• Recommends voting against boards of directors that do not act on shareholder proposals that were approved by the vote of a majority of shares cast in the prior year, beginning in 2014;
• Designates “significant” pledging, and any hedging, of the issuer’s stock by directors and executives as failures of risk oversight that may (or, in the case of hedging, will) warrant recommending a vote against individual directors, committee members or the entire board of directors;
• Revises its say-on-pay analysis to refine the peer group selection methodology and, at least for large-cap companies, incorporates a “realizable pay” analysis into the qualitative evaluation of pay-for-performance;
• Extends the say-on-golden parachute analysis to existing and legacy arrangements, as well as new or renewed arrangements; and
• Assesses, on a case-by-case basis, shareholder proposals to link executive compensation to environmental and social metrics.

The final policy also makes other minor changes to ISS’s positions on director elections.

These new policies will be effective for companies holding their annual shareholder meetings on or after February 1, 2013, with the exception of the board response to shareholder proposals, which is effective for annual meetings beginning in 2014. ISS indicated that it will release FAQs on the final policy in December 2012.

Prior to January 1, 2013, the implementation date for the conflict mineral rules, companies must make a significant threshold determination—does the company manufacture or contract to manufacture products for which conflict minerals are necessary to the functionality or production? Companies that answer yes to this question will be subject to the conflict mineral disclosure requirements and must begin scrutinizing the origin of conflict minerals in their products on January 1, 2013. Part I of this memorandum provides some general guidelines for making this baseline determination, which is by its nature highly fact-specific. We believe these guidelines are reasonable, but it is important to note that there has only been limited guidance to date in the adopting release for the final rules and the SEC staff may interpret the rules differently in some regards in the future. We encourage you to contact us to discuss the application of the rules under your specific facts and circumstances. In addition, it will be important to monitor how similarly situated companies respond to the rules as companies who take paths at odds with other similarly situated companies may find themselves in a spotlight.

Once a company determines that it does manufacture or contract to manufacture products for which conflict minerals are necessary to the functionality or production, the company must undertake a reasonable country of origin inquiry. If, as a result of that inquiry, the company has reason to believe that its conflict minerals may have originated in the Covered Countries and may not have come from scrap or recycled sources, the company must conduct due diligence to determine whether the conflict minerals in these products originated in the Covered Countries. These inquiries and the related disclosures invoke additional interpretative questions. Part II of this memorandum contains commonly asked questions related to the reasonable country of origin inquiry and the due diligence that may follow. Part III addresses commonly asked questions concerning the mandatory disclosure and reporting on Form SD.

ISS’s proposed policy would:

• Recommend voting against boards of directors who do not act on shareholder proposals that were approved by the vote of a majority of shares cast in the prior year;
• Revise ISS’s say-on-pay criteria by refining the peer group selection methodology, incorporating “realizable pay” analysis into the qualitative evaluation of pay-for-performance and designating pledging shares as a problematic pay practice;
• Extend the analysis of golden parachute arrangements to existing and legacy arrangements rather than just new or renewed arrangements; and
• Provide for a case-by-case assessment of shareholder proposals to link executive compensation to environmental and social “sustainability metrics.”

The proposed updates are open to public comment until October 31, and the final policies are expected to be released in November. While these new policies have not yet been finalized and are subject to revision, it’s not too early for public companies to consider how these changes could affect their ISS profile in the upcoming proxy season.

The NYSE proposal has an effective date of July 1, 2013, with a transition period for compliance with compensation committee member independence requirements until 2014. The Nasdaq proposal will become effective on the date the proposal is adopted, with a transition period for requirements relating to compensation committee membership and charter until 2014. Both proposals will be published by the SEC, and comments are due on or before the date that is 21 days from publication in the Federal Register.

This memorandum reviews these important developments. While we emphasize merger control developments in 2011, we also summarize developments in regulating anticompetitive agreements and abuses of dominance as a reminder of their potential implications for those doing business in China.

Although the changes to Form 20-F itself are relatively minor this year, the continuing economic and financial crisis will require financial institutions in particular, as well as other foreign private issuers, to consider carefully the continuing consequences of the crisis when preparing their annual reports on Form 20-F. Disclosures in a number of areas of the Form 20-F will be impacted and will be the focus of SEC scrutiny. In that regard the SEC has issued disclosure guidance recently relating to exposure to European sovereign debt which will need to be taken into account when preparing this year's Form 20-F.