Corporate and Proxy Preparedness
Last Wednesday, members of the Corbin team had the opportunity to attend and present at IR Magazine’s Corporate Secretary Forum in New York City. The event centered on improving Board oversight and governance, bringing together professionals across a variety of disciplines, including corporate secretaries, general counsels, investor relations officers, CEOs, and board directors.
Together, we evaluated the implications of recent market and regulatory developments, sharing best practices and common questions among peers as we prepare for what will most certainly be an interesting 2023 proxy season.
Today’s thought leadership centers on the key themes and action items we’ve synthesized from the event. As always, we are here to serve as a trusted partner and advisor – if you have questions on any of the following topics, please do not hesitate to reach out and we will connect you with one of our ESG specialists.
Setting the Stage
According to our proprietary research, investor perspectives on ESG have shifted dramatically over the past decade. In fact, 48% of investors consider ESG a critical or very important investment consideration today, up from just 20% in 2010, while 56% believe companies that integrate ESG into their business strategies will outperform over the long- term.
However, one of the most consistent challenges we hear from clients is how to best align ESG interests with the business in an authentic manner that drives enduring (and profitable) growth and impact. With varying perspectives across ESG and amid the rising backlash (based on our research, we are staunch believers that embracing ESG is good business over the very long term), how does one advance effectively?
The following three key themes represent opportunities identified at the Forum to best position your company amid pending SEC regulations and Street expectations.
Proxy Prep
Ahead of proxy season next Spring, now is the time to speak with your shareholders, specifically the corporate stewardship groups at indexers and asset managers that have been vocal about ESG issues in conversations and past proxies. Being proactive this fall and helps avoid engaging proxy contacts while they are knee-deep in peak proxy season and resource constrained. This is especially true for larger capitalized companies with intricate governance considerations. Ahead of these discussions, consider the following:
- Do a lookback at last year’s results – how did you fare? Review the Form N-PX voting data of your relevant constituents to uncover any notable voting trends
- Use ISS and Glass Lewis reporting as a guide to inform dialogue and know where each of these firms stand on the most up-to-date issues
- When engaging with proxy contacts on the buy side:
- Know the individuals that vote and prioritize accordingly
- Highlight whether a specific Director will be attending; this provided shareholders the opportunity to prepare relevant questions
- Share a detailed agenda to ensure there are no surprises
- Encourage the investor to provide topics to address and create multiple touchpoints; even if not agreeing on everything, this will ensure the investor feels part of a consultative process
- Consider featuring Directors as part of a “quarterly spotlight” on the company website to increase familiarity among stakeholders
- Develop / update a board-level skills matrix, including any relevant ESG proficiencies; this will be of particular importance given the risk for a potential director shakeup due to new universal proxy rules in effect in 2023
- Build consistency when pointing to company-specific KPIs; investors benchmark executives against these metrics and prefer they don’t change frequently, particularly given new pay-for-performance rule changes which will require performance metrics to be prominently displayed within the Compensation Discussion and Analysis (CD&A) portion of the proxy
Climate Disclosure
Currently, the SEC finds itself in the middle of a bureaucratic milieu as it attempts to introduce expansive climate disclosure directives. Initially, the new requirements were intended to be rolled out by a self-imposed October deadline, though a longer-than- expected public comment period and ensuing litigation effects of a Supreme Court ruling in June delayed the Commission’s efforts.
What is clear is that new regulation is coming, and there are a number of proactive steps companies can take to prepare:
- Identify leaders within the organization to build an in-house sustainability cohort and consider recruiting talent and/or engaging with third-party advisory firms
- Establish a Climate Reporting Group (in advance of regulation roll out), comprising members from financial, legal, procurement, and ESG teams; while historically these leaders typically do not engage with one another, it will be important to establish a process to collect necessary emissions data across the organization
- Ensure Directors have a general understanding of what climate risks and opportunities are applicable to your industry and company and that these are included in existing charters
- Stay abreast of competitor’s GHG emissions disclosure (as well as companies outside of your industry); if relevant, you may be asked to mirror disclosure
Board Preparedness and Development
Board preparedness is one of the most imperative functions of organizational oversight. It takes constant assessment and reassessment, ensuring the Board is properly equipped and engaged with the broader organization. Consider the following best practices:
- Cultivate and nurture a pipeline of board-level talent; don’t wait until you need to fill a director seat to begin the search
- Conduct a 360° Board Evaluation to align on key objectives and identify any pain points
- Identify emerging governance topics and discuss what skills will be required (Are existing members adequately skilled to cover the myriad risks and opportunities?); of note, having a single subject matter expert may overweight the view of one individual, making it important to look for skill overlap
- Provide written and verbal board assessments; “soft-skills” are often just as valuable as “hard-skills,” and verbal assessments provide a proper forum for both
- Every three years, engage a third-party to carry out an independent evaluation of governance and director effectiveness
- Implement a board mentorship program between ranking members and newer directors
- Diversity matters – alternative views, expertise, and backgrounds are the foundational elements of a flexible, forward-thinking board
- Maintain a pulse on the type of resident expertise investors want to see on the board (Are there concerns that can be assuaged ahead of proxy season, through effective communication or action?)
- Ensure directors are aware of existing investor views and concerns