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5 Ways Governance Teams Can Step Up Their Proxy Season Game for 2019
Publication Date: February 14, 2019 

To help governance professionals understand and address the evolving concerns of shareholders, Martyn Chapman, head of strategy for Nasdaq Governance Solutions, together with Dan Romito and Ben Maiden from Corporate Secretary, recently hosted a webinar.  Among other things, our hosts shared these five ideas to help governance professionals step up their proxy season game for 2019:

1) Hold virtual or hybrid annual meetings.

 Virtual and hybrid annual general meetings (AGMs) are becoming increasingly popular, particularly in the U.S. where shareholders are often dispersed over a very large geographic area.  If your company hasn’t yet implemented virtual attendance at AGMs, it isn’t too soon to begin planning for next year. Following are some key considerations when preparing to transition to virtual annual meetings:

  • Engage a vendor that provides robust and reliable technology.  There are already many providers in this space, and a number of them partner with registrars and transfer agents. 
  • Investigate legal and regulatory requirements.  Whether an annual meeting is virtual or hybrid, meeting requirements still apply, including those that govern notice, decorum, attendance, material display, and voting, among others.   The company’s articles of incorporation and/or bylaws may need to be amended to provide for virtual annual general meetings.   Among other things, amendments should cover any failure in technology, even if it affects only one or a few shareholders.  For example, the chair may not be able to put forward a resolution to shareholders to adjourn a meeting if there is a severe technical problem during a fully virtual meeting, so the articles should provide the chair the ability under these circumstances to adjourn the meeting without a resolution.
  • Consult with major stakeholders.  Most companies will want to consult with their key shareholders to be sure they are comfortable with virtual general meetings.  Some shareholders may react adversely if there is a long-standing tradition of well attended physical meetings.  Putting forward a resolution to ratify amendments to the articles of incorporation to hold virtual AGMs is a good opportunity to discover shareholder appetite for a virtual or hybrid meeting format.  Other stakeholders to consider are service providers, registrars and transfer agents, and any vendors who would be providing technology.

2) Control your company’s ESG narrative to neutralize potential shareholder proposals.

 Environmental, Social and Governance (ESG) issues are here to stay.  Morrow Sodali’s 2018 Institutional Investor Survey states this unequivocally: “ESG issues are either fully integrated or progressing towards full integration with investment decision-making.” That survey listed the following ESG topics as top concerns of institutional investors:

  • Board skills and experience.  Investors are focused not just on the reputation of a board member but the skills that individual brings to the table.  If a board lacks a critical skill such as cyber security experience, investors will likely become concerned. 
  • Climate risk disclosure.  This issue is industry and sector dependent because some industries have a bigger impact on climate than others.  But investors are not just concerned about a company’s impact on the climate—they also want to know that companies are assessing the impact of climate change on the long-term sustainability of their core businesses and taking steps to prepare for that risk. 
  • Executive compensation.  Investors are wary of what they perceive as excess compensation or excess severance.  For context on what index funds view as “excess,” BlackRock outlined their perspective on executive pay in their 2018 stewardship guidelines.

Companies are increasingly finding that better engagement on ESG issues leads to shareholder proposals being dropped—or not filed in the first place.  Best in class engagement is proactive engagement, because by the time institutional shareholders reach out to you with an issue, they often already have made up their minds. 

3) Explain your company’s human capital management strategy.

Human capital management (HCM) has become an investment issue.  Massive amounts of data can now be accessed and analyzed across a multitude of companies, which has allowed investors to unearth correlations between human resource initiatives and investment outcomes.  Investors are keeping a closer eye on labor markets.  In BlackRock’s 2018 stewardship guidelines, they reported “In light of evolving market trends like shortages of skilled labor, uneven wage growth, and technology that is transforming the labor market, many companies and investors consider robust HCM a competitive advantage.” 

Companies need to articulate how they’ve established themselves as an employer of choice for the workers they depend upon. The company’s approach to HCM, including employee development, diversity, a commitment to equal employment opportunities, health and safety, supply chain, labor relations, and labor standards, is viewed as a factor in the continuity—and ultimately the success—of the business. 

BlackRock is a good litmus test on investor attitudes towards HCM, and they are encouraging companies to go a step beyond providing commentary and begin to bring transparency to HCM data and practices.  Investors know that companies possess data on their workforce to help investors distinguish companies that are managing HCM matters more strongly than those who are not. 

4) Help investors understand how data is protected and utilized.

2018 was a year chock full of stories in the media about data breaches and data sensitivity issues, stories that adversely impacted a wide variety of companies.  Society in general—and investors in particular—were caught off guard by the manner in how data is protected and utilized.  Yet a vast majority of companies still don’t disclose (to the degree that investors would prefer) what they actually do with their data and how that data is protected. 

Given the trajectory of big data, investors generally understand that data will continue to be utilized in new ways, but they want more disclosure and transparency (especially from a risk management perspective) around how that data will be protected and utilized, both now and in the foreseeable future.

5) Create a cyber risk management dashboard and give the board access to the CISO.

Cyber risk management covers a broader spectrum than data protection, and while investors do not expect all board members to possess deep cyber security expertise, they do want assurance that the board has incorporated cyber security oversight into the risk management process.  Corporate secretaries and other governance professionals can support the board in this effort by ensuring the board has some form of dashboard or metrics that provide a regular overview of the strategic implementation of the company’s cyber risk program.

Because cyber risk is so technical in nature and changing so rapidly, another best practice is to ensure that the board has access to the CISO (chief information security officer).  The corporate secretary can play a key role in helping to bring together board members and those responsible in the organization for the implementation of cyber risk management. For example, it can be very useful to buddy up particular board members with the CISO, especially board members who are on committees tasked with cyber security and/or risk management oversight.  Some companies schedule private management meetings between board committee chairs and the CISO to get a better grasp of the issues. 

Listen to the full webinar: Looking Ahead: How GRC Teams Can Prep for 2019>>

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Martyn Chapman serves as Head of Strategy for Nasdaq Governance Solutions, supporting product development and commercial strategies for Nasdaq’s flagship governance offering, Nasdaq Boardvantage. He has over 15 years of governance industry experience serving boards of FTSE100 and Fortune 500 companies with a focus on innovating corporate governance practices through technology.

 Daniel Romito is Global Head of Investor Analytics at Nasdaq where he oversees Nasdaq’s Strategic Capital Intelligence team, Insight360 Analytics Platform, and ESG index consulting and manages a global roster of advisory clients. His advisory work focuses on consulting management teams across the globe on optimizing capital allocation strategies, mitigating risk within their shareholder base and identifying opportunistic investors.

 Ben Maiden is editor of Corporate Secretary, a digital and print platform providing a forum where governance experts and service providers can share their experience, insights and best practice recommendations on a wide range of critical governance issues. 


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