Navigating the Proxy Season

In my opinion, there are two points in the calendar year where board succession is the most prevalent. The first point in the year is in the late Winter/early Spring with February and March being the most active. The second most active point in the calendar year is September and October. So, with now being August and on the cusp of the next proxy season high point, I thought it would be prudent to share insight into navigating the proxy season.

We are facing a time of so much uncertainty with COVID-19 and social unrest. So how should your board prepare for proxy season in a time of so much uncertainty and unresolved issues? Following are insights which should help with navigating this proxy season.

Governance

There are several players who can have oversight or involvement related to the boardroom – whether a CEO, board member, committee members, investors, General Counsel, CFO or Audit Partner to name a few.  Whether regulatory changes, institutional investor expectations, shareholder proposals or shareholder engagement, at the center of it all is clearly the company. the key governance developments, such topics as board composition, board diversity, over boarding standards and corporate stewardship are leading the agenda.

In addition to ensuring diversity, there are several best practices for composition of a healthy board.  These center around chairperson requirements, independence of directors, and ensuring the composition of the board evolves to meet changing needs.  The majority of board directors should be outsiders, including all of those who are on the audit, compensation and governance committees. This ensures objectivity and good governance.  As market conditions change, boards must be ahead of the curve, determining whether they have the right, diverse talent around the table to steer the course and reach their objectives.

Board Directors are considered “over boarded” if they sit on a number of boards which could result in excessive time commitments and and therefore may not have the ability to fulfill their board duties. Increasingly, companies have concerns about over-committed directors and some have adopted policies limiting the number of boards on which their directors may serve.  Among investors, more than 60% are in favor of tighter over boarding standards, but non-investors actually flip that percentage.

Corporate stewardship is the responsibility of companies to understand and manage their impact on the shareholders, society, and the environment. Finding sustainable manufacturing practices, improving corporate reputation among consumers and responsible spending are all examples of corporate stewardship.

Proxies

looking at listed companies share of ownership by company size, overall, more than 50% are under institutional ownership.  That number stays true for large and mid-size listed companies with numbers above 70% and small companies around 60%.  However, in the much smaller, micro size company, it flips to over 80% under retail ownership.

“Say on pay” is a term used in corporate law where a company’s shareholders have the right to vote on the compensation of the company’s executives.  A company’s leaders are likely to overpay themselves as a matter of general power.  However, board directors are elected to a board for fiduciary responsibility to protect the interests of the company. Executive compensation is then usually determined by the board’s compensation committee.  Reforms in say on pay strengthen the relationship between the board and shareholders.  The strongest support comes from shareholders who are in the prime of their careers.

Shareholders

Social issues and risk mitigation/management proposals are at the highest on the shareholder agenda.  When it comes to shareholder engagement, over 60% of companies disclosed they engaged with shareholders and took some action as a result of the shareholder engagement.  Key areas include shareholder proposals, management performance, social impact, and board composition.

Board members can effectively prepare for shareholder meetings by knowing who their investors are and how much they own, which investors they should meet with , alignment on topics, identify which directors will be involved and therefore prepared, know the strategy, and a keen understanding of how to comply with regulatory bodies.