Key Issues for Proxies and Investors
The relationship between publicly traded companies and their shareholders continues to evolve toward more communications and mutual understanding—and that’s impacting the sort of content featured in proxy statements. As the 2018 proxy season unfolds, Ron Schneider of Donnelley Financial Solutions examines key issues emerging in proxies this year and why companies should start treating the proxy as a strategic investor-focused communications piece—rather than an SEC-focused disclosure document.
Proxy season is in full swing. The demand for greater transparency in proxy statements has been building for the last several years, of course, fueled by both traditional activist investors and long-term indexed investors, including Black Rock and Vanguard. But the stakes have been raised this year when it comes to the type of information investors want companies to include in their proxy statements.
Investors continue to request proxy information that will help them make wiser investment and voting decisions, covering topics such as governance structures, shareholder rights, and executive compensation.
The relationship between publicly traded companies and their shareholders continues to evolve toward more communications and mutual understanding—and that’s continuing to impact the sort of content featured in companies’ proxy statements.
In a post-digital age, investors seek information that will provide a window into the company’s values (and not just the financials). As companies start to treat the proxy as an investor-focused communications piece—rather than an SEC-focused disclosure document—proxy statements take on much more of a strategic imperative.
With that in mind, here are three key issues that have emerged for 2018 proxies.
1. CEO-to-Median-Employee-Pay Ratio Disclosure
This was mandated in 2015, for inclusion in 2018 proxies, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Companies quietly wished it would go away. But it very much lives and should be considered top of mind among directors and C-suite executives alike. While the actual calculus for CEO-to-median-employee-pay-ratio is fairly straightforward its communication to multiple audiences is crucial and must be backed up with adequate resources. The results will draw close scrutiny from organized labor, local and/or national media outlets and, perhaps most important, employees. Companies need to craft communication strategies/outreach efforts for each specific audience and decide who can best serve as spokesperson to respond to the inevitable questions expected to arise from the release of this information.
2. Climate Change
The debate regarding climate change has been raging for decades. Nevertheless, a national consensus on how to tackle the issue has proved elusive. Indeed, consumers in the great middle of the debate tend to be a little fuzzy about the effects of climate change (and what to do about it). This is not so with institutional investors. They are quite clear on the need for companies to explain their position on climate change. According to Pensions & Investments, the total number of proposals focused on climate change rose to 83 in March, on par with 82 from March 2017, and represents about 20 percent of the 429 shareholder proposals filed on environmental, social and sustainability issues as of February 16. Whether it’s via text, graphics or charts, companies are encouraged to indicate through their proxy statements what their stance is on climate change and how they are addressing the issue. There’s an important distinction to make in this context: While environmentally sensitive investors have for years focused on the company’s impact on the environment, what’s new is that large, long-term, mainstream investors are increasingly concerned about the potential impact of climate change on a company’s business. Investors also are concerned about potential regulatory and other responses that may impact the sustainability and value of their portfolio companies.
3. Gender Equity
At the corporate level, there is a big push for both gender equity and gender diversity, as a way to foster board diversity. Along with the #MeToo Movement, gender pay equity has become a key aspect of the national conversation. (“Equal Pay Day” took place April 10, a symbolic effort designed to put the spotlight on the wage discrepancies between men and women in the workforce.) Investors want to learn about concrete steps the firm is taking to close the pay gap between men and women. Corporate America has more than a few miles to go before true gender pay equality is achieved. In 2015, the last year for which statistics are available, women earned 83 percent of what men earned, according to a Pew Research Center analysis of median hourly earnings of both full- and part-time U.S. workers. Boards of directors should work closely with communications professionals and IR executives to tell the company’s gender-pay equity story. If efforts to improve the gender-pay gap are in the nascent stage, don’t sugarcoat it. Provide a cold-eyed assessment of the strategy moving forward and how the company is instituting real change.
As part of the proxy—and to make the content user-friendly—companies are adding more business context into the proxy. Large indexed investors who do not consistently consume the company’s IR disclosures now ask companies to provide in the proxy a brief update about the company’s business strategies and key market conditions in order to aid them in casting more thoughtful, company-specific votes. This includes information about how the board skill sets meet the company’s strategic needs and how CEOs and other top executive pay is in synch with (and supports) the company’s business strategy.
Companies are also adding more branding, visual elements, and navigational tools. Delivery of the proxy, both hard copy and digital, should not be underestimated. But the acid test is whether the proxy statement lives up to shareholders’ changing expectations and provides the line items above that will give investors sharper insight into the corporation’s goals and values.