Glass Lewis and CGLytics Establish Global Partnership to Provide Unmatched Compensation Data and Analytics

Glass Lewis integrates CGLytics data set and analytical tools for its proxy vote recommendations and custom policy offerings

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Glass Lewis and CGLytics Establish Global Partnership to Provide Unmatched Compensation Data and Analytics

Glass Lewis integrates CGLytics data set and analytical tools for its proxy vote recommendations and custom policy offerings

[San Francisco, Amsterdam, London – June 5, 2019] – Glass Lewis, the world’s leading independent provider of governance and engagement support services, and CGLytics, a leading provider of governance data and analytics globally, today announced an expansion of their strategic partnership. CGLytics will serve as the global provider of compensation datasets and analytics to Glass Lewis, with an initial focus on North American, Australian and European markets.

Building on the success of the firms’ existing European partnership, Glass Lewis will now utilize CGLytics’ extensive compensation data in its proxy research and voting recommendations on executive compensation and Say on Pay, and integrate the same data into the proxy voting policies of institutional investors via its vote management solution, Viewpoint.

Glass Lewis’ Say on Pay analysis will now also be available via CGLytics’ proprietary platform, giving investors, issuers, advisors and board members the exact same data, tools and insights Glass Lewis uses to review and model CEO and executive compensation plans, and prepare for engagements with all stakeholders. Combining Glass Lewis’ proprietary policies and methodologies and CGLytics’ extensive data and analytical tools, the two companies will give all market participants unprecedented transparency and access into Glass Lewis’ compensation analysis that was not widely available and is needed for successful governance and stewardship in the modern digital age.

“CGLytics’ software and dataset enables the Glass Lewis global research team to establish a robust and consistent data source for our analysts to use in developing our unparalleled analysis and recommendations on compensation matters,” said Katherine Rabin, CEO of Glass Lewis. “Not only will this benefit our investor clients, who rely on us to provide them in-depth research and accurately implement their custom policies, but also the corporate issuers that directly purchase our Proxy Paper reports as an important part of their preparation to engage with shareholders.”

“We are thrilled to be extending our partnership with Glass Lewis, especially at a critical moment when corporations and investors are facing increasing demands from multiple parties for greater transparency and socially responsible and sustainable pay practices – all of which are essential to upholding good modern governance,” commented Aniel Mahabier, CEO of CGLytics. “By partnering with Glass Lewis, we will be able to provide corporations and their investors with an unmatched solution to evaluate compensation practices. The extensive toolset and enhanced access to Glass Lewis’ proprietary methodology will help companies and investors effectively connect their analysis, engagement and decision-making, resulting in improved stewardship and shareholder engagement.”

About Glass Lewis

Glass Lewis, the leading independent provider of global governance and engagement support services, helps institutional investors understand and connect with companies they invest in. Glass Lewis is a trusted ally of more than 1,300 investors globally who use its high-quality, unbiased Proxy Paper research and industry-leading Viewpoint proxy vote management solution to drive value across all their governance activities.

About CGLytics

CGLytics is transforming the way corporate governance decisions are made. Combining the broadest corporate governance dataset, with the most comprehensive analytics tools, CGLytics empowers corporations, investors and professional services to instantly perform a governance health check and make better informed decisions. From unique Pay for Performance analytics and peer comparison tools, to board effectiveness insights, companies and investors have access to the most comprehensive source of governance information at their fingertips – powering the insights required for good modern governance.

With Over 1 Billion Data Points and Powerful Algorithms, CGLytics is Utilised by Leading Investors and Proxy Advisors.

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5,500+

Listed Companies

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125,000+

C-Level Profiles

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8 MIL+

Company Disclosures
and Filings

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800 Mil+

N-PX proxy voting
resolutions

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1.3 Mil+

Relationships Connections

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Key financial metrics from 2008 onwards for predictive analysis and companies top 25 ownership data

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More than ten years of historical compensation data and array of unique performance indicators

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Current and historical board composition, skills data and millions of business relations

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Curated governance news in real-time

Growing Expectations of Director Responsibilities and Evolving Attitudes Towards Overboarding

CGLytics takes a look at how the role of the board is changing, and how directors are having to rapidly become experts in a range of topics in which they have little to no previous experience.

Overboarding has been recognised as a potential governance issue for some time, with questions over the ability of directors to discharge their duties effectively if they are over-committed to more responsibilities than they have the capacity to manage. As scrutiny increases, this issue has become a greater focus for investors as directors face an ever-increasing set of new responsibilities for which they are expected to provide oversight.

