Search ))
Minneapolis Law Firm




The 2012 annual report and proxy season has arrived. To help you prepare, we have summarized key developments and considerations that should assist you as you prepare your annual report and proxy statements. Some of the changes for 2012 will require significant preparation and effort from a variety of functional areas of your organization, including input from the board of directors. Please do not hesitate to call us if you have any questions or would like to discuss.

Major topics covered in this alert include:


  • Say-on-Pay; Say-when-on-Pay;
  • Update on Proxy Access;
  • ISS 2012 Voting Policies;
  • Updates on Dodd-Frank Act Rulemaking—What is Expected in 2012?;
  • SEC Guidance on Cybersecurity;
  • SEC Guidance on Shareholder Proposals;
  • XBRL;
  • Filing Deadlines; and
  • Reminder About Potentially Overlooked Items.




Results from the First Year


One of the highlights of last year’s proxy season was the implementation of Say-on-Pay and Say-when-on-Pay. The 2011 proxy season demonstrated broad support for executive compensation practices with less than 2% of companies failing the Say-on-Pay vote. The presence of Say-on-Pay also has been credited with causing broad-based changes to the approach to drafting the Compensation Discussion and Analysis (“CD&A”), including the following highlights:


  • General streamlining of the disclosure;
  • Use of an executive summary; and
  • Emphasis on pay-versus-performance.


The results of Say-when-on-Pay reveal that a majority of companies and shareholders prefer an annual vote on executive compensation. Additionally, disclosures in the first proxy season reveal that most companies opted not to include a golden parachute compensation table in their annual meeting proxy statements.


Companies that qualified as “smaller reporting companies” on January 21, 2011 have yet to be phased into these requirements and do not need to hold a Say-on-Pay or Say-when-on-Pay vote until the first meeting at which directors are elected that occurs on or after January 21, 2013.


New Disclosures for 2012


Companies preparing for Say-on-Pay in the 2012 proxy season should remember that their CD&A must include a description of whether and, if so, how the results of the most recent Say-on-Pay vote for last year were considered by the company and the impact of such results on executive compensation decisions and policies. Additionally, companies should continue to solicit feedback from key shareholders regarding the companies’ executive compensation policies and should review and enhance their executive compensation plans and disclosure in light of such feedback.


ISS White Paper


The proxy advisory firm Institutional Shareholder Services (“ISS”) has published at the end of 2011 a white paper regarding how to evaluate pay-for-performance in 2012. It describes how to conduct an initial quantitative assessment and an in-depth qualitative review to determine either the likely cause of a perceived long-term disconnect between pay and performance, or factors that mitigate the initial assessment. The white paper is available here.




Amended SEC Rule 14a-8, which went into effect on September 20, 2011, represents a new system of private ordering proxy access, and will be available for proxy access bylaw proposals in 2012. Under amended Rule 14a-8, shareholders generally will be permitted to include a proposed bylaw amendment in an issuer’s proxy statement providing for proxy access if permitted by state law, or include an advisory, or precatory, proposal requesting that the board take such action. Prior to these amendments, shareholders were not permitted to make proxy access shareholder proposals under Rule 14a-8. In contrast to the stricter eligibility standards of the vacated Rule 14a-11 (which would have required shareholder(s) seeking to make a proxy access director nomination to have held at least 3% of the issuer’s stock for at least three years), amended Rule 14a-8 only requires that a proposing shareholder have held at least $2,000 of an issuer’s stock for at least one year. To the extent that issuers adopt proxy access bylaws through this shareholder proposal process, shareholders at these issuers will then be permitted to include their director nominees in the issuer’s proxy statement within the parameters set forth in the bylaws, thereby saving a nominating shareholder the cost of circulating its own proxy statement.




On November 17, 2011, the proxy advisory firm ISS issued updates to the policies that inform its proxy voting recommendations. These policy updates apply to shareholder meetings held after February 1, 2012 and are available here. On August 24, 2011, ISS updated the FAQ for its 2011 U.S. Compensation Policy that is available here.


The following is a summary of some of the changes and new recommendations.


Proxy Access


ISS supports proxy access as an important shareholder right that is complementary to other best-practice corporate governance features. ISS will, however, continue to take a case-by-case approach in evaluating proxy access proposals due to the lack of a uniform standard to be used in enacting proxy access.


Factors to be considered by ISS in recommending voting on proposals to enact proxy access include, among others:


  • Company-specific factors; and
  • Proposal-specific factors such as (i) the ownership thresholds proposed in the resolution (i.e., percentage and duration); (ii) the maximum proportion of directors that shareholders may nominate each year; and (iii) the method of determining which nominations should appear on the ballot if multiple shareholders submit nominations.


