With the close of another year quickly approaching, it is time again for public companies to get equipped with the developments of the past year in order to position themselves for success in 2015. A review of previous years’ updates and a summary of the current and anticipated changes to disclosure regulations for the 2015 proxy season are below. 


The final compensation committee and advisor independence rules, under Dodd-Frank, discussed in last year’s article, are now fully implemented. For a complete analysis of these rules, see last year’s proxy season update here. As a reminder, companies should assess the independence of compensation committees and consultants at least annually, and always prior to either receiving outside advice from consultants or filing a proxy statement. 

The final pay ratio rules, applicable to large public companies only, regarding mandatory disclosure of median employee compensation, CEO compensation and the ratio between them were expected in the final days of 2014. Even if implemented before year-end, disclosure will not be required for the 2015 proxy season. The new policy will most likely be effective for 2015 compensation reported in 2016 proxy statements. An update on the recent political developments and legislative progress of the rules can be found here

The SEC’s conflict mineral rules (discussed in the 2013 proxy season update here) came under attack in April 2014 when the U.S. Court of Appeals for the DC Circuit found that part of the rules were invalid under the First Amendment. Companies subject to the conflict mineral rules implemented in 2013 should continue to compile information about their uses and sources for filing before the June 1, 2015 deadline and should monitor the status of ongoing litigation regarding the expansion of such rules in the coming year. 

The pending changes in pay-for-performance, hedging disclosure and clawbacks addressed in last year’s review, have yet to be finalized by the SEC. At this time, there is no anticipated date for implementation of these policies. 

NEW FOR 2015 

Bundling under Rule 14a-4(a)(3) 

In January 2014, the SEC issued three Compliance and Disclosure Interpretations that provided guidance on when bundling of topics for shareholder approval pursuant to the solicitation of proxies is permitted, required or restricted. As a review, under Rule 14a-4(a)(3) of the Securities Exchange Act of 1934, distinct matters which are submitted to the shareholders for approval using proxies, must not be bundled together to ensure that shareholders are given an opportunity to vote on each matter individually. The new interpretations help clarify some common instances in which it can be difficult to determine whether proposals may be bundled or not. First, matters that are so “inextricably intertwined” as to effectively constitute a single matter may remain bundled. Second, bundling of any number of immaterial matters, with respect to shareholder rights, with a single material matter is permitted. Lastly, bundling is likely permitted where multiple changes to an equity incentive plan are presented in a single proposal as long as shareholder approval is required under the relevant laws or governing documents. 

The full Compliance and Disclosure Interpretations on bundling are available here

D&O Questionnaires 

While there have been no direct changes to federal securities laws or NYSE/NASDAQ listing rules which would require modification of director and officer questionnaires for the 2015 proxy season, tangential revisions may be required due to compensation committee listing changes and legislation occurring in the recent past. First, companies should make sure that current questionnaires include questions prompting disclosure of executive officers’ business or personal relationships with retained or proposed compensation advisors. Second, companies should include questions prompting disclosure of compensation committee members’ source of compensation and any affiliations with the company or subsidiaries of the company. Lastly, companies should consider including questions prompting the disclosure of potential sanctionable activities under the recent Iran Threat Reduction and Syria Human Rights Act of 2012. 


Cybersecurity has been a growing concern since the SEC Division of Corporation Finance released its Disclosure Guidance on the topic in October of 2011. In March 2014, the SEC held a public roundtable discussion of the current state of cybersecurity disclosure guidance and concerns surrounding the possibility that increased disclosure might increase public companies’ vulnerability to cyber attacks. While there has been no further promulgation of formal rules or guidance on the topic, when preparing upcoming quarterly and annual reports, companies should thoroughly consider whether or not cybersecurity needs to be addressed and/or updated. For example, if the risk of cyber issues is a significant factor in the analysis of the overall risk of the investment, then cybersecurity should be disclosed and addressed as a risk factor. Additionally, President Obama recently signed five cybersecurity-related bills into law to increase cyber protection in the wake of recent data breaches. Read more about the laws here