Historically, the responsibilities of board members included participation in regularly scheduled management strategy reviews, often followed by robust debate of such strategy, reviewing of financial statements, assessments of enterprise and industry-specific risks, facing the companies at which they serve, as well as legal compliance issues. However, new threats from a variety of vectors are requiring directors to rapidly become experts in a range of topics in which they have little to no previous experience. Among these new areas of potential risk that boards are increasingly expected to address, we find the most pertinent topics to be:

  1. cybersecurity risks,
  2. the impact of disruptive technologies,
  3. board members’ increasing role in investor relations,
  4. competitive intelligence, and
  5. international business experience.

The ensemble of these new responsibilities requires corporate boards to assess the skills set requisite for its own composition in order to remain competitive in an increasingly fierce global environment. The expectations of this type of board accountability, known as “supergovernance”, assumes that board members are capable of peering around every corner in order to counter all possible threats to their company.

Balancing Act 

While investor-specific policies towards the maximum number of public boards on which a director should serve are not new, increasing responsibilities for board members are leading investors to re-evaluate their previous thresholds of overboarding. Most prominently, Vanguard, the world’s second largest asset manager, has recently publicly disclosed that its voting policy stipulates to vote against an executive director (defined as a Named Executive Officer who serves on the board at which they hold the role of executive) at any outside board at which they serve. Moreover, their updated overboarding voting policy also states that they will vote against any non-executive director who sits on more than four boards in total at all boards on which they serve.

Blackrock has taken a similar position in its 2019 U.S. voting policy, allowing non-CEO directors to hold a maximum of four directorships in total at public companies. However, Blackrock will still allow a public company CEO to serve on a total of two public boards, and currently makes no distinction in the U.S. between executive directors (other than the CEO) and non-executive directors in the total number of boards on which they may serve.

Taking Vanguard’s holdings of 4,861 companies across the U.S., Europe, Canada, Japan and Australia, the CGLytics research team performance an exercise utilizing CGLytics’ data and analytics platform to assess the potential impact of this new overboarding policy on Vanguard’s proxy voting activities. We find that, globally, the implementation of Vanguard’s new guidelines would potentially lead to fairly high levels of opposition, upwards of 23%, for NEO director nominees, who sit on boards outside of the company at which they currently serve as an executive.

Source: CGLytics Data and Analytics

An examination of the current composition of Vanguard’s top 25 holdings also reveals that the implementation of their new guidelines will have an even sharper increase in potential votes against NEOs due to overboarding than during the hypothetical exercise across the full universe of Vanguard’s holdings.

Source: CGLytics Data and Analytics

Not Such a Hard Line

While such an approach may appear rather restrictive for corporate directors and many institutional investors alike, some investors mitigate the perceived severity of this approach by indicating that they will evaluate director appointees who fall outside their overboarding thresholds on a case-by-case basis. Moreover, the language included in their voting policies also makes certain exceptions should the director nominee indicate that she/he will step down from one of the outside boards on which he/she serves within a certain period after their election. Investor engagement also provides corporate directors some leeway, as the issuer-investor dialogue may allow one-off exceptions from opposition to a potentially overboarded director’s election based on the outcome of the engagement.

Finally, the question is raised as to whether these lowered thresholds might benefit corporate board members? Long gone are the days when the expectations for the role of corporate director would be to approve management’s agenda for the company, with cursory corporate oversight capacity. Due to the increasing pressure that board members face in their oversight duties, reducing the number of acceptable directorships from the investor community might provide some breathing room for directors to fully engage in their responsibilities as director. This extra breathing room could potentially allow them to better educate themselves about emerging threats facing the companies on which they serve.

Conversely, the increasing expectations and responsibilities placed on corporate boards often spring directly from the investor community itself. The growing momentum within the investor community implies and often explicitly expects directors to be fully educated on enterprise and material industry risks, as well fully focused on their responsibilities as board members in order to maximize the value of their investments.

As the balancing act between these two perspectives plays out, the issue of potential overboarding for any individual director may prove not to be black or white, but a distinction between various levels of grey. In order to help investors, corporate boards, and executive alike to distinguish between these various shades, CGLytics offers an extensive database with smart analytical tools, to easily screen for potentially overboarded directors. Being able to instantly view the board composition, and that of peers, provides insights into areas of governance practices that may pose a potential risk. In addition, CGLytics’ provides skills matrices to highlight skills and expertise strengths and shortages, director interlocks and smart relationship mapping tools to leverage networking opportunities: all in the one system.

