ISS Detailed Policy Survey Addresses Independent Chair Proposals, Board Matrix and Compensation – Part II

In additional to the high-level questions in its global policy survey which we previously discussed here, ISS also included a more detailed set of questions for the U.S. that addresses:

Independent Chair Shareholder Proposals.  ISS generally supports these proposals after taking into account factors such as the company’s governance structure and practices as well as financial performance.  The survey asks about the level of importance that respondents may attach to the following factors when evaluating independent chair proposals:  controversies and/or risk oversight failures; independence of key board committees; board’s rationale for having a combined CEO/chair structure; shareholder rights such as special meetings and proxy access; prevalence of takeover defenses; alignment between CEO pay and performance; board responsiveness to shareholder concerns; management of environmental and social issues; and the company’s short- and long-term TSR performance. Continue Reading

FSB’s Task Force for Climate Disclosure to Release Updated List of Supporters

The Task Force on Climate-related Financial Disclosures (“TCFD”), an entity formed by the Financial Sustainability Board (“FSB”) focused on how climate change impacts the finances of global corporations, will publish its latest list of supporters on September 26, 2018.  The current list of over 300 supporters, includes major financial institutions, corporations, central banks and national governments, and is available here.  Corporations have been cautious in the past to sign on as supporters, but in an August 8, 2018 webinar, the TCFD stated that there is no current monetary or other commitment attendant to becoming a supporter, and no formal timeline to start disclosing against the TCFD’s disclosure principles.   Continue Reading

ISS Policy Survey Covers Possibility of Tracking Directors and Additional Audit Committee Evaluations – Part I

The ISS annual global policy survey for 2018 includes only a few issues compared to prior years, but with more focus on the election of directors.  The responses to the survey will inform the new policies that govern the 2019 meetings.

The survey is again being undertaken in two parts, one covering fundamental and high-profile topics which we address in this post, and another focused on details which we will describe in Part II.

The first set closes on August 24, and the second ends on September 21.  You can access and respond to the survey here.

Auditors and Audit CommitteeContinue Reading

What Corp Fin’s Two New Interpretations on Exempt Solicitations Tell Us

At the end of July, the SEC Division of Corporation Finance issued two interpretations (known as CDIs) on notices of exempt solicitations.  These are the filings that may suddenly show up on a company’s Edgar page, confusingly called “PX14A6G.”  For example, after filing its proxy statement in April, Facebook received four such notices from different investors.  Three urged the company’s shareholders to support their shareholder proposals while one asked shareholders to withhold on the election of the company’s CEO to the board.

Notices of exempt solicitations have been around for some time, but during this season, the notices submitted by retail investors begin to attract attention.  Continue Reading

SEC Staff to Host Roundtable on the Proxy Process

SEC staff will host a roundtable this fall to hear from issuers and investors about whether to change the proxy process.  Chairman Clayton has asked the staff to consider the following items as potential topics for consideration, many of which were discussed in the 2010 concept release. No final agenda or date has been announced yet.

Proxy Voting

  • Under- and over-voting, why they occur and how they can be addressed
  • Confirming votes have been cast in accordance with investor instructions
  • Costs and challenges of communicating with beneficial owners, especially through intermediaries

Retail Participation

  • How to increase retail voting from the current participation rate of 29%
  • How to allow retail investors who hold shares through mutual funds or pension funds to affect governance of public companies, such as having a role in how mutual funds vote
  • Whether low retail participation should be a cause for concern and should inform analysis of existing regulation

Shareholder Proposals

  • Whether the current ownership thresholds for submitting proposals should be changed
  • Resubmission thresholds when the same shareholder proposals do not receive requisite levels of approval
  • Possibility of other ways to show meaningful ownership of securities other than ownership amount and length of holding period
  • Whether long-term retail holders who hold through ETFs and mutual funds are appropriately represented

