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 November 21, ISS published its 2017 Proxy Voting Guideline Updates, which will be in effect for meetings held on or after February 1, 2017. The US 2017 updates cover numerous policies, with significant changes summarized below:

Restricting Binding Shareholder Proposals

ISS introduced a new policy to recommend against or withhold from members of the governance committee if a company’s charter imposes undue restrictions on shareholders’ ability to amend its bylaws. Such restrictions include outright prohibition on the submission of binding shareholder proposals, or share ownership requirements or time holding requirements in excess of SEC Rule 14a-8.
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On November 18, Glass Lewis released its 2017 U.S. Proxy Season Guidelines. The guidelines are a detailed overview of the key policies Glass Lewis applies when analyzing individual companies and are formally updated on an annual basis.

One of the more significant changes to the Glass Lewis Guidelines is the director overboarding policy. Under this policy, Glass Lewis will generally recommend voting against a director who serves as an executive officer of any public company while serving on a total of more than two public company boards, and against any other director who serves on a total of more than five public company boards. Glass Lewis may consider factors such as the size and location of the other companies where the director serves on the board, the director’s board roles at the companies in question, whether or not the director serves on the board of any large privately held companies, the director’s tenure on the boards in question, and the director’s attendance record at all companies. Glass Lewis may refrain from recommending against certain directors if the company provides sufficient rationale for their continued board service.
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On October 31, proxy advisory firm Institutional Shareholder Services Inc. (ISS) opened the data verification period for QualityScore (formerly QuickScore), its corporate governance rating system, which will remain open until 8:00 p.m. (ET) on November 11. During the data verification period, companies are encouraged to access ISS’s data verification site on Governance Analytics, which can be found here, to verify the ISS data that will be included in QualityScores and provide feedback. Companies that do not have a login can request one via email here.
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