Recently, I talked to CII’s Bob McCormick on Labrador’s “Proxy Disclosure Forum” about what investors want from proxy disclosure now. The key takeaways included:
- Institutional Investors Still Care About Quality Disclosure: Despite recent SEC developments leading to fewer included shareholder proposals and “chilled” overall engagement, institutional investors still value transparent disclosure and will continue to read proxies. In fact, with less direct engagement, proxy disclosures may become more important—as an opportunity for companies to explain their specific considerations, decisions, and practices.
- Each Proxy Section Should Stand on Its Own: Each section of the proxy should communicate the key messages tied to that topic, even if they’re found elsewhere. Some investors don’t read the entire document, focusing only on the sections relevant to their analysis and voting decisions.
- Clearly Describe Board Oversight of Enterprise Risks: Investors want to see that companies clearly understand and are managing their unique risk profile. Not every environmental, social, or governance issue is relevant to every company, and boards should focus on risks tied to their company’s industry, strategy, partners, and practices. Proxy disclosure should supplement other risk reporting disclosures and cover oversight and management of specific risks – not necessarily the generic “ESG” umbrella.
- Tie Executive Compensation to Business Strategy: CD&A should discuss the framework for executive compensation and how it connects to the business strategy. While large institutional investors may have sector expertise or company-specific knowledge, context around unique aspects of the business is helpful – with particular emphasis on disclosure of key metrics used by the board to evaluate performance and rationale. Disclosure also should explain how metrics play out in compensation payouts (perhaps over several years) to demonstrate rigor in goal setting.
- Consider Broader Definitions of Board Diversity: Investors are looking for directors to have a mix of experiences and perspectives relevant to the business. In recent years, the “diversity” of directors has been focused on gender, race, and ethnicity, but investors also consider diversity in age, geography, tenure, educational and/or business background. Disclosure of these considerations helps investors evaluate whether the Board has the appropriate balance of perspectives for effective decision-making.