Learn how boards use CGLytics to identify and mitigate governance red flags

Get access to the same insights as investors and proxy advisors with CGLytics’ boardroom intelligence capabilities. With easy to use comparison tools and standardised data, instantly perform a governance health check against regulatory norms and market standards.

Corporate Governance Risk Report

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Uber: Culture Clash

CGLytics takes a look at the recent IPO of Uber and how negative stories and scandals led to lower than expected interest

Uber launched its IPO on May 10th, with an initial share price of USD 45.00 per share. Despite a potential undervaluation of the business of at least USD 25 billion, Uber failed to attract the attention of investors and only managed to raise USD 8.1 billion. An array of scandals and controversies that the company had to contend with over the past several years may have led to the company’s uninspiring launch. Examples hereof include Kalanick referring to his desirability as “Boob-er”, proven allegations that the company booked fake rides on Lyft’s app, spying on the movements of celebrities such as Beyoncé, and even launching a self-driving program without having obtained the necessary permits. These events eventually culminated in a series of revelations in 2017 that ended with Travis Kalanick stepping down as CEO.

Kalanick and Company Culture

In February a former employee released a blog post in which she detailed her experience working for the company which involved sexual harassment and gender bias. Shortly thereafter the New York Times released an article which described Uber employees indulging in illicit substances, in addition to a manger being fired for sexual misconduct. The article would appear to be the tip of the iceberg and by June that same year over 20 employees were fired due to inappropriate behavior. Founder and CEO Travis Kalanick was also forced to step down amid pressure from investors.

Determined to regain control, Kalanick promised to return to the helm of his company. Kalanick’s super-voting shares, which gave him 10 votes per share, had previously allowed him to drastically influence corporate decisions. This was evidenced when Kalanick spontaneously appointed two new directors without informing the board. These appointments came amidst a lawsuit against Kalanick by venture capital firm, and major Uber shareholder, Benchmark. The VC firm sued for fraud, breach of contract and breach of fiduciary duty. The firm further pledged to reject a critical USD 9 billion investment proposal from multinational conglomerate SoftBank.

Ultimately, Uber’s Board approved a series of changes in order to counter Kalanick’s influence, appease Benchmark, and lock in the Softbank investment. These changes included a reform of the company’s by-laws which implemented a “one-share one-vote” rule and led to an increase in size of Uber’s board from an original 11 members to 17. Two of these seats are reserved for representatives of SoftBank, and three are to be filled by independent directors. Of the 17 board positions available, five remain unfilled. This is in part due to the deal still being in review by the Committee on Foreign Investment in the United States (CIFUS), although the deal is expected to eventually be approved.

Board Size: Bigger Does Not Always Equal Better

Although these reforms were implemented in the hopes of instigating better governance practices, studies have repeatedly shown that companies with a smaller board size (9.5 directors) outperform companies with a large board (14+) by as much as 8.5% in terms of return.  Utilising CGLytics’ governance data and analytics, an examination of the two industries in which Uber operates (Information Technology and Consumer Discretionary) appears to corroborate the correlation between a smaller board size and higher shareholder returns.

Source: CGLytics Data and Analytics

As the legal frameworks for companies leveraging the concept of a “sharing economy” are still developing, much of Uber’s future lies in the hands of market regulators. Many European countries such as Greece, Belgium, and Romania have outlawed Uber from operating in their countries. Moreover, if Uber drivers were to be classed as employees rather than independent contractors, as is currently under debate in the United States, then Uber’s bottom line would be significantly impacted.

Although the company has come a long way since its “Bro-Culture” days, the company’s inability to enforce a professional corporate culture have led to the installation of what may appear to be inconsistent governance measures. Primarily, it has increased the size of the board (which could potentially affect the company’s ability to provide returns to shareholders) in an attempt to counterbalance the influence of the company’s former CEO. The clashes between Softbank, Benchmark, and Kalanick have left an enduring impact on Uber’s reputation, valuation, and governance dynamics, with the company’s share price currently feeling the most pressure.

Get access to the same insights as investors and proxy advisors with CGLytics’ boardroom intelligence capabilities. With easy to use comparison tools and standardised data, instantly perform a governance health check against regulatory norms and market standards.

