Thought Leadership
Proxy as a Team Sport
Building an effective creation process for your proxy statement
As this Playbook reveals, while it is a serious SEC compliance document primarily controlled by legal, leading companies have learned that a) it requires a rigorous, year-round strategy, engagement and drafting process, and b) it involves a range of internal functions and outside support resources.
Companies seeking to address investors’ areas of interest and build support increasingly discuss the ‘Why’ as well as the ‘What’ in their proxies. In doing so, they must harmonize their messaging and design/branding across multiple channels and documents including their website, investor presentations, annual report/Form 10-K, sustainability reporting and the proxy itself.It is helpful to keep the following objectives in mind:
The demands are increasing for boards to successfully oversee an expanding array of issues and risks. So is the need to tell these stories effectively yet digestibly in the proxy and elsewhere.
Companies must convey to investors and others how their board has the requisite skills, structures and processes to oversee these issues, without giving away competitive or other sensitive information. The proxy statement is a primary location for conveying these messages, including about:
Board leadership, its diversity (as measured in many ways) and refreshment
Oversight of risk, ESG (however it is referred to), cyber-security and AI.
It is estimated that the ‘big three’ largely indexed investors (BlackRock, Vanguard and State Street Global Advisors) collectively own approximately 22 percent of S&P 500 companies’ shares, as well as significant stakes in hundreds of mid- and small-cap companies.
Combine this with ownership by other investors who ‘invest passively’ but seek to ‘vote actively’ and you have a large percentage of shares whose owners are challenged in the spring proxy season to understand their portfolio companies to the degree of more active managers that have the benefit of insights from their industry analysts and portfolio managers.
The indexers simply cannot read before voting every document or other sources of information they would need to be fully informed about your company’s latest strategies.
Savvy companies are making it easier for these investors by repurposing high-level IR messaging including ‘about the company’ and ‘strategy and performance highlights’ in expanded cover letters, in proxy summaries or early in the CD&A. The same is true with providing brief but high-level overviews of ESG (particularly environmental and social (E&S)) tenets and pillars, as well as about board oversight of these issues.
This makes proxies a bit longer, but by repurposing existing messaging you are giving these investors important contextual information that may help them to vote more thoughtfully on your proposals with little risk of mixed or conflicting messages
Plan for change. Simply marking up the previous year’s proxy statement may inhibit progress
Start early. Increasingly, companies are kicking off their next year’s planning and drafting process soon after the AGM while lessons learned are fresh and they have time to consider a range of new designs and features
Benchmark your disclosures and practices against peers and other leading companies
Engage with investors to identify their emerging concerns and informational needs and strive to meet them
Highlight what’s new in the proxy summary as well as in the body of the document. This includes company strategy, executive and board composition and compensation
Consider additional features for the digital version of the proxy, including expanding the color palette (digital color being virtually free), hyperlinked navigation, links to company or director videos and housing it in a company-branded AGM site with companion documents and convenient voting methods.
This includes:
How the board’s composition, skills and experiences are sufficient to effectively guide and oversee the company and management given its current strategies and operating environment
How the executive pay program and any preset performance metrics support the business strategy; ie the ‘why’ not just the ‘what’ of performance metrics
Why your E&S initiatives are intended to help the company succeed and provide competitive advantage, not just a ‘box-checking’ exercise to garner ESG rater/ranker points. By getting away from the overly broad ‘ESG’ label, companies can more clearly discuss how specific initiatives support your business strategy and help drive value.
If you encounter difficulty in tying these issues and practices to strategy, that may be an indicator of more fundamental disconnects that should be examined.
Our client proxy drafting teams are expanding cross-functionally to match the expanded topics discussed in modern, investor-useful proxies. These expanded teams increasingly are using our secure, design-friendly, collaborative content management platform, ActiveDisclosure.
To discuss this Governance Playbook, and how you can use it to help your company’s efforts, contact Ron Schneider here.
Click here to see our Guide to effective proxies, 12th edition, which includes a broad range of examples of critical proxy disclosure topics.
