2012 Proxy Season Developments: SEC Staff Issues Legal Bulletin on Shareholder Proposal Process; ISS Releases Its 2012 Draft Proxy Voting Guidelines on Say-on-Pay, Pay-for-Performance and Proxy Access

Sullivan & Cromwell LLP - October 28, 2011

As issuers and shareholders look ahead to the 2012 proxy season, they should be aware of recent publications by the SEC’s Division of Corporation Finance with regard to Rule 14a-8 process issues and Institutional Shareholder Services with regard to potential voting recommendations on shareholder proposals.

SEC Staff Legal Bulletin No. 14F, issued on October 18, 2011, provides important new guidance on a number of topics that have led to confusion in recent years among issuers and shareholders participating in the Rule 14a-8 shareholder proposal process, including proof of share ownership for beneficial owners, submission of revised proposals, and withdrawal of a proposal submitted by multiple proponents.

On the same day, ISS, the influential proxy advisory firm, released proposed updates to its proxy voting guidelines for 2012. The proposed updates address topics such as company responses to last year’s say-on-pay votes and say-on-pay frequency votes, evaluation of executive pay practices, and recommendations on proxy access proposals. The proposed changes to the policy on evaluating executive pay include a new methodology that uses quantitative one-, three- and five-year comparisons of pay and stock performance together with a qualitative review, as needed.