Board Response to Frequency of Advisory Vote on Pay Results


ISS (i) recommends AGAINST/WITHHOLD votes on the entire board of directors (except new nominees, who ISS will consider on a case-by-case basis) if the board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received the majority votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency, and (ii) may recommend AGAINST/WITHHOLD votes on a case-by-case basis on the entire board if the board implements an advisory vote on executive compensation on a less frequent basis than the frequency that received a plurality, but not a majority, of the votes cast at the most recent shareholder meeting at which shareholders voted on the say-on-pay frequency, taking account:


  • the board’s rationale for selecting a frequency that is different from the frequency that received a plurality;
  • the company’s ownership structure and vote results;
  • ISS’s analysis of whether there are compensation concerns or a history of problematic compensation practices; and
  • the previous year’s support level on the company’s say-on-pay proposal.


Board Response to High Levels of Management Say-on-Pay Opposition


ISS may recommend AGAINST/WITHHOLD votes on a case-by-case basis on Compensation Committee members (or, in exceptional cases, the full board) and the management Say-on-Pay proposal if the company’s previous Say-on-Pay proposal received the support of less than 70 percent of votes cast, with factors to be considered including:


  • the company’s response including (i) disclosure of engagement efforts with major institutional investors regarding the issues that contributed to the low level of support, (ii) specific actions taken to address the issues that contributed to the low level of support, and (iii) other recent compensation actions taken by the company;
  • whether the issues raised are recurring or isolated;
  • the company’s ownership structure; and
  • whether the support level was less than 50 percent, which would warrant the highest degree of responsiveness.


Exclusive Venue Management Proposals


ISS previously recommended AGAINST votes on exclusive venue proposals unless the company has (i) an annually elected board, (ii) a majority vote standard in uncontested elections of directors, (iii) a meaningful special meeting right, and (iv) no poison pill that is not approved by shareholders.

ISS now recommends AGAINST votes on a case-by-case basis on exclusive venue proposals, taking into account:


  • whether the company has been materially harmed by shareholder litigation outside its jurisdiction of incorporation, based on disclosure in the company’s proxy statement; and
  • whether the company has (i) an annually elected board, (ii) a majority vote standard in uncontested elections of directors, and (iii) no poison pill that is not approved by shareholders.


Political Spending


ISS previously made voting recommendations on a case-by-case basis on proposals to improve the disclosure of a company’s political contributions and trade association spending. ISS now generally recommends votes FOR proposals requesting greater disclosure of a company’s political contributions and trade association spending policies and activities.


Workplace Safety


ISS makes voting recommendations on a case-by-case basis on requests for workplace safety reports, including reports on accident risk reduction efforts.


Water Issues


ISS makes voting recommendations on a case-by-case basis on proposals requesting a company report on, or to adopt a new policy on, water-related risks and concerns.




There remain a number of disclosure, corporate governance and executive compensation provisions of the Dodd-Frank Act that require rulemaking by the SEC. The SEC has issued a rulemaking timeline on which the following information is based. The SEC’s timeline is available here. It is important to note that the SEC has previously missed rulemaking deadlines for provisions of the Dodd-Frank Act and may do so again or otherwise alter their timeline at any point.


Compensation Committee and Adviser Independence


The SEC issued proposed rules on March 30, 2011 that directs all national securities exchanges to establish listing standards that:


  • Require that compensation committees be composed entirely of independent members of the board of directors (as “independence” will be defined by the exchanges taking into account relevant factors such as all sources of director compensation and whether the director is an affiliate of the issuer or a subsidiary of the issuer);

  • Empower compensation committees with the express authority to engage, oversee and compensate compensation consultants, independent legal counsel and other advisers and require that companies to provide adequate resources to compensate such advisers;

  • Require the compensation committee, before engaging such advisers, to take into account the following factors that bear on the independence of such advisers:
    • the provision of other services to the issuer by the person that employs the compensation consultant, legal counsel or other adviser;
    • the amount of fees received from the issuer by the person that employs the compensation consultant, legal counsel or other adviser, as a percentage of the total revenue of the person that employs the compensation consultant, legal counsel or other adviser;
    • the policies and procedures of the person that employs the compensation consultant, legal counsel or other adviser that are designed to prevent conflicts of interest;
    • any business or personal relationship of the compensation consultant, legal counsel or other adviser with a member of the compensation committee; and
    • any stock of the issuer owned by the compensation consultant, legal counsel or other adviser.

