On April 2, 2020, Glass Lewis announced the global expansion of its Report Feedback Statement (“RFS”) service.[1] This service operates separately from the process for companies reporting factual errors or omissions in a research report and instead focuses on differences of opinion, allowing companies and shareholder proposal proponents to respond directly to Glass Lewis’s research and recommendations.[2]

The RFS service was first introduced during the 2019 proxy season as a pilot program for a limited number of annual general meetings of U.S.-listed companies.[3] The recent announcement broadens the service, which will now be available for all annual and special meetings and allow both companies and shareholder proposal proponents to submit statements. The service will be available during the current proxy season subject to the timing constraints described below.

This expansion follows rules proposed by the Securities and Exchange Commission (“SEC”) late last year that would require proxy advisory firms to solicit company feedback before publishing its recommendations, provide a hyperlink to the company statement and include disclosures of conflicts of interest.[4] The SEC final rules have not yet been issued, and it is unknown how closely they will follow the proposed rules. While the RFS addresses some of the proposed requirements, the RFS service does not fully mirror the proposal, most notably with respect to providing a company the opportunity to provide its feedback prior to the initial publication of the report, as would be required under the proposed rule. This approach was discussed by SEC Commissioner Elad Roisman at the 2020 Council of Institutional Investors’ Conference, at which he expressed concerns that contemporaneous company review would be problematic because “set-it-and-forget-it” mechanisms automatically vote investors’ shares based on the initial recommendations of proxy advisory firms and, as a result, company feedback may come too late to allow it to be considered.[5]

How the RFS Service Works

  • A company or shareholder proposal proponent interested in commenting must first purchase the relevant report directly from Glass Lewis. After receiving the report, the company or shareholder proponent has up to seven days to submit a RFS. Glass Lewis has implemented this deadline to ensure that investors have time to consider both Glass Lewis’s report and the RFS in advance of making a voting decision. To be a RFS service participant, a company’s original meeting materials must have been disclosed at least twenty-one days before the relevant meeting.
  • The RFS must be on the letterhead of the company or proponent, signed and submitted via PDF. Contact information allowing investors to follow up with the company or shareholder proposal proponent must be included.
  • Glass Lewis will republish its report with the RFS included and accessible from the report’s front page.[6] Glass Lewis will not edit the RFS and will not respond to the RFS with its own competing statement.
  • Subscribers to the original Glass Lewis report will be directly notified and emailed that the RFS is available on Glass Lewis’s platforms. All prior iterations of the report that do not include the RFS will be removed.
  • The right to submit a RFS is included in the cost of the initial purchase of the underlying report and does not incur an additional fee.
  • Certain terms and conditions[7] must be accepted to use the RFS service, and statements must not defame or disparage Glass Lewis or third parties.

Key Considerations

  • A RFS may need to be filed as additional soliciting materials.

A company submitting a RFS should consider whether the RFS would be considered additional soliciting material that would need to be filed with the SEC.

Although a RFS is addressed to Glass Lewis and is not sent directly to shareholders by a company or proponent, the purpose of the RFS is to respond to Glass Lewis’s report with a company’s unedited opinion with respect to the underlying proposal.  As a result, we think in almost all circumstances it will be considered to be additional soliciting material that must be filed with the SEC.  Proponents that beneficially own more than $5 million of the relevant underlying stock will similarly likely need to file a Notice of Exempt Solicitation pursuant to Rule 14a-6(g), and proponents with lower ownership may file such notice if desired pursuant to SEC guidance.[8]  Because a RFS is likely soliciting material, it is also subject to other proxy rules, including the anti-fraud provisions of Rule 14a-9.

  • Widespread applicability has implications for proxy contests and M&A related special meetings.

As noted above, the recent expansion allows shareholder proposal proponents to take advantage of this service as well as companies. This service presents an opportunity for activists to highlight their case. However, companies and shareholder proposal proponents must limit their comments to Glass Lewis’s report and cannot respond to the other party’s RFS. Companies will want to carefully consider not just the timing and content of a potential RFS, but also whether a supplemental press release or other communication may be appropriate to convey responsive information that does not fit squarely within the RFS guidelines.

  • All company information included in the RFS must be publicly available information that has been subject to widespread dissemination.

If a company wishes to include new information in the RFS, it should file it with the SEC before its publication by Glass Lewis in order to ensure compliance with the RFS service requirement.

[1] Glass Lewis Announces that Company Opinions are Now Included with Research and Voting Recommendations, available at https://www.glasslewis.com/report-feedback-statement-included-with-research/.

[2] ISS currently provides a limited number of companies, only those in the S&P 500, the opportunity to review materials and present factual corrections or comments.

[3] Glass Lewis Launches Report Feedback Statement Service, available at https://www.glasslewis.com/glass-lewis-launches-report-feedback-statement-service/.

[4] For more information on the SEC’s proposed rules, see our previous alert memo HERE.

[5] Commissioner Roisman’s remarks are available HERE.

[6] Glass Lewis has not yet made clear the order of presentation of company and proponent comments if both are submitted.

[7] These terms and conditions have not been made publicly available.

[8] See, SEC Staff Compliance and Disclosure Interpretation, Proxy Rules and Schedules 14A/14C, Question 126.06 (July 31, 2018).