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SEC Extends Review Period for Nasdaq’s Board Diversity Proposal

On the heels of our post of our summary deck yesterday on Nasdaq’s December 2020 Board Diversity Proposal, the SEC announced last night that it needs more time to consider Nasdaq’s proposal and associated comment letters.  With the extension, the SEC has until March 11, 2021 to either approve or disapprove the proposal, or institute proceedings to aid its determination.  
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Nasdaq’s Board Diversity Proposal

The SEC continues to consider and take public comment on Nasdaq’s December 2020 Board Diversity Proposal. That proposal, if approved as written, would require Nasdaq-listed issuers to disclose their board diversity composition annually and eventually have two “diverse” directors on their boards, or explain why not. Limited exceptions would also apply.

There’s been much speculation as to whether the SEC will approve these proposed amendments to Nasdaq’s listing requirements, decline to do so, or propose, at some point in time, its own board diversity disclosure requirements.
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ISS Releases 2021 U.S. Proxy Voting Guidelines Today and other Upcoming Key Dates for ISS and Glass Lewis

ISS and Glass Lewis (GL) have publicly shared some key upcoming dates for the 2021 proxy season. Below is a list of dates the firms have provided and, based on the most recent year(s), our estimated release dates for other frequently-used proxy advisor publications. Unless specified otherwise, the updated policies listed below will be posted on the ISS website or GL website.
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ISS Peer Group Submission Window Is Currently Open

Each proxy season, Institutional Shareholder Services Inc. (“ISS”) constructs a peer group for each company prior to the company’s next proxy disclosure. ISS’ methodology for constructing the peer group is based in part on the company’s self-selected peer group. ISS recently invited submissions from certain U.S. and Canadian companies with annual meetings scheduled between September 16, 2020 and January 31, 2021.
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NYSE Rule Temporarily Extends Deadline for Brokers to Send Physical Proxy Materials

On April 23, 2020, the New York Stock Exchange (NYSE) proposed a temporary rule change of NYSE Rule 451(b)(1) with immediate effectiveness that extends the deadline by which NYSE member organizations (typically broker/dealers) under selected circumstances must send physical copies of proxy materials to beneficial owners. In light of delays related to the novel coronavirus (COVID-19) pandemic, the NYSE designed the modification with the intention of helping issuers meet their quorum requirements at shareholder meetings and possibly alleviating the need for adjournments or postponements.
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SEC Closely Monitors the Impact of the Coronavirus and Offers Conditional Regulatory Relief and Assistance

Yesterday, the Securities and Exchange Commission (SEC) announced that the agency was concurrently issuing an Order that provides relief, subject to certain conditions, for publicly traded companies affected by the coronavirus (COVID-19). The relief is necessitated by the fact that COVID-19 may impede certain companies’ timely communication to the trading markets, the SEC and shareholders. Chairman Clayton observed that, “The health and safety of all participants in our markets is of paramount importance.
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Glass Lewis Is Currently Accepting Peer Group Submissions

Glass Lewis is currently accepting peer group submissions on its website until next Friday, January 31, 2020, from public companies making proxy filings through July 31, 2020. For all other companies making proxy filings through January 31, 2021, the deadline for submissions is July 31, 2020.

Glass Lewis utilizes its Pay-for-Performance Model with its A-F grading system (the “P4P Methodology”) to assess the degree to which a company’s executive compensation aligns with the company’s performance.
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A Snapshot of Board-Shareholder Engagement Trends

Directors of SEC-registered public companies are increasingly taking a more active role in the shareholder engagement process given the evolving corporate governance landscape, including the increasing number of requests for their participation by some of the largest institutional investors. The Conference Board and Rutgers University’s Center for Corporate Law and Governance have recently published a report showing the emerging practices surrounding when and how corporate directors engage with shareholders based on a survey administered in 2018.
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A Profile of Some of the Largest U.S. Tech Boards

The 2019 U.S. Technology Spencer Stuart Board Index (Tech Index) reflects the board practices and trends of 200 public tech companies with the highest revenues based on proxy statements released between July 1, 2018 and July 1, 2019.

I. Selected Spencer Stuart Perspectives

  • Like the S&P 500 companies, the largest tech companies are enhancing board diversity on multiple fronts including gender, skills and experiences as they add new independent directors.

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Spencer Stuart Shows How Boards Are Transforming

The 2019 U.S. Spencer Stuart Board Index (Index) reflects the board practices and trends of S&P 500 companies. According to the Index, boards are responding to investors’ increasing calls for greater diversity of “gender, age, race/ethnicity and professional backgrounds.” Spencer Stuart found that “boards are accelerating the addition of women and minority directors,” which in turn is driving notable changes in board composition.
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ISS Opens Window Today for Peer Group Submissions

Today begins the window where certain public companies in the U.S. and Canada have the option of submitting changes to their respective peer groups to Institutional Shareholder Services Inc. (“ISS”). The submission window closes next Friday at 8:00 PM EDT, July 19, 2019.