  • Provide companies with a reasonable time to cure any deficiencies with the new listing standards; and

  • Provide certain exemptions from these requirements.


The proposed rules also require companies to disclose in annual meeting proxy statements whether a compensation consultant was engaged by the compensation committee, whether the consultant’s work raised any conflicts of interest and, if so, the nature of those conflicts and how they were addressed. The SEC now anticipates adopting final rules sometime in January through June 2012.


Clawback of Incentive Compensation


The SEC has stated that it will adopt final rules that direct the national securities exchanges to adopt listing standards that obligate companies to develop, implement and disclose a policy related to the recapture of certain incentive compensation sometime in July through December 2012.


Executive Compensation Disclosures


The SEC has stated that it will adopt final rules that require companies to describe clearly in their annual proxy statements the relationship between executive compensation and the company’s financial performance and final rules requiring companies to disclose the median pay for all employees other than the chief executive officer, the chief executive officer’s pay and the ratio of chief executive officer pay to the median pay of other employees sometime in July through December 2012.


Hedging by Employees and Directors


The SEC has stated that it will adopt final rules that require that companies disclose in annual proxy statements whether any director or employee is permitted to purchase financial instruments to hedge or offset decreases in the market value of equity securities granted to the person by the company as compensation or otherwise held (directly or indirectly) by the person sometime in July through December 2012.


Conflict Minerals


The SEC estimates that it will finalize the conflicts minerals regulations sometime between January and June 2012.




On October 13, 2011, the SEC issued guidance on the topic of disclosure obligations related to cybersecurity risks and incidents, the full text of which is available here. In the release the SEC highlights the general disclosure obligations pursuant to which disclosures regarding cybersecurity risk or incidents may be required:


  • Risk Factors - Registrants should disclose the risk of cyber incidents if these issues are among the most significant factors that make an investment in the company speculative or risky as Item 503(c) of Regulation S-K requires each registrant to disclose the most significant factors that make an investment in the registrant speculative or risky.

  • MD&A - Registrants should address cybersecurity risks and cyber incidents in their MD&A if the costs or other consequences associated with one or more known incidents or the risk of potential incidents represent a material event, trend, or uncertainty that is reasonably likely to have a material effect on the registrant’s results of operations, liquidity or financial condition, or would cause reported financial information not to be necessarily indicative of future operating results or financial condition.

  • Description of Business - If one or more cyber incidents materially affect a registrant’s products, services, relationships with customers or suppliers, or competitive conditions, the registrant should provide disclosure in its "Description of Business" pursuant to Item 101 of Regulation S-K.

  • Legal Proceedings - If a material pending legal proceeding to which a registrant or any of its subsidiaries is a party involves a cyber incident, the registrant may need to disclose information regarding this litigation in its “Legal Proceedings” disclosure.

  • Financial Statements - To the extent a cyber incident is discovered after the balance sheet date but before the issuance of financial statements, registrants should consider whether disclosure of a recognized or nonrecognized subsequent event is necessary. If the incident constitutes a material nonrecognized subsequent event, the financial statements should disclose the nature of the incident and an estimate of its financial effect, or a statement that such an estimate cannot be made.

  • Disclosure Controls and Procedures – Registrants are required to disclose conclusions on the effectiveness of disclosure controls and procedures.


The SEC guidance encourages management to consider whether there are any deficiencies in a registrant's disclosure controls and procedures that would render them ineffective as a result of cybersecurity risks or a cyber incident. While the release does not create new disclosure obligations, it does indicate that the SEC views cybersecurity as an important topic that companies should carefully consider and address in their filings. The SEC is, however, mindful of the balance needed between additional disclosures and enabling perpetrators of cybersecurity violations.




On October 18, 2011, the Securities and Exchange Commission issued Staff Legal Bulletin No. 14F (“SLB 14F”), giving its views on several issues that have caused uncertainty relating to Rule 14a-8 shareholder proposals. The SEC’s Division of Corporation Finance (the “Division”) has changed its position on many of these issues. Although SLB 14F is primarily directed to shareholders submitting proposals under Rule 14a-8, issuers should be aware as these changes should improve the process for both companies and shareholders. SLB 14F contains information regarding:


  • Brokers and banks that constitute “record” holders under Rule 14a-8(b)(2)(i) for purposes of verifying whether a beneficial owner is eligible to submit a proposal under Rule 14a-8;
  • Common errors shareholders can avoid when submitting proof of ownership to companies;
  • The submission of revised proposals;
  • Procedures for withdrawing no-action requests regarding proposals submitted by multiple proponents; and
  • The Division’s new process for transmitting Rule 14a-8 no-action responses by e-mail.



