February 2012

Today, February 20, ISS has posted a preview of its updated GRId 2.0 data profiles for U.S. companies.  Company representatives can access the GRId profile (for free) through the ISS data verification site to review the information and alert ISS as to any mistakes or other areas for corrections.  To obtain a data verification user name and password if you do not already have one, contact ISS by email at or call 301 556 0570.

As we previously discussed, GRId 2.0 adds many new questions, particularly in the compensation area, and adjusts the scoring system.  For the first time, actual scores in each of the categories of Board, Compensation, Audit and Shareholder Rights, will be displayed in addition to the overall “high,” “medium,” or “low” system.  A copy of the lengthy technical document with all the questions being scored is available here.

The revised GRId score will be available for the entire GRId universe of US companies, largely the Russell 3000 companies, on Monday, February 27.  ISS will make the data available for the Yahoo Finance page of companies on March 1 (a company's GRId score can be found under Business Summary - Company Profile on its Yahoo Finance page).  A page showcasing the GRId data is also part of a company's ISS annual meeting voting recommendation report. 

• Just in time before most proxy statements are issued, the SEC staff has issued a CDI on how say-on-pay resolutions should be described on proxy cards and voting instruction forms, with specific examples given of resolutions that would be considered compliant.  The four examples (To approve the company’s executive compensation; Advisory approval of the company’s executive compensation; Advisory resolution to approve executive compensation; and Advisory vote to approve named executive officer compensation) all contain the notion of "approval" in casting the vote.   The Staff indicated it was concerned that some resolutions, such as "To hold an advisory vote on executive compensation," are not sufficiently clear.
• Western Union has announced that it will drop its plans to adopt a proxy access bylaw, in light of its decision to declassify its board and "its ongoing assessment of whether proxy access should be included in the Company’s corporate governance structure."
• CalPERS, other pension funds and investors submitted a letter to the SEC asking that the Commission focus on certain priorities in the next 12 months.  The list includes proxy access, the remaining executive compensation provisions required under the Dodd-Frank Act, International Financial Reporting Standards (IFRS) and corporate disclosure on sustainability issues, such as environmental matters and board diversity. 
• As noted on TheCorporateCounsel.net, Apache and John Chevedden have reached a settlement in the Southern District of Texas, permitting Apache to exclude Chevedden's shareholder proposal, which Apache had disputed with respect to Chevedden's proof of ownership.  Chevedden's appeal in the Fifth Circuit with respect to a similar prior case (KBR v. Apache), is pending. 
• The NY Post reports that a whistleblower has filed a complaint with the SEC alleging that an employee in the Boston office of ISS has been providing proxy solicitors with shareholder voting data in exchange for cash and gifts. 

Instead of being the first company with a proxy access shareholder proposal voted on at its meeting, Hewlett-Packard recently became the third company to agree to implement proxy access.  If approved at the 2013 meeting, HP would allow shareholder groups that own at least 3% for 3 years to nominate candidates for up to 20% of the board.  HP follows in the steps of Western Union and KSW, in making efforts to permit proxy access in response to these shareholder proposals.  HP managed to get its proposal, submitted from Amalgamated Bank, withdrawn, but Western Union and KSW are seeking exclusion through the SEC no-action letter process and are still waiting to hear. 

Since several companies have submitted no-action letters to the SEC staff in an effort to exclude the proposals they received, it is unclear how many will actually be voted on.  Currently, there are five different variations of proposals, and without HP, a total of 16 outstanding, as noted below:

• Seven companies received a version from retail shareholders that was associated with the US Proxy Exchange, which seeks implementation of proxy access for shareholders that own 1% for 2 years (Bank of America, Chiquita, Ferro Corp., Goldman Sachs, MEMC Electronic Materials, Textron and Sprint).  All but Ferro Corp. have sought exclusion on the basis of no-action letter requests.
• Six companies received binding proposals from Norges Bank, which seeks proxy access rights for shareholders that own 1% for 1 year (Charles Schwab, CME Group, Pioneer Natural Resources, Staples, Wells Fargo and Western Union).  Western Union has sought to exclude this proposal by writing the SEC staff on the basis that it is submitting its own proposal.  Charles Swab and Wells Fargo argued that the website reference referred to in the proposal should be removed, and Staples made various other arguments to exclude.
• One company (Nabors) is reported to have received a proposal from several state pension funds based on previously adopted SEC Rule 14a-11 standards of ownership levels of 3% for 3 years, similar to HP's proposal.
• Two companies (KSW and Microwave Filter Corp) received binding proposals from the Furlong Fund.  The KSW proposal seeks proxy access for shareholders owning 2% for 1 year, while the proposal received by Microwave Filter Corp was in connection with a proxy contest, and asks that shareholders owning 15% for at least one month be able to nominate candidates. 

We'll continue to track developments throughout the proxy season, as it will be interesting to see how these proposals fare in their inaugural year.

Note: Thanks to James McRitchie at corp.gov.net for pointing out that we missed Princeton National Bancorp. Inc (PNBC) on our list of companies that received proxy access shareholder proposals. PNBC received the retail version.

Contact Ning Chiu.

As companies are in the midst of preparing their proxy statements, some may have forgotten an interpretation that the SEC Staff issued last summer regarding the use of non-GAAP financial measures in CD&As that could affect your disclosure.  The CDI in Question 118.08 indicates that if the non-GAAP financial measure is not a target level that is subject to exemption from the non-GAAP disclosure rules, but rather, included in CD&A or other parts of the proxy statement to perhaps explain the company's results in relation to compensation paid, then some form of GAAP reconciliation is necessary.

While the company could include the GAAP reconciliation in the CD&A itself, the Staff appeared to recognize that could prove cumbersome and distracting, and therefore the Staff is permitting companies to, in this particular circumstance:

• Include the required GAAP reconciliation and other information in an annex to the proxy statement and provide a prominent cross-reference to the annex; or
• If the non-GAAP financial measures are the same as those included in the Form 10-K that is incorporating Part III information from the proxy statement, provide a prominent cross-reference to the pages of the Form 10-K containing the GAAP reconciliation and other information. 

Merely referring to the company's website, earnings release or the Form 10-K generally is not sufficient. 

Contact Ning Chiu. Contact Kyoko Takahashi Lin.