Governance Playbook
Building an effective creation process for your proxy statement
In this special report, Governance Intelligence provides actionable advice for successfully developing a proxy statement
The proxy statement is the cornerstone of a company’s communication with its shareholders and other stakeholders including employees, regulators and customers. In recent years, this vital document has evolved from being a publication designed solely to comply with SEC requirements into something that conveys – often in novel ways – the company’s message and strategy.
Now more than ever, companies face deep scrutiny of how they operate and the values they adhere to. Threats can range from shareholder activism at the board level to political and customer pressures, including boycotts. It will be difficult to avoid some of those pitfalls without a sound process for developing the proxy statement.
Crafting the content and design within proxy statements for success would not be possible without the process involving – at its head – the corporate secretary’s office and collaboration with an array of internal and external advisers who each bring their own insights and expertise.
In this Governance Playbook, we present actionable examples and advice from a range of governance professionals on how to make sure your company has the right process in place to help ensure that its next proxy statement carries successful messaging and disclosures to all stakeholders.
It includes tips from governance experts on topics such as setting the schedule for the proxy statement preparation process, how to make sure internal teams are collaborating effectively, staying up to date on the latest design and content developments, harmonizing a company’s disclosures and getting the best from external advisers and their technology.
Sincerely,
Ben Maiden, Editor-at-large
The process for preparing the next proxy statement may feel like a journey of a thousand miles but, as the proverb goes, that begins with a single step. For many companies, that first step comprises a review of how the process went last year and how the proxy statement it produced was received.
At The Kraft Heinz Company, a review conducted right after the AGM includes the compensation team to discuss what went well and what didn’t. There are always ways to improve, says Heidi Miller, corporate secretary and deputy general counsel for corporate governance and securities at the consumer goods company, which won best proxy statement (large cap) at last year’s Corporate Governance Awards from Governance Intelligence.
Right after filing [the proxy statement], the core proxy group conducts a postmortem and puts together a list of potential changes [for the following year].
‘Right after filing [the proxy statement], the core proxy group conducts a postmortem and puts together a list of potential changes [for the following year]. Then we take a rest! In October I look at the list and review my ideas on what I want to do,’ says Kristen Conley, head of corporate governance and board engagement with the office of the corporate secretary at Nasdaq.
Joseph Skrokov, Regeneron Pharmaceuticals
Joseph Skrokov, executive director and assistant general counsel at Regeneron Pharmaceuticals, notes that feedback from investors on the proxy statement can come in the narrow window between its printing and the AGM, when companies conduct in-season engagement. Such feedback might be a request for more information on a certain topic or a more positive comment such as ‘we liked that new chart,’ Skrokov notes.
Todd Vogel, director of financial reporting at MasterCraft Boat Holdings, says he reviews the proxy statement – along with the company’s Form 10-K and other important regulatory disclosures – ‘once the dust has settled’ after the AGM. This enables his team to plan for all reporting in the year ahead, including any steps it can take to reduce the stress and costs involved and to check whether there are new reporting requirements.
Todd Vogel, MasterCraft
A key element of any successful proxy statement preparation process is having a schedule that allows enough time to tackle all the work that needs to be done with enough room for making changes and updates.
The amount of time required overall will depend on a variety of factors, such as whether there is a need to include responses to a poor voting result at the previous AGM, a shareholder proposal or a shareholder activist campaign. It may also be necessary to add more or different content to comply with a new SEC disclosure rule or report on a change in board membership, for example.
As a rule of thumb, the corporate secretary will work backwards from the proxy filing and AGM deadlines, incorporating scheduled board and committee meetings. They can then set out a detailed schedule including what information they need – and when they need it – from other internal and external teams.
The calendar months when different steps are taken in the process vary according to the company’s reporting schedule. Below we present excerpts from the processes of several companies by way of tips and practical examples. They include the month of the issuer’s most recent AGM, at the time of writing.
