Investors are increasingly looking for transparency in how the companies they invest in are governing the business. And importantly, they are using the power of the proxy vote when they are dissatisfied with either governance practices or disclosures. Here are four actions that all public companies should take now to improve governance disclosures and get ahead of the 2024 proxy voting season.
#1: Tailor your board bios and board matrix to demonstrate how the attributes, skills and experience of each director drives value creation.
Investors want to understand the value that each director brings to your company and how their skillsets align with where you are going — not where you have been. Board bios in your Proxy and website are a key source of this critical information and should be updated regularly. In updating bios, a common mistake is repurposing general write-ups with no specificity to your company. Rather, tailor each director’s bio to articulate how the director’s skills and experience support your company’s value-creation strategy and align with key board composition criteria. Providing a comprehensive board skills matrix that features key director attributes helps investors get an ‘at-a-glance’ look at the entire board composition. IBM does an exceptional job here of communicating how the skills and experience of each director and the overall board enhances shareholder value.
#2: Understand how your board composition and other governance metrics stack up to peers.
Heading into the proxy season it is important to have a clear sense of whether your board structure is an outlier. Consider factors such as over-boarding, tenure, chairperson independence, and diversity. Understanding how you rank versus peers can help you to proactively message rationale to your shareholders and pre-empt shareholder voting dissidence. For example, if you are the only company in your peer group that does not have an independent chairperson, you will want to ensure your top holders and ratings agencies understand how this structure supports value creation for shareholders.
#3: Evaluate policies for substance, specificity and relevance.
In 2024, it is expected there will be a heightened focus on topics, including human rights and human capital management, as well as board oversight of ESG, cybersecurity, and AI. We recommend completing a peer benchmark analysis to identify where you may be missing policies and disclosures that your peer group has covered. It also is important to familiarize yourself with voting policies (and changes) for top shareholders as well as proxy advisory firms like Glass Lewis and ISS. Glass, Lewis & Co., for example, announced changes to their voting guidelines for the 2024 proxy voting season with heightened scrutiny on cyber risk oversight, executive ownership guidelines, the utility of clawback provisions, and board oversight of environmental and social issues. ISS just released its 2024 voting guidelines which include a policy update related to shareholder proposals on executive severance agreements and golden parachutes. In drafting your policies, substance matters. This means tailoring policies to reflect how you are managing risk oversight specific to your company’s circumstances and avoiding a ‘copy and paste’ approach to policy development.
#4: Engage proactively and strategically.
Taking a proactive approach to shareholder engagement is key, particularly if you anticipate dissent around any proxy proposals. When it comes to engagement there are a few tried and true actions to take:
- Articulate a clear agenda when requesting meetings – especially in the high-volume proxy season when stewardship teams are busy and they expect you to be clear on the matters you wish to engage on,
- Identify who is best suited as your company spokesperson(s). You will want to think strategically about who from the leadership team and/or board are best suited to articulate how the policies, practices or directors on the agenda are aligned with shareholder interests, and
- Get your team prepared. Your team should be armed with a clear understanding of each investor’s historical voting data and shareholder policies, as well as well-thought-out talking points and answers to anticipated questions that articulate how proposals enhance shareholder value. In this blog, we share more on how proactive and year-round shareholder engagement can result in a win-win for investors and your company this proxy season.
In summary: As public companies brace for the upcoming 2024 proxy voting season, the imperative for transparent and thoughtful governance disclosures has never been more pressing with investors wielding the power of the proxy vote to voice their dissatisfaction. By diligently undertaking these actions, companies can navigate the intricate landscape of governance, instill trust with investors, and pave the way for a productive proxy voting season in 2024.
Need help evaluating your current governance disclosures and how to prioritize your efforts ahead of the 2024 proxy season? Reach out today to connect with our team of communications and IR experts.