Corporate Governance Risk Report

About the Author

Jaco Fourie: U.S. Research Analyst

Jaco holds a Bachelor of Science degree in Accounting and Finance from the University of Reading. He has gained experience as a research analyst from his enrollment at the Henley Business School and the International Capital Market Association Centre.

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The EU Shareholder Rights Directive: The implications for executive compensation in Belgium and Luxembourg

The corporate governance landscape is changing. Listed EU companies are increasingly subject to more disclosure and transparency requirements while executive compensation is now under greater scrutiny than ever. In this article CGLytics takes a look at the implications of the EU Shareholder Rights Directive on executive compensation in Belgium and Luxembourg

The corporate governance landscape is changing. Listed EU companies are increasingly subject to more disclosure and transparency requirements while executive compensation is now under greater scrutiny than ever. Part of the call for greater transparency applies to the compensation of top executives of listed companies. Shareholders now have the right to an extended say on pay under the Revised Shareholders’ Rights Directive (SRD II) through their votes on the remuneration policy and report.

The EU SRD II: It’s Main Purpose

  1. To encourage long-term shareholder engagement by facilitating the exercise of shareholder rights
  2. To enhance transparency
  3. To increase directors’ accountability and reinforce the link between pay and company directors’ performance

Impact for companies

Under SRD II – Extension of shareholders’ right to say on pay

The SRD II requires the compensation of all directors to be reported on an individual basis. This will impact Belgium listed companies as previously it was deemed sufficient to provide this information on an aggregated basis.

Another change is the impact of shareholders’ votes on the remuneration policy, empowering them to oversee and influence directors’ remuneration. The shareholders’ vote on the remuneration report is not new, however, the content of the remuneration report will have to be more extensive and explicit to comply with SRD II. In particular, next year’s report will have to explain how the shareholders’ vote on the remuneration report was taken into account.

The most innovative change is the requirement to explain the changes in directors’ pay in relation to the evolution of the company’s performance and employees’ average pay during the period under examination. This will put the emphasis on the compensation committee to provide increasingly data driven analysis against a variety to financial and non-financial KPIs.

In the future – Disclosure of the CEO pay ratio?

The CEO pay ratio is the indicator of CEO compensation compared with employees’ pay, usually expressed by a multiple of the median annual salary of the employees of the company concerned. Currently, the pay ratio is not part of the disclosure requirements under European corporate governance regulations, in contrast with the US and the UK.

In the US for example, public companies are required to disclose the ratio of CEO pay to median employee pay in their proxy statement. In the UK, listed companies with more than 250 employees are required to disclose the ratio of their CEO’s total remuneration to the median (50th), 25th and 75th percentile full-time equivalent remuneration of their UK employees.

The future will tell us whether the disclosure of CEO pay ratios affects companies’ executive compensation practices. It cannot be ruled out that other governments will follow the path taken by the US and the UK in order to manage the perception of executive remuneration being increasingly out of step with the average employee pay.

Fair pay

Fairness in pay is not only about being transparent on the remuneration and the wage gap between CEOs/executives and employees. Fair pay also means non-discrimination between employees.

Significant developments are occurring worldwide regarding gender discrimination. Measures adopted to tackle this issue vary from country to country. Such measures may consist of transparency requirements (e.g. in Germany), the obligation to report on the gender pay gap in the company’s annual report (e.g. in the UK), the requirement to have a gender pay gap analysis conducted by independent and external bodies (e.g. in Switzerland) or mandatory equal pay certification (e.g. in Iceland – such legislation is under discussion in the Netherlands).

In Belgium, equal treatment is enshrined in the Belgian Constitution and in the Non-Discrimination Act, which prohibits any direct or indirect discrimination based on certain grounds, including in employment relations. Under the Gender Non-Discrimination Act, companies employing at least 50 employees are required to conduct a detailed analysis of their remuneration structure – to ensure a gender-neutral remuneration policy – every two years and deliver their report to the employee representative body.

To date, Belgian companies are not required to disclose their gender pay gap in their annual report or in their remuneration policies or report. Nevertheless, the information contained in the company’s social balance sheet must be broken down by gender. In addition, listed companies are required to describe their diversity policy in their Corporate Governance Statement.

In Luxembourg, labour law prohibits companies from using criteria other than knowledge, experience and responsibilities to determine remuneration. Despite initiatives of the Ministry of Equal Opportunities to raise awareness on the gender pay gap, no further legal provisions exist on this matter.