Daniel Gordon, senior vice president and chief counsel for corporate legal at Visa, views the proxy statement as a year-round process, taking into account shareholder engagement. His company’s ’real drafting’ starts in July for a December filing. One benefit of Visa’s calendar is that the team can do a lot of benchmarking of the current year’s proxy statements at other companies, he says.
Linda Epstein, legal project manager at HPE, says the most important aspect of the proxy statement process is knowing the overall scope of what will be needed. If not, she says, deadlines can be missed and there can be issues with service providers. She starts work in September by asking, among other things, whether she needs to conduct requests for proposal (RFPs) and whether the company expects a shareholder proposal.
In terms of shareholder proposals, Conley says: ‘Our team keeps an eye on trends so that we’re not totally blindsided. If there is something we anticipate, we try to prepare and explain to the nominating and ESG committee If we were to get a proposal [of type X] this is how we would respond and see if they have any comments.’
Chris Weber, managing counsel for corporate, securities and governance and assistant secretary at McDonald’s, says the team begins work on the proxy statement in early to mid-September by looking at its overall design, including any sections that need to be overhauled. Any section that may need to undergo more scrutiny from senior management or the board is worked on early in the process.
The Kraft Heinz team gets its proxy statement calendar together within weeks of its previous AGM. If necessary, the team will conduct RFPs in June and July. Then in early August work begins on drafting to create a shell document that can be distributed internally in October or November following the company’s off-season shareholder engagement. Work on the directors’ and officers’ (D&O) questionnaires begins around the same time. ‘We try to prioritize this so it’s not a fire drill at the end of the year,’ Miller says.
Once the team gets executive compensation numbers for the compensation discussion and analysis (CD&A) in late January it can be sent to senior management. The board receives its first draft of the document in late February.
Miller notes that shareholder proposals can be a major challenge for scheduling as responding – including negotiating with a proponent – is highly time-consuming. ‘It’s a wild card in the process,’ she comments.
Skrokov says his team starts thinking about its next proxy statement in the fall around its off-season investor engagement, when it also starts thinking about executive compensation issues. Once those are decided in November or December, the team can begin work on the CD&A section, which requires the most preparation, heavy use of figures and a great deal of co-ordination.
At Kyndryl the process kicks off in the fall with a team meeting, preparation of the schedule and starting work on the document’s governance section, says Evan Barth, vice president, associate general counsel and assistant corporate secretary.
According to Vogel, his team starts drafting its upcoming proxy statement between January and March, when it considers elements such as the color scheme and D&O disclosures.
Look back before moving forward. External feedback and an internal review can help you find improvements to the process that can save you time and stress and improve its performance.
Whenever your company’s filing deadline is, it pays to start work on your proxy statement as early as possible.
Make sure you have a detailed schedule for the process up to the filing date that encompasses everything the team and other teams will need to work on, including the board’s schedule.
Take careful note of potential shareholder proposals, which can wreak havoc with scheduling.
Prioritize those sections of the documents, such as the CD&A, that can be the most complex and time consuming.
As Ron Schneider, director of corporate governance services at DFIN, notes, ‘The proxy is really a team sport requiring cross-functional internal teams and appropriate outside support.’
I consider myself the internal owner of the proxy statement
That said, the legal team – and most commonly the corporate secretary’s office – plays the proverbial role of quarterback. ‘I consider myself the internal owner of the proxy statement,’ even though there are a lot of collaborators, says Paul Sharobeem, associate general counsel and assistant secretary at Century Aluminum Company, winner of last year’s Corporate Governance Awards best proxy statement (small cap).
Corporate secretaries typically have control of the pen when it comes to the document and lead a variety of internal functions though the process. The list can be long, potentially including executive compensation, financial reporting, IR, human resources, communications, marketing, internal audit, ESG and other colleagues.
Governance experts have their own advice and experiences on the best ways to manage the process internally through these other functions. A common thread is that the corporate secretary needs to set clear deadlines and clear expectations and communicate effectively with colleagues throughout the process.
