SEC Issues Updated Cybersecurity Guidance

On February 21, the Securities and Exchange Commission released updated interpretive guidance on cybersecurity disclosure, reaffirming staff guidance issued in 2011, providing more detailed guidance on disclosure of cybersecurity risks and incidents, advising companies to ensure that their disclosure controls and procedures take account of cybersecurity risks and noting the implications of cybersecurity incidents for insider trading prohibitions and Regulation FD compliance.

The interpretive guidance lends the Commission’s imprimatur to the previously issued staff guidance and underscores the importance for a company to be attuned to securities law obligations when responding to or managing for cyber risks and incidents.

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SEC Staff Denied No-Action Relief for Independent Chairmen Shareholder Proposals that Referred to NYSE Standards

The SEC staff recently denied no-action relief to two Nasdaq-listed companies that sought to exclude proposals asking for independent chairmen where the resolutions referred to NYSE independent director requirements.  The companies had cited to prior staff decisions that permitted companies to exclude proposals where the NYSE standards were part of the resolutions for independent chairmen proposals.

The resolutions of the proposals that the Staff declined to exclude state:  “[t]hat shareholders ask that [the company] adopt a policy, and amend other governing documents as necessary, to require that the Board’s Chair be held by an independent director, as defined in accordance with applicable requirements of the NYSE.”

Previously, in 2013, the Staff had permitted proposals with the following resolution to be excluded based on vagueness:  “[t]hat shareholders of [the company] ask the Board of Directors to adopt a policy that the Board’s Chair be an independent director according to the definition set forth in the New York Stock Exchange standards.”

At that time, the Staff indicated that “because the proposal does not provide information about what the New York Stock Exchange’s definition of ‘independent director’ means, we believe shareholders would not be able to determine with any reasonable certainty exactly what actions or measures the proposal requires.”

No explanation was given for the recent decisions. Continue Reading

Environmental and Social Metrics Added to ISS QualityScore

Along with its four pillars for governance which score companies on a one to ten scale, ISS has launched Environmental & Social (E&S) QualityScore to measure corporate disclosure on environmental and social issues.  Similar to the Governance QualityScore, the measures are relative based on peer companies within a specific industry group.

An initial set of 1,500 companies is being covered globally, including Energy, Materials, Capital Goods, Transportation, Automobiles & Components, and Consumer Durables & Apparel.   It is expected that by Q2 2018, an additional 3,500 companies across 18 industries will be included.  The scores will be part of the companies’ proxy voting reports, but like all of the QualityScores, will not impact the vote recommendations. Continue Reading

New Tax Act Has Meaningful Implications for Broad-Based Employee Benefit Plans

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA), which generally went into effect for tax years beginning on or after January 1, 2018.  The TCJA provisions affecting executive compensation (for example, the elimination of the performance-based compensation exception to Section 162(m) of the Internal Revenue Code) have received signification attention, but the TCJA also has meaningful implications for broad-based employee benefit plans and programs.

A memorandum that provides an overview of the key TCJA provisions impacting employee benefits is available here. Continue Reading

What You Should Know About BlackRock’s Updated Voting Guidelines

BlackRock updated its proxy voting guidelines, and some of the key highlights since its last update include:

Two women on boards.  In its discussion of the importance of boards comprising a diverse selection of individuals bringing to bear a range of experiences and competing views and opinions, BlackRock emphasized that in addition to other elements of diversity, the investor would “normally expect to see at least two women directors on every board.”

Overboarding limits.  BlackRock’s views that outside directors should only sit on four boards have long been more restrictive than the proxy advisors.  Now BlackRock also indicates that CEOs should just serve on one other board besides their own (for a total of two boards). Continue Reading

Administering Compensation Programs in the Wake of the Tax Cuts and Jobs Act – New Section 162(m)

The Tax Cuts and Jobs Act (TCJA) significantly changes Section 162(m) of the Internal Revenue Code, effective for tax years beginning after December 31, 2017. While supplemental regulatory guidance is likely, the impact on companies’ compensation programs and planning processes is immediate.

For an in-depth discussion of the significant changes, ways companies can address them and areas where the new rules present uncertainty, see our memorandum. Continue Reading

Corporate Sustainability Disclosure is Not the Primary Driver of MSCI ESG Ratings

The topic of corporate ESG disclosure is among the ESG trends to watch in 2018, according to a recent report from MSCI.

Companies are increasingly providing voluntary information about their sustainability practices, and since MSCI ESG Research is among one of largest groups that review and rate corporate ESG disclosures and practices, grading companies from AAA to CCC, MSCI is “one of the world’s largest consumers” of corporate sustainability disclosure.

As the report explains, companies are providing more information given that investors are overwhelmingly supportive of efforts by various standard setters to encourage disclosure, with an alphabet soup of requests and choices that companies can follow, including CDP, GRI, SASB, IIRC and FSB.  Continue Reading

Another Twist in the Challenges to Director Compensation

In a series of cases challenging the magnitude of equity award compensation that boards have provided for their non-employee directors, the Delaware Chancery Court suggested that if the awards were made within a “meaningful limit” approved by shareholders the court would review these challenges under the standard business judgement rule rather than requiring an entire fairness review.

Many companies took heed, seeking shareholder approval for amendments adding a director award limit to their stock incentive plans. However, the Delaware Supreme Court recently put into question whether a meaningful limit would actually help to avoid an entire fairness review.

While it is hard to believe that a reasonable limit approved by shareholders would be of no value in rebutting a challenge to an otherwise defensible equity grant, boards should focus on the entirety of their approach to determining non-employee director compensation. Continue Reading

Chairman Clayton’s Roadmap to Finishing the Dodd-Frank Mandates, Including the Executive Compensation Disclosures

In a recent speech, Chairman Clayton discussed completing the rulemaking mandates under Dodd-Frank, in light of his mission to allocate the SEC’s resources to both fulfilling statutory requirements and meeting day-to-day needs. The complexity of the mandates coupled with “mission-critical demands” are key variables that influence the objective of finishing the rules.

In terms of how the SEC should proceed on the remaining Dodd-Frank rules, Clayton declared that the executive compensation rules were particularly challenging, in part because “we are writing on an already very colorful canvas and different constituencies see the rules as serving different, and sometimes inconsistent, goals.” He favors a “serial approach” and pointed out that the recent interpretative guidance on the pay ratio rules managed to comply with the statute, reduce compliance costs and remain practical. Continue Reading

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