Just in time for annual general meeting (AGM) and proxy season planning, IR Magazine sat down with Joan Conley, senior adviser on corporate governance and ESG programs at Nasdaq, to share best practices for companies about how to navigate this important time.
Given the spotlight on companies across a range of issues and major regulatory initiatives by the SEC, now is the time for IR and governance professionals to learn lessons from this year, identify new issues for 2023 and enhance engagement with shareholders.
What do you expect to be the top issues for proxy season 2023?
Regulatory changes are set to have a significant impact on the 2023 proxy season. The SEC’s ‘pay versus performance’ rule, adopted in August this year, will require companies to disclose information showing the relationship between executive compensation and financial performance. Issuers will need to produce a table showing compensation against key financial metrics over the last five years.
Meanwhile, the universal proxy rule, adopted last year, means all nominated director candidates, whether proposed by management or shareholders, will need to appear on the same proxy card. This change is expected to result in an increase in activist activity related to board candidates.
Beyond regulatory changes, the gloomy economic outlook and continuing high inflation should prompt many companies to discuss the impact of these issues. They may need to explain how well prepared they are for a potential recession.
In addition, important issues from 2022 are likely to remain high on the agenda. Examples include talent and human capital, ESG and cyber-security.
This list will continue to evolve as institutional investors and proxy voting firms release their 2023 voting guidelines and areas of focus, and the SEC finalizes the rules for its various initiatives.
As they prepare for next year, governance and IR professionals need to be deeply knowledgeable on all of these potential issues. I would suggest governance professionals create forward-looking meeting agendas for their corporate committees to educate executive management and board members, and to review and discuss all of the potential topics.
Place this agenda in the board portal so executives and directors alike will know when their topics will be discussed, along with reading materials and links to educational webinars for ongoing director education.
What advice would you give companies to support year-round engagement with key shareholders?
It’s absolutely critical that companies have a year-round engagement strategy to make sure they remain close to their top shareholders and understand any concerns. Fall is a particularly important time given that it offers the chance to review what worked from the previous proxy season, course correct for anything that didn’t, get up to speed on emerging issues and engage with key stakeholders well ahead of next year.
The work should begin straight after the AGM, however, with companies reviewing the outcome of the proxy proposals and how institutional investors voted. If there was a negative vote, you should explore the rationale and then schedule a follow-up meeting to discuss the key issues and explain the company’s position. Following that, late summer or early fall is a good moment to reach out to proxy voting and stewardship teams at key shareholders and invite them to an engagement session. Make sure to prepare an agenda for the meeting and solicit their agenda items.
In late fall, after the release of the upcoming year’s proxy voting guidelines, schedule time with key teams at investment firms to review the content and obtain insight into new policies and focus areas. Then, early in the New Year, reach out to key shareholders for a meeting to review your company’s proxy proposals and engage in a thoughtful conversation. Of course, when the proxy is released, send an email and a link immediately to proxy and stewardship teams.
Furthermore, don’t forget to maintain contact with proxy and stewardship teams on an ongoing basis throughout the year. Make sure they are receiving your quarterly earnings releases and get in touch about any noteworthy corporate news – for example, company acquisitions or divestitures, named executive officer changes, board changes and updated investor decks.
What do you see as the investor relations role in all this? Has that been changing?
The role of the IR professional has expanded significantly in the past few years. Once focused solely on the company’s financials, this professional needs to be knowledgeable and able to speak on all ESG topics and initiatives within the company.
While the expertise remains financial, IR professionals need to be able to answer the first, second and sometimes third-level questions on the company’s governance and ESG policies, initiatives, goals and metrics. To support this, IROs should be included in engagement sessions with investment stewardship teams and be a member of the proxy and AGM team.
The growth of shareholder activism has also elevated the role of IR teams in regard to proxy season and AGMs. Given their role as a company’s eyes and ears in the marketplace, IR professionals are today expected to identify any emerging concerns among the shareholder base. Next year could be a big one for activism, given the introduction of universal proxy cards and continued scrutiny of ESG issues. Companies will be looking to their IR teams to gauge how top shareholders feel about these topics.
In fact, Nasdaq offers a global portfolio of technology solutions and services across IR and ESG, ultimately designed to help clients of all maturity levels navigate the complex and ever-changing landscape.
What are some other tips you can share with companies as they start prepping to support a successful proxy season?
The IR team should investigate any key changes to the shareholder base, including shifts between active and passive holdings, and make sure the findings are circulated to the management, board and other departments. A successful engagement plan relies on up-to-date knowledge about the shareholder base.
I would also suggest companies review the proxy disclosures from award winners and other respected companies. A good place to start is the results of the Corporate Governance Awards, held by Corporate Secretary, which take place in November.
Lastly, be mindful of the impact of the SEC’s universal proxy rules and begin by ensuring your nominating committee is thoughtfully reviewing the skills needed on your board for the future, creating a board skills matrix aligned with your company’s strategy and enhancing the write-up and disclosure of board nominees.
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