It’s also worth bearing in mind that other departments are busy with their own work and may not appreciate the importance to the company of the proxy statement. One governance professional notes the value in building relationships with other teams outside of the proxy statement process to cultivate better dynamics when they are asked for help. Another comments that other teams get excited and more engaged once they see something approaching the final product.
Aside from legal, the compensation team has the most involvement with the proxy statement via the CD&A section. Governance professionals report that they have the closest working relationship in this area but note that the compensation team will work closely with an outside consultant. Miller comments that at Kraft Heinz her team calls the compensation function every week, then every day during preparation of the CD&A.
In most cases, experts report that they hold a kick-off call with the various other in-house teams that will be involved in supplying information for the proxy statement at which they assign deadlines and responsibilities, including in some cases as reviewers for specific sections, tables and charts.
From then on, different companies take different specific paths. For example, Barth explains that the core group of teams involved at Kyndryl outside of the corporate secretary’s office – IR, compensation, accounting and communications – will later in the process have meetings every two weeks.
At Nasdaq, Conley’s team hosts a large launch meeting but from there on mostly meets with teams individually, which she says is more helpful. Later in the process her team again hosts a group call to unveil the proxy statement’s design. Among other things, they try to keep the tone light and encourage new colleagues to get involved in learning about the document.
Jessica Lange, vice president and associate general counsel for securities and finance with Darden Restaurants, says her team tries to limit the number of people involved in the company’s proxy statement because many are also tied up with the company’s Form 10-K. She also prefers to use email or instant messaging with other teams to make sure they’re clear about deadlines while helping them avoid unnecessary meetings.
The board itself has an important but relatively limited role during the proxy statement process, largely focused on reviews and approvals. Professionals note that the executive compensation committee in general has the largest role and earliest involvement given the nature of the information.
Individual board members are also often most curious to see – and may have the most comments on – information regarding themselves, experts say. A good solution is to provide that information for review as early as possible in the process. Similarly, a letter written by the communications or IR team on behalf of the lead director or CEO – or sometimes the board as a whole – is likely to face scrutiny.
Other key aspects to include in the proxy statement process are benchmarking your company’s work against that of other peers and keeping up with trends.
Benchmarking – in terms of both design and content – is a key means for those preparing a proxy statement to learn lessons from others in the industry that share common investors or business profiles, or that they aspire to emulate from a governance perspective. Governance professionals can and do look to a variety of sources.
These include, at a basic level, checking the SEC’s Edgar database for peer companies’ proxy statements. Experts report that other sources of insight for them include asking printers and design firms about what their other client companies are doing, consulting with outside counsel for advice on how companies are complying with new reporting requirements, looking at award winners (such as for Governance Intelligence’s Corporate Governance Awards) and seeking insights from other outside advisers, such as in DFIN’s annual proxy guide.
It is also important that a company’s main reporting documents – the proxy statement, Form 10-K and sustainability or ESG report – convey a harmonized look-and-feel, data and corporate message. Consistency across these reports is ‘something I’ve been preaching about internally,’ Sharobeem says.
Governance experts do not generally report having a formal process or working group for achieving this at their company. However, they have helpful suggestions based on their own experiences. Conley, for example, says that at Nasdaq there is a lot of overlap between contributors to the main reports and they have discussions at the beginning of the process to set expectations.
Skrokov says teams at Regeneron will exchange drafts of relevant sections from the reports they’re working on to make sure they are on the same page. The company – as many do – also has internal style guidelines to help with design and formatting.
Gordon notes that Visa has a group focused on branding that can make sure elements such as the logo, colors and CEO’s letter are consistent and complementary.
Click here for more on benchmarking and harmonization
The corporate secretary needs to set clear deadlines and clear expectations with colleagues throughout the process. Setting a tone and means of interaction is important.
