ISS and Glass Lewis — The Proxy Advisors That Influence Every Shareholder Vote

ISS (Institutional Shareholder Services) and Glass Lewis are proxy advisory firms — companies that analyze corporate governance and executive compensation practices and publish voting recommendations to institutional investors before annual shareholder meetings. Their recommendations carry significant influence: most large institutional investors subscribe to ISS or Glass Lewis and either follow their recommendations automatically or use them as a starting point for voting decisions.

What Proxy Advisory Firms Do

Proxy advisory firms are paid by institutional investors — mutual funds, pension funds, asset managers — to research and recommend how to vote on shareholder meeting proposals. For each proposal at a public company's annual meeting, ISS and Glass Lewis publish a recommendation of "for" or "against" (and sometimes "abstain"), along with their rationale.

The proposals they cover for a typical annual meeting include:

• Director elections (individual directors up for re-election)
• Say-on-pay (advisory vote on executive compensation)
• Equity plan proposals (new plans or additional share reserves)
• Auditor ratification
• Shareholder proposals (submitted by activist investors or ESG-focused funds)

Say-on-Pay — How It Works for Newly Public Companies

Say-on-pay (SOP) is an advisory shareholder vote on the overall executive compensation program. It is non-binding — a failed SOP vote does not legally require any change — but a vote below 70% is considered a significant governance failure and will prompt engagement with major shareholders.

For newly public companies, ISS evaluates say-on-pay through two lenses:

• Pay-for-performance alignment: Does executive pay correlate with shareholder returns and financial results? ISS compares CEO pay growth to TSR over 1-year and multi-year periods relative to peer companies. For ISS's 2026 policies, the performance assessment window has been extended to 5 years (from 3 years previously).
• Qualitative factors: Does the compensation program have problematic features? ISS specifically flags: excessive severance provisions, single-trigger change-of-control acceleration, multi-year guaranteed bonuses, above-target payouts with limited rigor in performance goal-setting.

As reported by Semler Brossy's 2025 Say-on-Pay Review, average say-on-pay support was approximately 90% among S&P 500 companies and 88% among Russell 3000 companies in the first half of 2025, consistent with prior years. All S&P 500 plans passed.

Equity Plan Evaluation

When a company asks shareholders to approve an equity plan or additional share reserves, ISS applies its Shareholder Value Transfer (SVT) model and evaluates several plan features:

• Cost: Total cost of the plan as a percentage of market capitalization must fall within industry-specific benchmarks. Exceeding the SVT threshold will generally result in a negative recommendation.
• Plan features: ISS flags "problematic" provisions — repricing without shareholder approval, liberal share recycling, excessive single-grant limits, and the absence of a minimum vesting period.
• Evergreen provisions: ISS evaluates whether the automatic replenishment mechanism is appropriately capped.

Governance Scoring for IPO Companies

ISS's QuickScore and Glass Lewis's governance ratings assess a company's overall governance quality. For IPO companies, the most commonly flagged issues include:

• Classified (staggered) board: Directors serving 3-year staggered terms rather than annual elections. ISS and Glass Lewis generally recommend against classified boards, though many technology companies maintain them.
• Dual-class share structures: Multi-vote super shares for founders. ISS and Glass Lewis typically recommend against directors at dual-class companies unless sunset provisions exist.
• Board independence: A majority-independent board is required by exchanges and expected by advisors. ISS will recommend against directors if independence standards are not met.
• Mandatory arbitration: As noted in Glass Lewis's 2026 policies, mandatory arbitration clauses in governing documents adopted at IPO will draw governance committee votes-against recommendations.
• Overboarded directors: ISS flags directors who serve on too many public boards (generally more than 5, or 3 if the director also serves as a CEO elsewhere).

ISS and Glass Lewis in Action — Real Voting Outcomes

Snap — ISS "Against" on Say-on-Pay, All Directors (2017–2018)

Snap's March 2017 IPO with a no-vote Class A share structure immediately drew ISS opposition at its first annual meeting in 2018. ISS recommended "Against" votes on all 10 director nominees, citing the no-vote share structure as fundamentally inconsistent with shareholder rights and accountability standards. ISS also recommended "Against" on say-on-pay, citing the lack of pay-for-performance alignment in the company's compensation structure. Glass Lewis similarly recommended against the entire board. The actual vote results were somewhat muted because Snap's supervoting structure meant that the founders controlled the outcome — Class B and C shareholders (founders and insiders) voted in favor of all directors and the compensation plan, overriding the institutional investor opposition. The Snap case established an important practical point: ISS and Glass Lewis recommendations matter more at companies where the founder does not control the vote; at true dual-class companies where founders hold controlling economic and voting power, institutional investor opposition through proxy advisors has limited practical impact on vote outcomes.

