ISS Releases 2018 Proxy Voting Guideline Updates

On November 16, the Institutional Shareholder Services (ISS) published its 2017 Proxy Voting Guideline Updates, which will be effective for shareholder meetings held on or after February 1, 2018. The US 2018 updates cover numerous policies, and significant changes are summarized below.
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On November 1, the Division of Corporation Finance of the Securities and Exchange Commission (Division) published Staff Legal Bulletin No. 14I (SLB 14I), which provides new, issuer-friendly guidance on shareholder proposals in advance of the 2018 proxy season. Specifically, SLB 14I provides guidance on (1) exclusion of shareholder proposals under the “ordinary business” and “economic relevance” exceptions under Rule 14a-8 of the Securities Exchange Act of 1934; (2) proposals submitted on behalf of shareholders through a representative; and (3) the use of images in proposals.
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On October 19, proxy advisory firm Institutional Shareholder Services (ISS) announced the results of its Policy Application Survey (PAS). The PAS, which ran from August 3 through October 6, reflects 328 responses: 77 from institutional investors and organizations representing them, and 251 from members of the corporate community, including companies, consultants/advisors to companies, corporate directors and other trade organizations. These surveys often provide a good indication of potential changes to ISS’s voting policies. It is expected that ISS will publish its draft 2018 policy updates and open its comment period in late October, and release its final policy updates in November.
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On August 18, the New York Stock Exchange (NYSE) issued a proposed amendment to Section 202.06 of the NYSE Listed Company Manual, which would prohibit the issuance of material news by a listed company between the official closing time of the NYSE’s trading session until the earlier of the publication of such company’s official closing

Several companies have received shareholder letters seeking to recover short-swing profits from insiders under Section 16(b) of the Securities Exchange Act of 1934, alleging that such insiders made non-exempt purchases of stock within six months of having shares withheld either for payment of the exercise price of employee stock options or to satisfy tax liabilities upon the vesting of restricted stock units (resulting in deemed dispositions of those shares). In each case, the shareholder has claimed that the Rule 16b-3(e) exemption (for transactions between an issuer and its officers and directors) is only available for such dispositions when the withholding is automatic, without an election by the insider or the company. On April 26, the United States District Court for the Southern District of Texas granted a motion to dismiss in JD. Jordan v. Robert Flexton, et al., No.4:16-CV03316, holding that dispositions of restricted stock units to cover tax withholding are compensation related transactions designed to be exempt under Section 16b-3(e) of the Securities Exchange Act of 1934.
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On April 7, the Securities and Exchange Commission Division of Corporation Finance (the Division) issued a statement regarding the effect of recent judicial action with respect to the SEC’s conflict minerals rule. In its statement, the Division clarified that, in light of the uncertainty regarding the rule, subject to further review, the Division will not pursue enforcement actions against companies that do not comply with the “source and chain of custody” due diligence requirements and related disclosure in Item 1.01(c) of Form SD.
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