Proxy Advisory Firms

  • Whether factors such as legal requirements have caused overreliance on the firms for data aggregation and voting recommendations
  • Whether companies have sufficient opportunities to raise concerns, especially related to errors
  • Whether there is sufficient transparency so that it is clear how the firms reach their voting recommendations
  • Whether there are conflicts of interest with respect to consulting services and how they are disclosed and mitigated
  • The appropriate regulatory regime for the firms and whether prior staff guidance should be changed


  • How technology can be used to make the proxy process more efficient
  • Potential benefits and consequences of relying on technology such as blockchain


  • References the 2016 proposed rules on universal proxy cards but left unsaid how the roundtable may address them

Electronic comments may be submitted in advance by using the SEC’s internet submission form or sending an email to   Continue Reading

Relationship Between CEO Pay Ratio and Say on Pay

A recent Semler Brossy report examining the relationship between 2018 CEO Pay Ratio and Say on Pay Results concluded that CEO Pay Ratio has an inverse relationship with Say on Pay but is not a primary driver of Say on Pay Results.  With most companies now having filed their 2018 CEO Pay Ratios and reported Say on Pay vote results, the report covered 1,611 Russell 3000 and 364 S&P 500 companies.

It found that there was a weak, inverse relationship between CEO Pay Ratio and Say on Pay for Russell 3000 companies.  Average Say on Pay support for Russell 3000 companies with a CEO Pay Ratio above the index’s median was 89.3% compared to 91.8% for those below the median.  Continue Reading

SEC Publishes Final Rule and Concept Release on Equity Compensation Offerings

On July 18, 2018, the SEC voted unanimously both to issue a final rule and to solicit public comment through a concept release relating to the federal securities rules that govern the issuance of employer stock pursuant to compensation arrangements. Davis Polk discusses the SEC’s final rule and concept release here.

The final rule and the concept release were published to the Federal Register on July 24, 2018. The final rule is effective as of July 23, 2018, meaning that companies can rely on it immediately as of that date. The SEC is accepting comments relating to the concept release until September 24, 2018. Continue Reading

Shareholder Proponents Take Issue with SEC Staff Decisions on Exclusion of Proposals

Earlier this month, the Shareholder Rights Group, which consists of 15 well-known shareholder proponents, issued a report on this proxy season’s no-action letters.  More than half of the report by the Shareholder Rights Group is devoted to arguing that the SEC staff wrongly applied the micromanagement doctrine to exclude at least eight shareholder proposals this season.

According to the report, efforts by the corporate community to limit shareholder proposals have reached a “fever pitch” since the election two years ago.  The report suggests that this “pressure” on the SEC may have even led the staff to change its policy on interpreting no-action letter requests. Continue Reading

Boards and #MeToo

#MeToo may no longer dominate daily headlines but its indelible impression remains. Corporate boards’ mandate to act in their shareholders’ best interest includes not only overseeing strong financial performance, but also recognizing the ways that corporate culture impacts shareholder value. Reputational harm can cost a company in multiple ways, literally, and produce lasting damage.

Claims regarding sexual misconduct should be treated with proper diligence, and while it may warrant more sensitivity due to the nature of the grievance, boards should reinforce that employee misconduct is not tolerated. In our view, the care that boards exercise in reviewing their companies’ existing procedures and controls governing corporate conduct already provides sufficient incentives for management to consider whether appropriate action is taken when misconduct complaints are received. Continue Reading

Recent Developments Relating to Corporate Governance

Despite a political agenda packed with important issues like tariffs, immigration and a Supreme Court nomination, there have been a number of recent federal and state legislative developments relating to public company corporate governance topics that are of interest.  In particular, the Senate Banking Committee has recently considered bills relating to the role of proxy advisory firms and disclosure of cybersecurity experience at the board level; there have been calls by lawmakers for regulation of executive sales following announcement of stock buybacks; the Senate Committee on Appropriations is proposing to direct the SEC to report on the decline in public companies; a bill implementing gender quotas on boards progressed through the California State Senate; and Delaware adopted a voluntary sustainability certification and reporting regime.  Continue Reading