Airbnb — ISS Support Despite Dual-Class Structure (2021)

Airbnb's dual-class share structure (Class B shares held by founders with 20 votes per share) would normally attract negative ISS attention. However, Airbnb's compensation structure — designed in close coordination with the compensation consultant Compensia — was constructed to meet ISS's formulaic pay-for-performance test. The company's performance metrics were challenging, its peer group was defensible, and the overall pay levels were within the range ISS considers appropriate for the sector. ISS ultimately supported all of Airbnb's director nominees and the say-on-pay resolution at the first annual meeting, despite the dual-class structure. The Airbnb outcome demonstrates that proxy advisor opposition is not inevitable for dual-class companies — it depends heavily on the quality of compensation plan design and the willingness to engage proactively with the proxy advisor methodology during the compensation design process.

Practical Implications for Newly Public Companies

ISS and Glass Lewis evaluate newly public companies' first proxy statement with particular attention to: (1) whether the board composition meets independence standards; (2) whether the IPO equity grants to executives were reasonable in size and structure; (3) whether performance metrics for bonuses and LTI awards are challenging rather than easy to achieve; and (4) whether any related-party transactions from the private company period are disclosed and explained. Companies that address all four areas proactively — ideally by engaging with ISS's or Glass Lewis's governance teams 6–9 months before the first annual meeting — significantly reduce the risk of a negative recommendation at the first shareholder vote. First-year say-on-pay failures (below 70% support) trigger mandatory engagement with major institutional investors and create reputational issues that persist for multiple proxy cycles.

Reference Sources — Current Methodology Guidance

ISS and Glass Lewis update their policies annually. The following sources provide current and accurate guidance on their frameworks:

ISS QualityScore — Governance Analytics

Beyond the proxy advisory recommendations, ISS provides institutional clients with a numerical governance score through its QualityScore product. QualityScore rates companies on four pillars:

QualityScore is used by institutional investors to flag governance concerns before they vote. A low QualityScore — particularly in the board and compensation pillars — generates automated outreach from institutional governance teams and increases the probability of adverse vote outcomes at the annual meeting.

Glass Lewis ESG Risk Ratings

Glass Lewis integrates ESG (Environmental, Social, Governance) risk ratings into its proxy recommendations beginning in 2023. The ESG factors assessed include:

• Environmental: Climate-related disclosures (TCFD alignment), Scope 1/2/3 emissions, environmental management systems, industry-specific environmental risk factors
• Social: Human capital management disclosures, diversity data (EEO-1 reporting or equivalent), pay equity analysis, supply chain labor standards, customer data privacy and cybersecurity practices
• Governance: This overlaps with the traditional governance assessment — board diversity, executive compensation structure, audit quality
• Glass Lewis does not issue separate ESG ratings for voting purposes in most cases — ESG factors inform the overall director and compensation recommendations rather than generating standalone vote recommendations
• Newly public companies should anticipate that institutional ESG teams will request ESG disclosure data in the first year of being public — prepare ESG disclosure practices before the first annual meeting

Shareholder Engagement Strategy

The most effective way to avoid adverse ISS and Glass Lewis recommendations is to engage proactively with institutional investors on governance topics — not just during proxy season, but throughout the year. A structured engagement program:

• Annual governance roadshow (September–November): The Lead Independent Director and/or the Chair of the Nominating/Governance Committee (not the CEO or CFO) conducts a series of one-on-one meetings with the top 20–30 institutional holders specifically focused on governance topics — not financial performance. These meetings address board composition, executive compensation design, ESG disclosure, and any specific governance concerns raised by the institutional holders.
• ISS and Glass Lewis direct engagement: Companies can request direct engagement meetings with ISS and Glass Lewis analysts before their proxy is filed — particularly if there are unusual compensation arrangements or governance features that require explanation. Both firms are willing to meet with issuers to understand context.
• Pre-proxy outreach: In the 30–45 days before the proxy is filed, conduct targeted outreach to the largest holders to preview significant governance changes (new compensation program, board refreshment, equity plan renewal) and gather feedback before decisions are finalized.
• Post-vote follow-up: If the SOP vote receives below 80% support, reach out to the top holders who voted against within 60 days to understand their specific concerns. Document the engagement and describe the board's responsiveness in the following year's proxy CD&A.

2025–2026 ISS and Glass Lewis Policy Updates

ISS and Glass Lewis update their voting policies annually. Per Gibson Dunn's 2026 proxy season analysis, the most significant current-year changes affecting newly public companies include:

• Board diversity: ISS now recommends against the chair of the nominating/governance committee at companies where women represent less than 30% of the board (up from 25% in prior years). Glass Lewis applies a similar standard for the S&P 1500; threshold is lower for Russell 3000 companies.
• Executive compensation — pay-versus-performance disclosure: For companies in their second year of the SEC's pay-versus-performance (PvP) disclosure requirement, ISS is increasing scrutiny of the relationship between the CEO's "compensation actually paid" (CAP) figure and the company's TSR. Significant positive CAP in periods of negative TSR will receive specific attention.
• Clawback policies: The SEC's mandatory clawback rule (effective for fiscal years beginning after October 2, 2023) requires companies to adopt and enforce a compensation clawback policy for specified executive officers. ISS now reviews whether companies have implemented a compliant policy and may make adverse recommendations for those that have not.
• Overboarding: ISS continues to flag directors who sit on more than 4 public company boards (or 2 for directors who are also serving as public company executives), recommending against election of overboarded directors.