ISS Policy Updates for 2018 Focus on Few Issues

ISS has issued its policy updates, effective for meetings held on or after February 1, 2018.

The updates are more limited in their scope compared to past seasons.  ISS conducted a two-part survey process this year for the first time.  We understand that many of the issues raised in the first survey were intended to be longer-term considerations, and did not result in updated voting guidelines for next year.  These include the appropriateness of capital structures other than one-share, one-vote, board gender diversity, and virtual or hybrid meetings.

We also understand that pay ratio disclosure will be noted, but does not inform any voting recommendations for 2018.   Continue Reading

What We Know So Far about the New SLB on Shareholder Proposals

At a PLI conference, the Division of Corporation Finance Director Bill Hinman spoke about the new Staff Legal Bulletin (SLB) on shareholder proposals, which we previously discussed here.  Next Tuesday, I will talk to Corp Fin’s Matt McNair about how the new SLB should be applied in practice on a webcast on

Here’s what we know beyond the text of the SLB, including our analysis of the implications of Hinman’s remarks:

  • The board analysis set forth in the SLB is not required for a company to make an argument on the basis of ordinary business or economic relevance.   
Continue Reading

Chairman Clayton Stresses Shareholder Engagement and Proxy Process as Part of Commission’s Long-Term Agenda; May Reopen Proxy Plumbing Concept Release

In a speech yesterday, Chairman Clayton expressed interest in examining the proxy process, including investor participation, as one of the Commission’s key long-term agenda items.  He stated that the Commission should take a “hard look” at whether companies’ and shareholders’ needs are being met.  This includes how shareholders are receiving information, the type of information they are getting, and whether they are effectively participating in voting.  At the same time, Clayton is concerned about the costs and burdens on companies in the proxy system.  The upshot is that the Commission may reopen for comment the 2010 proxy plumbing concept release, an ambitious undertaking to review the proxy voting system that got sidetracked once the Dodd-Frank Act was implemented. Continue Reading

Year-End Compensation Planning in Light of the House Tax Reform Proposal and Proposed Changes to the Taxation of Stock Options

Over the past week, Republican lawmakers in the House of Representatives have proposed sweeping tax reform legislation, including a series of amendments to the initially proposed bill. As companies enter their year-end compensation planning to develop compensation programs for 2018, they may wish to keep in mind certain aspects of the proposed legislation that may dramatically change how companies choose to compensate employees, executives and directors. A memorandum outlining these issues is available here.

Additionally, a blog post summarizing changes proposed by Representative Brady’s amendment to the bill relating to the taxation of stock options and restricted stock units granted by private companies is available here. Continue Reading

House Tax Bill Upends Key Executive Compensation Rules and Makes Changes to Employee Benefits

On Thursday of last week, Republicans in the House of Representatives released a proposed tax reform bill that includes several provisions that would significantly impact compensation of directors, executives and employees. The bill also includes provisions relating to 401(k) plans and other employees benefits.

Blog posts summarizing these provisions are available at and

These posts summarize the initial version of the tax reform bill proposed in the House. The bill is undergoing changes through the mark-up process in the House, and the Senate is expected to release its own bill soon, which may include very different provisions relating to compensation and benefits. Continue Reading

New SEC Staff Legal Bulletin Shifts Burden to Boards on Ordinary Business and Economic Relevance Exclusions, Clarifies Proposal by Proxy and Retains Status Quo on Use of Images

Yesterday, the SEC Staff issued a new Staff Legal Bulletin (SLB) on shareholder proposals.  The most striking impact it will likely have initially is on the ordinary business exclusion, Rule 14a-8(i)(7), as the SLB requires boards to undertake the responsibility to analyze proposals.  It appears that the SLB is effective immediately.

Ordinary Business.  A long line of no-action letter precedents provides guidance on which proposal topics constitute ordinary business, and therefore need not be included in the proxy statement, as opposed to those that must be voted on because they focus on significant policy issues that transcend ordinary business.  For example, proposals related to environmental matters or executive compensation are generally considered weighty policy matters and not ordinary business.  Continue Reading

ISS Requests Public Comments on a Few of the Policies to be Updated for 2018

ISS is seeking public comment on three policies that will impact U.S. companies with the comment period to close on November 9.  It will release final policy updates, which will contain more than just these three changes, that will impact the 2018 season in the second half of November.  We previously reported on the issues that were raised in two separate surveys here and here.

The key changes under consideration for the three policies now subject to comment include:

Non-Employee Director Compensation.  Under the proposed new policy, ISS would recommend against the board committee members who are responsible for setting or approving non-employee director compensation when there are two or more consecutive years of “excessive” pay without a rationale or other mitigating factors.  Continue Reading

SEC Approves PCAOB Rule Requiring Disclosure of Critical Audit Matters

The SEC has approved the PCAOB proposal to adopt AS 3101, The Auditor’s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion, largely as proposed.  Our memo on the proposed rules is here and we will issue an update shortly.

The rule is controversial primarily for requiring the auditor to communicate in the auditor’s report any critical audit matters (CAMs) arising from the current period’s audit, or state in that report that the auditor determined that there are no CAMs.  The staggered effective date reflects the debate surrounding CAMs, so that:

  • For all paragraphs, except the paragraphs related to CAMs:  all audits of fiscal years ending on or after December 15, 2017; and
  • For all paragraphs related to CAMs:
    • For audits of large accelerated filers: fiscal years ending on or after June 30, 2019; and
    • For audits of all other companies to which the requirements apply: fiscal years ending on or after December 15, 2020.
Continue Reading

BlackRock Wants Equal Voting Rights but Opposes Exclusion from Indexes

BlockRock has made clear that it disagrees with recent decisions by index providers to exclude companies based on governance issues. Although not mentioned by BlackRock specifically, this likely refers to actions by S&P and FTSE Russell to require some levels of public voting rights or the complete elimination of multi-class shares before companies can be included in certain of their indexes. We previously discussed those announcements here.

BlackRock believes that these actions limit access to the universe of public companies for their index-based clients, depriving them of opportunities for returns. Policymakers should set corporate governance standards through regulation. Index providers should reflect the “investable marketplace” in diverse and expansive benchmark indices, in order to facilitate investors’ use of those indicies and align them with the objectives of public equity investors. Continue Reading

ISS Survey Results Focus on Possibility of Adverse Recommendations for Non-Employee Director Pay and Use of Realizable Pay in Say-on-Pay Analysis

In ISS’ secondary survey results announced yesterday, the focus was primarily on compensation.  We previously discussed the larger survey results here.  Final policy updates that apply to the 2018 season should be issued in November.

Non-employee Director Pay.  The highest paid non-employee directors in 2017 received more than $2 million in annual compensation, compared to $260,000 for the median S&P 500 director.  Investors who responded to the survey believe that non-employee director pay programs should be analyzed by comparing the pay received against (ranked by preference):  the 4-digit GICS industry group, the relevant stock market index peers and all companies.   Continue Reading