Last May, Broadridge Financial Solutions, Inc., the provider of proxy services for over 90% of public companies and mutual funds in North America (“Broadridge”), decided to end its established practice of providing interim vote tallies (sometimes referred to as “preliminary voting results”) to proponents of shareholder proposals. Following this change in practice, the Council of Institutional Investors (“CII”) sent a letter to the SEC asking the Commission to reverse Broadridge’s change in practice. Later in July, Broadridge reviewed its decision, promising to “continue to monitor developments on th[e] issue” and noting that it is contractually obligated to follow client directions regarding release of interim vote tallies.
Topic: Corporate Governance
SEC Issues Second Set of FAQs on Conflict Minerals Rules
On April 7, 2014 the SEC’s Division of Corporation Finance issued a second set of Frequently Asked Questions (“FAQs”) on its conflict minerals rules (Exchange Act Section 13(p), Rule 13p-1 and Item 1.01 of Form SD). The full set of FAQs, including the nine new FAQs and the 12 FAQs issued in May 2013, is available at http://www.sec.gov/divisions/corpfin/guidance/conflictminerals-faq.htm. For more information about the conflict minerals rules, please see our client alert available at https://www.gibsondunn.com/publications/pages/ConflictMinerals-UnderstandingFinalSECRules.aspx, and for a discussion of the first set of FAQs, please see our client alert available at https://www.gibsondunn.com/publications/pages/SEC-Issues-FAQs-On-Conflict-Minerals.aspx.
ISS To Revise QuickScore
On January 8, 2014, Institutional Shareholder Services, Inc. (“ISS”) announced that it will launch a new version of QuickScore (“QuickScore 2.0”) on February 18, 2014. QuickScore benchmarks a company’s governance risk against other companies in the Russell 3000 Index based on a number of weighted governance factors. QuickScore 2.0 will use a different method to score companies’ governance risk and will automatically reflect changes in companies’ governance structures based on publicly disclosed information.
ISS Opens Comment Period for 2014 Proxy Voting Policies
On October 22, 2013, Institutional Shareholder Services (“ISS”) announced two proposed changes to its 2014 U.S. proxy voting policy. ISS requested comments on the proposed changes, which can be submitted via e-mail to [email protected] by November 4, 2013. ISS will take the comments into account when issuing its 2014 proxy voting policies. It is important to note that ISS’s final U.S. policy updates for 2014, which are expected to be released in November, may reflect additional changes beyond the two on which ISS has solicited comments.
Vanguard Proactively Reaching Out to Companies to Address Governance Concerns
In anticipation of the 2014 proxy season, Vanguard is sending letters to approximately 350 companies to proactively engage with them on governance issues. The letters are tailored to the individual companies and identify governance practices at the companies that Vanguard believes are not in line with what Vanguard views as best practices.
SEC Staff Grants Request to Exclude Rule 14a-8 Shareholder Proposal Regarding Repayment of Student Loans
Gibson Dunn successfully represented DeVry Inc. in obtaining no-action relief from the SEC staff (the “Staff”) for the exclusion of a shareholder proposal requesting that DeVry “annually report to shareholders on the expected ability of students at Company-owned institutions to repay their student loans.” The shareholder proposal, which was submitted by the New York City Comptroller’s Office on behalf of several New York City pension funds, specified particular quantitative and other information to be included in the requested report. DeVry’s no-action request argued that DeVry could exclude the shareholder proposal under Rule 14a-8(i)(7) as relating to DeVry’s ordinary business operations because the proposal implicated decisions concerning product quality. The no-action request identified shareholder proposal precedents relating to the quality of products or services in other industries (such as beverages and banking) and pointed out that, similar to those precedents, the proposal at issue was focused on the quality of DeVry’s educational services. In a response letter dated September 6, 2013, the Staff concurred that the shareholder proposal could be excluded, noting that “the proposal focuses primarily on information the company should provide regarding the quality of its educational services” and that “[p]roposals that concern product quality are generally excludable under rule 14a-8(i)(7).” The Staff’s decision to grant DeVry’s no-action request is notable because the Staff had denied a no-action request earlier this year regarding an identical shareholder proposal submitted to another company. The earlier no-action request had also asserted that the proposal was excludable under Rule 14a-8(i)(7), but its reasoning focused on the proposal’s infringement of the company’s risk assessment practices and compliance with laws rather than on how the proposal implicated the quality of the company’s products or services. The Staff’s concurrence with DeVry’s no-action request highlights the importance of identifying the appropriate issue that may support exclusion of a shareholder proposal, exploring and addressing any precedents and clearly articulating the reasons for which the proposal implicates a particular basis for exclusion.
Reminder to Respond This Week to the ISS Policy Survey
Companies wishing to participate in Institutional Shareholder Services’ (“ISS”) annual global policy survey should do so this week. The ISS policy survey closes on September 13. Public companies and others are urged to submit their views by completing the survey, as ISS considers the responses to its survey when developing its proxy voting policies for the coming proxy season. When responding to the survey, it is not necessary to enter a response to every question that is asked.
Reminder for Companies Planning to Rely on the “End-User Exception” for Swaps Activities
On Monday, September 9, new CFTC rules will take effect for non-financial companies that use swaps to hedge or mitigate commercial risk. These rules will require the clearing of interest rate swaps and credit default index swaps unless an exception is available. One such exception is the “end-user exception,” and public companies planning to rely on this exception must take certain governance steps. These include obtaining approval from the board of directors or an appropriate committee to enter into swaps exempt from clearing. For more information on these governance steps, please see our June 17, 2013 client alert entitled “Public Companies and the ‘End-User Exception’ for Swaps: Governance Action Items,” which is available here.
Are Changes to the Audit Report on the Horizon? PCAOB Issues Two Significant Proposals
Today, the Public Company Accounting Oversight Board (“PCAOB”) proposed for public comment two audit standards that, if adopted, would significantly change the audit report model, and dramatically expand the auditor’s responsibilities in reporting on management’s disclosures outside the financial statements. PCAOB Chairman Doty remarked that the proposed standards – running to almost 300 pages – mark a “watershed moment” for auditing in the United States.
ISS Releases Survey for 2014 Policy Updates
Institutional Shareholder Services (“ISS”), the most influential proxy advisory firm, today launched its annual global policy survey. Each year, ISS solicits comments in connection with its review of its proxy voting policies. At the end of this process, in November 2013, ISS will announce its updated proxy voting policies applicable to 2014 shareholders’ meetings.