Download a pdf of this article »
Overview
In October, Institutional Shareholder Services, Inc. (“ISS”) and Glass Lewis & Co., Inc. (“Glass Lewis”) each announced major changes to their governance research models that mark a decisive shift away from standardized “benchmark” voting recommendations, towards a broad reorientation of the proxy advisor landscape centered on investor-specific customization – a change that is consistent with investors’ diversifying views regarding compensation program design that have led to questioning legacy views regarding the effectiveness of performance-based equity in aligning pay with performance.
This reorientation will increase the need to consider individual investor viewpoints, not just proxy advisor benchmark policies, when making compensation decisions. In particular, Glass Lewis intends to discontinue benchmark policies entirely by 2027. Accordingly, companies will need to refine their engagement strategies to elicit decision-useful insights and prepare for the reduced predictability of voting decisions in future proxy seasons.
The end of standardized benchmark voting recommendations represents one of the most potentially disruptive shifts in proxy advisor influence over the past decade. While many companies may see and welcome the move as an opportunity for more investor-specific understanding, the resulting fragmentation of viewpoints and voting behavior will require more proactive, data-informed strategies.
What’s Changing and Why?
ISS recently introduced “Gov360” and “Custom Lens,” two new services that separate ISS’s research and analytics from its vote recommendations. Custom Lens expands ISS’s ability to deliver custom investor research, while Gov360 allows investors to access ISS’s research reports without attendant voting recommendations. While ISS did not specify a launch date, its announcement suggests the services are available immediately.
ISS indicates these offerings were developed in response to the growing diversity in investors’ stewardship philosophies, where a single benchmark policy no longer meets all needs. Gov360 and Custom Lens are intended to provide modular, customizable tools that align with each investor’s priorities and those of their beneficiaries. The underlying goal is to help investors scale stewardship programs in an increasingly complex environment while maintaining alignment with their own strategic objectives.
Meanwhile, Glass Lewis announced that, beginning in 2027, it will to replace (and cease publishing) its benchmark market-wide proxy voting guidelines with a spectrum of “governance lens” research offerings designed to align with investors’ diverse stewardship priorities. Glass Lewis has also set a goal of moving all clients to custom policies entirely by 2028.
Glass Lewis explains that this reorientation is intended to accommodate growing divergences in investor priorities, particularly on environmental and social issues, and the balance between fiduciary and values-driven considerations. The move also likely responds ongoing federal and state scrutiny regarding alleged proxy advisor bias, conflicts of interest, and the unpredictable and often unwarranted outcome resulting from the current “one-size-fits-all” voting frameworks on corporate governance outcomes.
This evolution parallels the rise of “investor choice” voting programs introduced by notable large institutional investors, including BlackRock, Vanguard, and State Street, which allow its clients to select among different policy options when voting their shares.
Together, these developments reflect a broader market trend toward greater investor autonomy and customization.
Implications and How to Prepare
For more information regarding BlackRock Investment Stewardship and BlackRock Active Investment Stewardship, see here.
Need Assistance?
Compensia has extensive experience in helping companies establish executive compensation programs and practices and developing disclosure of such practices in their proxy materials taking into consideration SEC disclosure requirements, proxy advisor policies and investor expectations. If you would like assistance with or if you have any questions on the subjects addressed in this Thoughtful Disclosure Alert, please contact your regular Compensia team members or the authors of this Alert: Brigid Rosati, Hannah Orowitz and Mark Borges.