To this end, companies in Belgium and Luxembourg will be required to show greater transparency of executive and director pay, not just in comparison against the performance of the organisation, but also ensuring that it is benchmarked against the growth (or decline) of the average employee. Shareholders will have more information and greater powers to curtail excess pay, while holding companies to account against more financial and non-financial KPIs.

Take a deeper dive into executive compensation practices

With a wealth of global data, analytics and insights, review executive pay against an array of key financial indicators.

Replicate the peer groups of leading proxy advisors and investors, and instantly compare CEO pay against company performance and their peers.

Click here to download the Corporate Governance and Executive Pay: Legislative landscape and market insights report, produced together with PwC.

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What is ESG?

ESG (Environmental, social and governance) criteria are of increasing interest to companies, their investors and other stakeholders. With growing concern about he ethical status of quoted companies, these standards are the central factors that measure the ethical impact and sustainability of investment in a company. ESG factors cover a wide spectrum of issues that have traditionally been excluded from financial analysis:

Environmental:
  • Climate change
  • Resource depletion
  • Waste and pollution
  • Deforestation
Social::
  • Working conditions, including use of child labour
  • Local communities
  • Conflict
  • Health and safety
  • Employee relations and diversity
Environmental:
  • Executive pay
  • Corruption
  • Political affiliations and donations
  • Board composition, diversity and structure
  • Tax strategy

As global interest in ethical investment grows, these factors have increasing financial relevance. There are many dedicated ESG professionals and many more who recognise the relevance of ESG information to gain a more meaningful understanding of corporate policy management and strategy.

ESG investing identifies and quantifies risks that are overlooked by traditional financial metrics, such as a company’s impact on the environment, its use of child labour or employee diversity. It is also concerned with executive pay, and how this relates to company performance, accounting and tax policies. Companies with sound policies are managed better and are more sustainable.

Today, ESG investing accounts for around a quarter of all professionally managed funds around the globe. Although institutional investors have a duty to maximise shareholder value, there is growing awareness that ESG ratings are an indicator of a company’s long-term performance, including return and risk, as well as its ethical standing.

One of the major barriers to successful investment had been a lack of quality, impartial data, but that’s changing rapidly.

Learn How to Incorporate ESG Factors Into Your 2021 Executive Remuneration Policy

Download our latest report with FTI Consulting to learn how companies and asset managers are linking ESG metrics in their executive remuneration policies, so you can mitigate scrutiny from investors.

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What is Corporate Governance?

Corporate governance is the system of rules, procedures and processes by which a company is controlled and directed. In practice, governance is concerned with balancing the combined interests of a company’s stakeholders, including shareholders, management, staff, customers, suppliers and the community in which it operates.

Corporate governance is the system of rules, procedures and processes by which a company is controlled and directed. In practice, governance is concerned with balancing the combined interests of a company’s stakeholders, including shareholders, management, staff, customers, suppliers and the community in which it operates.

The board of directors is pivotal in influencing and implementing good governance. The board appoints corporate officers and makes important decisions, such as executive compensation and dividend policy. Proxy advisors and shareholders are important stakeholders, which can have major implications for equity valuation.

How does CGLytics help companies achieve good governance?

CGLytics provides the necessary tools that are central to good governance. Our services help promote transparency in companies’ corporate governance practices and promote informed dialogue between a company, its investors and other relevant stakeholders.

We provide access to high-quality corporate governance data, analytics and actionable insight through a single access. Our market and data insight helps companies manage reputational risk and identify issues that are of potential concern to shareholders. We give investors access to granular data, unique information and screening tools so they can make well-informed decisions.

Why Corporate Governance Matters

Good corporate governance implements a transparent set of rules to ensure that shareholders, directors and officers have aligned incentives. But good governance can also be seen as a mark of good corporate citizenship and ethical behaviour.

With its many stakeholders, corporate governance must balance the need for short-term earnings with the strategic objectives of the company. In practice, good governance must encompass all areas of management and become part of a company’s DNA.

Although shareholders do not have a right to proxy access, some companies have implemented it on a voluntary basis, for example to help ensure the right mix of skills in the boardroom.

A strong board is fundamental to good governance. A good board will comprise a diverse group of multi-talented people who combine insight and good judgement to ensure that the company implements good governance and maintains its market share. A successful board must be well informed and decisive.

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