SLB 20 and Proxy Advisory Firms 

In response to increasing attention on proxy advisory firms, a staff legal bulletin was released on June 30, 2014 by the SEC’s Division of Investment Management and Division of Corporation Finance addressing proxy voting responsibilities of investment advisors and the application of certain exemptions from the proxy rules contained in Rule 14a-2(b) of the Exchange Act for proxy advisory firms (SLB 20). While it does not restrict the nature of a company’s relationship with an advisory firm per se, SLB 20 does provide guidance and specific examples of steps that may be taken in order to bolster an investment advisor’s assertion that proxy votes are cast in accordance with the client’s best interest. The bulletin emphasizes that investment advisors utilizing proxy advisory firms have a duty to ensure that the firm has the ability to make recommendations based on accurate and sufficient information. Additionally, SEC Commissioner Gallagher published a paper in August on this topic entitled “Outsized Power & Influence: The Role of Proxy Advisors.” Companies should anticipate that additional regulations governing proxy advisory firms will continue to garner momentum and SEC attention in 2015. 

The full staff legal bulletin is available here, and the paper written by the Commissioner,here


ISS Updates 

On November 6, 2014, Institutional Shareholder Services (“ISS”) released updates to its proxy voting policies which will affect shareholder meetings that take place after February 1, 2015. These changes focus on ISS’s recommendations regarding unilaterally-passed charter and bylaw amendments, limitations to shareholder litigation rights and requirements for independent chairmen. Beginning next year, ISS will recommend voting against directors following board adoption of charter or bylaw amendments that materially diminish the rights of shareholders and that were implemented without shareholder approval. In conjunction with the policy, ISS will consider several factors in making recommendations including the rationale for adoption of the amendment, the level of impairment of the shareholders’ rights, the board’s track record regarding unilateral action, and the timing of the amendment. 

Also beginning in 2015, ISS will use an expanded analysis when deciding how to respond to provisions which impact a shareholder’s right to bring a lawsuit against a company. Notably, ISS will recommend voting against any bylaws that require mandatory fee-shifting from the company to the shareholder if the shareholder is not completely successful on the merits of the suit. Unilateral adoption of such provisions will be evaluated under the policy regarding unilateral passage of amendments that diminish the rights of shareholders mentioned above.

Finally, ISS announced that, beginning in 2015, it will recommend generally voting in favor of shareholder proposals that require board chairmen to be independent directors. ISS recognized this as an area of concern in its report, based on an increased number of shareholder proposals calling for independence in the chairman position. ISS cited a number of companies shifting to a combined CEO-Chairman leadership structure as contributing to the rationale for this change. 

In addition to these updates, ISS updated its policies regarding equity-based compensation plans and shareholder proposals relating to the disclosure of political contributions and greenhouse gas emissions. 

A copy of the full ISS US Proxy Voting Guideline Updates is available here

Glass Lewis Updates 

Glass, Lewis & Co. (“Glass Lewis”) recently published its 2015 Proxy Season Guidelines and also expressed disapproval of boards of directors who reduce shareholder rights by amending governing documents without receiving shareholder approval. Glass Lewis cited specific examples of common board actions that might induce a negative recommendation, including eliminating or impairing shareholders’ ability to call a special meeting or to act by written consent, fee-shifting provisions as discussed above, adoption of a classified board structure and eliminating shareholders’ ability to remove a director without cause. 

Also starting next year, Glass Lewis will give additional scrutiny to certain amendments to a company’s charter or bylaws that are implemented prior to an initial public offering (“IPO”). Specifically, negative recommendations will likely be triggered where the board adopts an anti-takeover provision, such as a poison pill or a classification of the board, and does not seek shareholder approval following the IPO. This heightened scrutiny also applies to provisions implemented without shareholder approval adopting exclusive forums and fee-shifting of expenses in the case of shareholder litigation against the company. 

Glass Lewis also addressed in their update, standards for assessing material transactions with directors, executive compensation and employee stock purchase plans. 

A copy of the full Glass Lewis Proxy Season Guidelines is available here