The final stage of the SEC's three-year phase-in period for its rules requiring registrants to tag financial statement information using XBRL was reached in May 2011. As a result, all U.S. public companies (other than investment and business development companies) are required to comply with XBRL reporting requirements beginning with the first Form 10-Q covering a fiscal period ending on or after June 15, 2011.


On December 13, 2011, the staff in the SEC’s Division of Risk, Strategy, and Financial Innovation has published observations from its review of the Interactive Data Financial Statement submissions for compliance with the SEC's rules relating to interactive data for financial reporting, which is available here.



The filing deadlines for your company’s annual report on Form 10-K for 2011 and quarterly reports on Form 10-Q for 2012 depend on your company’s status as a large accelerated filer, accelerated filer, or other type of registrant:


Class of Filer Annual Report
on Form 10-K
Quarterly Reports on Form 10-Q
Large Accelerated Filer
(Public float of $700
million or more)
60 days after fiscal year end 40 days after quarter end
Accelerated Filer
(Public float of $75 million or more, but less than $700 million)
75 days after fiscal year end 40 days after quarter end
All Other Registrants
(Public float of less than
$75 million)
90 days after fiscal year end 45 days after quarter end




While the following items are fairly basic (and none of them are new this year), they are, occasionally, overlooked by companies:


  • A company should incorporate any undertakings that it promised to the SEC staff in response to any comments letters it may have received in prior years. A company also should review SEC comment letters received by its competitors and peer companies for any possible comments that may apply to the company. Recent frequent SEC comments include loss contingencies, non-GAAP financial measures, and repatriation of foreign earnings.

  • Companies that pay executives performance-based compensation must consider whether or not the material terms of the performance goals must be disclosed and approved by their shareholders under Section 162(m) of the Internal Revenue Code of 1986, as amended. This code section requires, among other things, that if the compensation committee retains the discretion to change the targets for a performance goal, the material terms of the performance goals must be disclosed and re-approved by the shareholders at least once every five years.

  • Although companies are not required to webcast their annual meetings, non-public information might be communicated during these sessions, raising Regulation FD (Fair Disclosure) concerns. Because webcasting information is one of the broad, non-exclusionary distribution methods the SEC accepts as complying with Regulation FD (assuming that an appropriate press release is issued in advance of the meeting), companies may want to consider setting up a webcast of their annual meeting to help prevent Regulation FD issues.

  • All Form 10-Ks should be accompanied by a letter (correspondence file only) pursuant to Instruction D to Form 10-K, either indicating changes or confirming no changes in the company’s accounting policies.

  • On the date that a company mails or first makes available its proxy materials to shareholders, it must furnish seven hard copies of the glossy annual report (or wrapper) to the SEC and, to the extent applicable, six copies of all proxy materials (including proxy card) to the NYSE. A company that files its proxy statement and Form 10-K via EDGAR does not need to provide a hard copy of any materials, including its glossy annual report, to NASDAQ.

  • If a company’s proxy statement contains an equity plan proposal, the proxy statement must be accompanied by a letter to the SEC (as an EDGAR correspondence item only), pursuant to Instruction 5 to Item 10 of Schedule 14A, stating when the shares issuable under the plan will be registered, presumably on a Form S-8 registration statement, under the Securities Act of 1933, as amended.

  • A company should review material agreements that have been granted confidential treatment to confirm whether confidential treatment needs to be renewed or has expired.

  • In the process of reviewing its exhibit list for its Form 10-K, a company should remove any agreements no longer required to be filed as material contracts and update the list to include any additional contracts filed with Form 8-Ks and Form 10-Qs throughout the year. Companies should also be thoughtful about their determination that an agreement is a material contract, since it sets precedent for the evaluation of future agreements and drives disclosure in Form 8-Ks, Form 10-Qs, and the Form 10-K.


The NYSE requires listed companies to file corporate governance certifications each calendar year. The annual certification is due no later than 30 days after the company’s annual shareholders’ meeting. NASDAQ requires an updated certification only if a change in the company’s status results in the prior certification to be no longer accurate.


Contact Us


If you have any questions about the content of this alert, please contact a member of Oppenheimer’s Securities Team.

This alert is a copyrighted publication produced by Oppenheimer Wolff & Donnelly LLP. The information contained in this alert is of a general nature and is subject to change. Readers should not act without further inquiry and/or consultation with legal counsel.