Proxy Season: Hot Topics

The usual question put to C suite executives and directors, in an effort to jumpstart a panel or an interview, is:  “What keeps you up at night?”  That list for the upcoming proxy season seems to include the following:  management of personnel (which includes compensation, diversity, and culture); “ESG” which is the current buzz word for “environment, sustainability and governance,” with an emphasis on climate change; actions by the SEC concerning shareholder proposals and reining in proxy advisory companies; implications of the much-discussed Business Roundtable statement suggesting that corporations owe duties to employees and broader society, and not just to shareholders. 

An expert panel convened on January 14 by the New England Chapter of the National Association of Corporate Directors provided interesting perspectives; that panel included representatives of firms which advise directors, a representative of Glass Lewis (a proxy advisory firm), and an investment manager.  Interestingly, the panel did not seem to include any actual directors affected by these topics.

One noted development is the transformation of the compensation committee, which used to be concerned almost exclusively with fixing the pay of the CEO.  Now that committee is being repurposed, emphasizing employees below the CEO level, human resource policies concerning harassment, diversity, pay parity, succession below the CEO level, and how to approach the “five generations” now in the workforce.  These committees have been renamed by at least 20% of the surveyed public companies, and 40% of such committees already have been repurposed in the above manner.

Finally, the SEC has proposed two rules (comment period in each ends February 4):  the first would tighten access to inclusion of shareholder proposals in proxy statements (no surprise: opposed by investors); and, a controversial regulation of proxy advisors, requiring conflicts disclosure and affording companies the opportunity to review and comment on advisory reports prior to their release.

When the mandatory say-on-pay votes for shareholders in public companies was launched by the SEC pursuant to Congressional mandate, I considered this development unimportant.  After all, the votes are advisory only and are not nuanced:  your shareholders vote in favor of or opposed to your executive compensation, period.  Seems that I underestimated the use to which that vote would be put by proxy advisors; the Glass Lewis representative on the panel, noting that the average approval rate is approximately 96%, said that it inquires of companies where investor approval of compensation is less than 80% (a percentage which you might think would be deemed robust).

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