Showcasing directors ahead of US proxy change
Richard Carpenter takes a look at the SEC’s soon-to-be-launched, updated proxy rules.
The days when US directors banked on easy re-elections may soon be over.
In November 2021, the US Securities & Exchange Commission revised its proxy rules, creating what’s known as a universal proxy card. This card lets shareholders ‘mix and match’ among directors nominated by management and dissidents, rather than voting a single slate of candidates – as has long been the case.
Law giant Sidley Austin called these new rules the equivalent of ‘proxy access on steroids.’ At the very least, proxy contests should increase in number, and directors may soon face some embarrassing defeats.
The universal proxy card arrives at a moment when US directors have increasingly come under fire over hot-button activist issues from ESG performance to executive pay. In spring 2021, hedge fund Engine No. 1 made headlines by gaining three board seats at Exxon Mobil because of investor dissatisfaction with how environmental concerns were being handled.
In addition, last year ISS recommended investors withhold votes from four directors at Warren Buffett’s Berkshire Hathaway to protest the company’s executive pay policies.
While the new SEC proxy rules don’t take effect until August 31st, 2022, savvy investor relations officers and corporate communications teams are already taking action. Now is the time, experts say, to boost the visibility of a company’s current board members so that they stand on firmer ground in future elections.
Get up close and personal
“Shareholder engagement is increasingly being added to the job description of the corporate director,” according to Harvard Law School’s corporate governance blog.
Direct engagement can take many forms, from e-mail and phone (or Zoom) calls to in-person meetings. Some directors engage with large institutional investors, while others reach out to proxy advisors like ISS and Glass-Lewis, to make sure their views and unique expertise are understood.
One constraint is a director’s precious time. Historically, directors from larger companies engaged more regularly with shareholders than from smaller companies. Going forward, all companies may need to find ways for directors to engage, rather than face uncertain election prospects.
Publicize your skills
Providing a chart that lets shareholders see directors’ levels of experience at a glance – also known as a board-skills matrix – may become even more widespread. Included in this matrix might be a board member’s age, board tenure, and independence, as well as information on gender and/or ethnic background.
Gone are the days when US companies could provide the lion’s share of director information on the corporate site. Busy shareholders voting a slew of proxies need this information at their fingertips, and so telling your directors’ story within the proxy itself is a sound move.
Connect the dots
Too often, companies assume that the dazzling background of a particular board member speaks for itself.
With the upcoming SEC change, companies cannot take anything for granted. Now is the time to go beyond simply listing past and present employers in a director bio: instead they should be giving context as to why certain experiences make an individual director a key asset.
Tell your diversity story
That’s if you have an impressive story to tell, of course. Last year, there were four shareholder proposals focused on board diversity, with three gaining strong majority support (71-91 percent), according to Glass Lewis.
While the number of US shareholder proposals on board diversity is small, numbers will grow. If you have an appealing board diversity story to tell, why not preempt criticism by telling it loudly and proudly?
Some companies are producing short videos of each of their directors, letting these superstars make their own case for why they are suited to the challenges ahead. These videos can be featured in ESG roadshows and hybrid investor-day events or sent directly to major shareholders and advisory firms.
When taking the time to make a video, remember that good production values are a must. Director videos should look as polished as any TV segment.
Finally, even an extremely impressive director may not be a gifted speaker. Be sure to budget time for rehearsing– and get any camera-shy board members plenty of media training.
If you’d like to know more about how Bladonmore could help you prepare for the upcoming proxy changes, please get in touch.