Make sure to give the board and relevant committees sufficient time to review elements of the proxy statement, particularly the CD&A and directors’ personal information.
Benchmarking the proxy statement is an essential means of ensuring that the company isn’t lagging peers in terms of design and content.
Comparing the company’s efforts is available through outside advisers including design and printing firms.
Make sure internal and external teams keep an eye on harmonizing tone, design and messaging between the proxy and other key disclosures, even if there is no formal team to do this.
Different companies have different needs for external advice during the preparation of their proxy statements. This can be based on factors as diverse as:
The company’s size and internal resources
Whether the company is planning a major overhaul of the proxy statement, which may well require input from a design firm and/or other consultants
The filing of shareholder proposals that necessitate outside legal advice and/or drafting
The presence of a shareholder activist or a poor voting result at the previous AGM, which may well require the involvement of a proxy solicitor, compensation consulting and/or communications firm
A major SEC rule change, which may require outside legal advice specific drafting.
Governance professionals report that much of their advice for managing their relationships successfully with outside advisers is similar to the principles they apply internally: set clear expectations, manage deadlines and keep open lines of communication throughout the process.
Outside firms are often also the sources of specialized technology that can be deployed during the proxy statement process. A major innovation in recent years has been the emergence of platforms that allow a variety of parties to add notes or changes to the proxy statement working document rather than circulating Word files, which experts say can easily become confusing and create duplicative work.
Corporate secretaries report favorably on the new platforms in terms of collaboration during the process. They also need to determine how widely they wish to include colleagues and outside advisers and what access rights to grant them. Some prefer to hold the proverbial pen more closely than others.
Experts also report that, among other things, tech can be a useful tool in terms of benchmarking their proxy statement. This includes asking AI to identify examples of specific sections of other documents, such as discussions around equity awards. ‘We haven’t gone as far as using AI yet but I would love to get there!’ Conley says.
Of course, all this work with outside help costs money. Fortunately, governance professionals don’t report receiving any pushback on their budgets. In fact, many are unclear on the total amount their companies spend each year in terms of external fees because the total is broken up between different projects – such as the AGM – or different functions.
Of those that do have an estimate of total external costs, how large the check is varies considerably based on the size of the company and factors such as the degree to which external advisers are needed in addition to printing costs, the biggest component. In general, the total amount paid varies from around $100,000 to $1.5 mn, averaging in the mid-$100,000s for large companies.
Set clear expectations and deadlines with your external advisers and keep open lines of communication throughout the process.
Companies recognize the value and necessity of proxy statements. Although it is always wise to keep an eye on costs, budgetary pushback is not commonly reported.
Outside firms can offer collaborative drafting technology that users generally report as a major help.
AI, as in other walks of life, may have a bigger role to play in the proxy statement process.
Large US companies report paying in the hundreds of thousands of dollars for outside help with their proxy statement, although this can vary widely.
Ron Schneider: The proxy statement for many companies is more than just a compliance exercise, especially for more mature, larger companies. It’s really the one time each year where companies can communicate with all shareholders and other stakeholders about the board, governance, executive pay, sustainability and hopefully gain their voting support on those issues. Companies want to get this right and put their best foot forward.
The right process is important to help set the stage and enable a good outcome, and because these days the proxy is really a team sport requiring cross-functional internal teams and appropriate outside support.
The proxy is really a team sport requiring cross-functional internal teams and appropriate outside support
‘The right process is important to help set the stage and enable a good outcome’
RS: That’s the general recommendation – to start early – [although] ‘early’ means different things to different companies. Let’s talk about calendar year-end companies as a consistent point of reference. Traditionally, a lot of [those] that file in March or April with meetings in May or June unfortunately, in our view, wait until November, December or even January to kick off their next process.The problem with that is it minimizes the time to address any weaknesses in the process or team from the prior year and properly address any new regulatory requirements, as there had been in recent years, like pay-versus-performance and required data tagging, universal proxy and many other things.
