve requests that are significantly larger relative to prior plans, then a board needs to “clearly explain any material factors that may potentially contribute to changes from the company’s past equity usage.” BlackRock may support an equity plan share request when it determines such request is in the best interests of shareholders; however, BlackRock may vote against members of the compensation committee in order to “signal our concerns about the structure or design of the equity compensation plan or the company’s equity grant practices and the imprudent use of equity.”
• Option Repricings / Exchanges: BlackRock has updated this guidance to refer consistently to both option repricings and option exchanges. Where a board approves an option repricing or exchange without shareholder approval, then BlackRock may vote against members of a compensation committee. Likewise, if an option repricing or exchange includes a named executive officer, then BlackRock may vote against a company’s annual advisory vote on executive compensation.
• Material Sustainability-Related Risks and Opportunities: BlackRock believes that “well-managed companies will effectively evaluate and manage material sustainability-related risks and opportunities relevant to their businesses.” For these purposes, BlackRock explains it is referring to “drivers of risk and financial value creation in a company’s business model that have an environmental or social dependency or impact.” BlackRock specifically suggests that disclosure standards developed and published by the International Sustainability Standards Board (ISSB) (i.e., IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and IFRS S2 (Climate-related Disclosures)) “may prove helpful to companies in preparing these disclosures.” BlackRock notes that ISSB’s standards build on those previously released by the Task Force on Climate-related Financial Disclosures (TCFD), as well as standards and metrics issued by the Sustainability Accounting Standards Board (SASB). In its experience, BlackRock believes that “disclosure consistent with the ISSB standards or the TCFD framework can help investors assess company-specific climate-related risks and opportunities and inform investment decisions.”
  On that basis, “[c]onsistent with the ISSB standards and the TCFD framework, [BlackRock] seeks to understand, from company disclosures and engagement, the strategies companies have in place to manage material risks to, and opportunities for, their long-term business model associated with a range of climate-related scenarios.” Where BlackRock finds that a board’s oversight of these issues is not consistent with acting in the long-term financial interests of shareholders, it may signal its concerns via voting on director elections or shareholder proposals.
• Corporate Political Activities: BlackRock will now evaluate shareholder proposals relating to corporate political activity by considering materials and information submitted by the company, as well as third-party research.
• General Corporate Governance Matters: BlackRock clarifies its position with respect to a handful of issues in this section. Specifically:
  • IPO Governance: Consistent with prior guidance, BlackRock recommends that boards disclose how corporate governance structures adopted in connection with an initial public offering (IPO) are in the long-term best interests of shareholders. In its 2025 guidance, it underscores its support for the “one share one vote” principle, reinforcing the idea that shareholder voting rights should be proportionate to economic ownership.
  • Corporate Form: BlackRock expresses its view that it is the responsibility of the board to determine the corporate form that it most appropriate for a company in relation to its purpose and business model. Companies seeking to change their corporate form (e.g., to a public benefit corporation or similar entity) should submit the proposed change to a shareholder vote if not already required to do so under applicable law. These proposals should be accompanied by clear disclosures describing how the interests of shareholders and different stakeholders would be affected (including in relation to accountability and voting mechanisms that will be available to shareholders after giving effect to the change).
  • Shareholder Proposals: BlackRock clarifies that it does not support shareholder proposals that it views as “unduly prescriptive or constraining on management.” Rather, BlackRock is likely to support shareholder proposals that request disclosures that enable BlackRock and its “better understand the material risks and opportunities companies face and how they are managing them, especially where this information is additive given the company’s existing disclosures.”