ISS’ invitation is directed to companies with annual meetings scheduled between September 16, 2019 and January 31, 2020 that have changed or anticipate changing their respective peer group from their last proxy disclosures.
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Two Quick Reminders for the Proxy Season

As many of you prepare to file your proxy statements this month, two quick reminders on new developments to keep in mind:

  • There is no longer a requirement to send the SEC hard copies of the company’s annual report that accompanies the proxy statement if you post the report on the company’s website, and keep the report on the website for at least a year. 

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IPO Governance Practices: A Davis Polk Survey

As public company governance remains in the spotlight, we examined the governance structures of the 50 largest U.S. newly public companies at the time of their initial offerings.  Our survey of both controlled and non-controlled companies found that those companies continue to adopt various takeover defenses at the time they enter the public market, a stark contrast to the current practices of the S&P 500.
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Plurality Carve-Out in Majority Voting Standards

Ethan Allen’s seven nominees for the company’s board received overwhelming support in the recent proxy contest against the six candidates proposed by Sandell Asset Management.

The contest received some unusual attention, as noted in this WSJ article, after ISS criticized the company for using majority voting for the election of directors as a “potential entrenchment device.” 
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ISS Announces Updates to Proxy Voting Guidelines

ISS has issued its updates to its proxy voting guidelines effective for meetings on or after February 1, 2016.

The policy update is quite brief and does not address many of the questions asked in the survey period during the ISS consultation period.  Proxy access is only discussed in this update in the context of an actual contested election, while the survey questions had targeted specific bylaw terms.
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CalPERS Focus on Board Tenure as Measure of Director Independence

CalPERS is considering changing its proxy voting policies to account for issues of director tenure.  New language in its governance principles could state that director independence may be “compromised” at 10 years of service.  If implicated, companies are expected to “carry out rigorous evaluations to either classify the director as non-independent or provide detailed annual explanation why the director can continue to be classified as independent.” 
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Post-Season Review from Vanguard

In preparing for the upcoming proxy season, it is helpful to examine the information that investors provide about their most recent voting and engagement efforts.  We start with Vanguard.

In the 12 months ended June 30 of this year, Vanguard funds voted at more than 13,000 meetings covering 120,000 items.  The funds supported 93% of director nominees, voting against candidates for reasons related to attendance, independence or committee actions. 
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Audit Committees Continue to Expand Reporting in 2015 Proxy Statements

The SEC’s recent concept release on possible revisions to audit committee disclosure has ignited debate about whether additional information, and the type of information, that would be useful to investors regarding the audit committees’ oversight of external auditors. Our memo on the concept release is here, and our comment letter to the SEC is here.
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Audit Committee Reporting Increased in 2014 Proxy Statements

For companies considering a review of the audit committee disclosure in proxy statements, the recent review by EY’s Center for Board Matters provides several insights on some of the additional information that Fortune 100 companies included in 2014. We previously discussed some of the background related to the increased disclosure here

The increased disclosures focus on three areas of audit-related matters: the audit committee’s evaluation of external auditors, approval of fees and auditor tenure.
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Continuing Spotlight on Audit Committee Reports and the Preponderance of Other Functional Board Committees

Six governance groups, including the National Association of Corporate Directors, Tapestry Networks and the Center for Audit Quality, have issued a “call to action” urging companies to enhance the audit committee reports in proxy statements. Many of the topics recommended are similar to our prior discussion of an E&Y survey that found large-cap companies already providing additional information beyond regulatory requirements, and indeed the report gives several helpful examples from those companies.
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Expanded Disclosure of Audit Committee Information in Proxy Statements

We all know that executive compensation information in proxy statements is getting longer, as a response to the say-on-pay vote.  Recently, an E&Y report indicated that proxy statements of Fortune 100 companies in 2013 added more details about the audit committee compared to the prior year.  The report examined 78 companies that held meetings as of June 2013.
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UPDATE: Broadridge Reverses Announced Change Regarding Interim Vote Tallies in Proxy Contests

Last Thursday, Broadridge announced that it will change its procedures for reporting of interim voting results for proxy contests, so that each soliciting party will only receive the results pertaining to its own solicitation. We discussed this here.

However, upon further internal review, Broadridge has now decided that it will not be implementing those changes.
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Changes to Proxy Mechanics Could Affect Proxy Contests

Broadridge has announced a new policy that during proxy contests, each party will only receive the interim results of votes cast for its own proxy card, reports the WSJ. Companies and dissidents can share voting information if both sign confidentiality agreements. This new policy could make it more difficult for solicitations, including determining whether an investor has not voted at all, or has instead voted for the other side. 
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Survey May Influence Efforts to Alter ERISA Rules Affecting Notice and Access

More than 18 months ago, we alerted readers about a request for information by the Department of Labor (DOL) seeking suggestions from interested parties on the possibility of using electronic media by employee benefit plan sponsors to furnish information to participants.  The current ERISA rules under the DOL prevent companies from taking full advantage of using notice and access in lieu of paper copies of proxy statements for employee benefit plan participants as a practical matter. 
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