We offer to participate with clients in an immediate post-meeting debrief to at least flag all possible areas for change while memories are fresh and to develop a stretched-out roles-and-responsibilities timeline to accomplish that.
Another thing companies should do is regularly – if not every year – review their peer companies and other governance leader proxies, including the winners or all finalists of the best proxy awards at [the Corporate Governance Awards]. In certain years, the traditional approach of marking up the prior year’s proxy might suffice where there’s not a lot of change going on. But that can be a deterrent to real and needed change. So sometimes you need to start with a fresh piece of paper or a whiteboard, whether it’s for the full proxy or a certain section like the CD&A.
RS: You have to have a sequence, whether it’s stretched out over a 10-month period or compressed into a four-month period. The first thing is to review any feedback from investors and voting results [from the AGM]. That [takes place] generally in Q2 for calendar year-end companies. And then Q3, generally, is when companies are gathering and making their plans. In September, they commence post-meeting engagement… in time so that [they] can internalize that feedback with the senior management team and the board to make decisions [about how to respond].All that leads to [decisions on] the tactics and the team and who’s going to implement [any changes]. Hopefully that starts in Q4.
The more you can get done before the holidays, the better off you’re generally going to be. [That] gives you more time to experiment with different disclosures, different looks, different formats and choose which you’re going to go with.
RS: Legal typically runs point on the proxy statement and the process. But other teams are involved – some directly, some behind the scenes. [For example,] HR and executive compensation are involved in the CD&A, compensation tables and often in any supplemental human capital-related disclosures. They’re kind of limited [timewise] because a lot of the pay figures aren’t available until the new year. And then marketing and communications should be involved to help ensure that current… brand guidelines are followed and to promote harmonization with other key communications.Some content may come directly from senior management, the C-suite and the board, such as substantive cover letters. Even if they don’t draft them, they’re going to review them at key junctures. And all these different groups have their own competing demands and schedules, and there are windows of availability that have to be factored into a viable timeline that works for everybody.
RS: I’ve heard that some companies are experimenting with AI for either data gathering or analysis or benchmarking among peers’ and other companies’ disclosures.For our part, the major technological advance has been the evolution and increased useage of ActiveDisclosure, our secure, cloud-based, design-friendly collaborative drafting platform, by these expanded company drafting teams. This allows for content management and editing, from design through to filing.
RS: You can tap into your [outside] advisory team… to ask what they’re observing and engage with your investors. You can participate in industry groups like the Society for Corporate Governance and NIRI, grow your trusted peer network. They can be your unofficial kitchen cabinet. Read and watch thought leadership [content]. And remember your board. [Directors] are, in many cases, CEOs of other companies or most serve on other boards. They can be an important source for cross-pollination of best practices.
Each year we review over 1,000 proxy filings [to produce] our annual guide to effective proxies. That’s where we slice and dice client proxies into 40 sections, topics or features. It’s going to be 41 this year because we're breaking out AI disclosures… to see what companies are doing. [Keeping up to date] is a year-round thing.
RS: Depending on the company, different departments may have ownership of the annual report, the investor presentation, the proxy, the sustainability report and the likes. Hopefully there’s some crossover of membership in those teams… What’s happened at many companies over the last few years is that they had a muted level of design for their traditional documents and all of a sudden they come out with a beautiful, very visual inaugural sustainability report that’s within the branding guidelines but is way ahead of the visuality, iconography and photography of these other documents.
For several years we’ve been spending a lot of time trying to harmonize the look and feel [of companies’ documents], not so they look identical but so that at least the top-line messaging is in sync. There’s no reason why the look and feel and the iconography can’t make it look like they come from the same company, in part because many of them are going to live adjacent to each other on and [AGM] microsites and elsewhere on IR sites.
Hopefully there’s some crossover in the team, be it legal, IR or otherwise, that can help police this. But it’s [also] worth an independent eye.
