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Frequently Asked Questions
  What's New in Shareholder Engagement: Telling Your Own Story
Identification Number 1392
What's New in Shareholder Engagement: Telling Your Own Story
Publication Date: June 22, 2017 

Tactical communication with shareholders is critical, as shareholder activism increases and institutions begin to rely more on their own independent research and less on the opinions of proxy advisory firms. By aligning corporate messaging with investor interests and concerns, companies build better relationships with their investment communities—and in the process, eliminate information vacuums that can be exploited by activists.

Proxy statements are an often-overlooked opportunity for companies to share compelling corporate governance stories and improve stockholder engagement. Investors are keenly interested in succinct and articulate explanations of the following:

  • the company's strategic and risk management plans;
  • the company's corporate governance values;
  • why executive officers are compensated appropriately; and
  • why the company believes it has the right people sitting on the board.

By transforming proxy statements from compliance tools into highly effective communication tools, companies can improve shareholder engagement and nurture investor support for annual meeting ballots. Following are best practices we have observed (and also applied here at Nasdaq) for utilizing proxies to tell a compelling corporate story.

Engage with shareholders proactively.
In addition to building relationships and ensuring shareholders support the company's strategy, a key goal of engagement is discovering investor perspectives on their areas of focus (such as board composition, pay-for-performance metrics, and engagement). Effective shareholder engagement is a two-way dialogue, some of which ought to take place with the company's largest investors outside of proxy season. If institutional investors aren't available to meet during the off-season, take advantage of quarterly earnings calls, industry conferences, and investor presentations to engage.

Bring the proxy process in-house.
Once the company has identified investor concerns and refined its corporate story, it should consider bringing the process for writing and editing the proxy in-house. An outside consultant or vendor cannot do a better job aligning corporate messaging with investor concerns than the company itself. Complex topics such as board composition, executive compensation policies, corporate strategies, and enterprise risk management should be explained succinctly and clearly, a task best left to corporate insiders.

When bringing the proxy development process in-house, it is helpful to create a benchmark of best-in-class proxies that stand out in terms of innovation and formatting. At Nasdaq, we spent months researching and creating a "look book" of noteworthy proxies that our development team used as a reference tool to guide improvements in the messaging, readability, disclosure, and formatting of the proxy.

Enhance disclosure and transparency.
When developing the elements of the company's story that address investor hot buttons, don't settle for the bare minimum in disclosure. Transparency around board composition, executive compensation, and corporate governance builds trust and assists investors in evaluating the board's effectiveness and independence. For example, shareholders like to map the skill sets on the board to the company's corporate strategies and enterprise risks. A holistic overview of board composition—including committee assignments, tenure, experience, and diversity—can be helpful for this, as is a board skills matrix. The structure and philosophy of executive compensation should also be outlined in a thorough and very readable analysis.

Enhanced disclosure is especially important when a company has a great governance story it hasn't been sharing effectively. Through our own research at Nasdaq, we have unearthed many Nasdaq-listed companies that have quietly achieved exemplary track records with regards to board composition and diversity. However, these efforts often go unnoticed because only a handful of companies highlight board composition metrics in their proxies using charts and graphs.

Transform the proxy into a communication tool.
Different types of investors read and use proxies differently: for retail investors, it's a reading document; for institutional investors, it's a reference document. To motivate institutional investors to support the company's annual meeting ballot, proxy messaging needs to be clear and compelling (and navigation intuitive) so investors can locate topics of interest quickly and understand them easily.

Readability is key—writing content in plain English, eliminating redundancies to condense the document, and hyperlinking a detailed table of contents are all ways to enhance the readability of a proxy. Key messages should be highlighted in such a way that shareholders can't miss them: In addition to enhancing the summary to include critical information, companies can draw attention to (and summarize) main ideas by incorporating charts, matrices, graphics, and bulleted lists.

Launch an interactive digital proxy.
A growing number of investors prefer to access proxies and vote online, and interactive proxies are transforming online stockholder engagement. The intuitive framework and visually appealing layouts of interactive proxy documents make it easy for shareholders to navigate and digest proxy content on their own terms, and on any device. These interactive versions include multiple features allowing for easy search and maneuverability, such as section and sub-section headers, expanded table of contents, and linked page references throughout the document.

Interactive proxy platforms also provide companies with useful analytics regarding which sections of proxy statements, and which search terms, are most popular with shareholders. User analytic data will be valuable to companies seeking to identify proxy content elements that most resonate with investors, as well as fine-tuning digital layouts and navigation.

During the past few weeks, a number of Nasdaq-listed companies published their 2017 proxy statements using an interactive format including eBay, Inc., Intel Corporation, Nasdaq, Inc., Northern Trust Corporation, and Otter Tail Corporation.

Perhaps the most compelling piece of PR advice dispensed by Don Draper, ad man extraordinaire of the series Mad Men, was this: "If you don't like what they are saying about you, change the conversation." By taking control of their own story, corporations can do just that.

Read More about Interactive Proxy Statements Here >>

Read More about Reasons to Bring the Proxy Process In-House Here >>

Publication Date*: 6/22/2017 Identification Number: 1392 Mailto Link
Frequently Asked Questions
  Seven Critical Elements of a Board Refreshment Plan
Identification Number 1347
Seven Critical Elements of a Board Refreshment Plan
Publication Date: April 3, 2017

We asked Betsy Atkins, veteran of 23 boards and 13 IPOs, to share her perspective on the art and science of board refreshment. In addition to her board service, Ms. Atkins is also well known for making very early stage investments in Yahoo and eBay through her venture capital firm Baja Corp. Following is her sage advice on structuring an effective board refreshment cycle.

1) View the corporate board as a strategic asset, not just a fiduciary.

The first step to an effective board refreshment plan is understanding why refreshment is so important. Historically, the function of boards was to act as a financial fiduciary and steward for shareholders. However, for the past decade or so, the role of boards has been evolving as boards are being held for “futureproofing” against threats, and ensuring the competitive relevance of the company.

Just as a company’s leadership team is forward-hired based on long-term strategy, the board is now equivalently an asset to be reviewed for critical expertise and experience, and refreshed as needed. Unfortunately, it’s still not common for a board to have a holistic view of board composition as a strategic asset, and many corporate boards still view themselves as fiduciaries.

2) Take a proactive versus reactive approach.

It’s never been more important to address the topic of refreshment internally- if the board doesn’t proactively think about it, somebody outside the organization is going to raise it. Index funds that were traditionally passive are now beginning to push for diversity, governance refreshment and renewal, and are raising questions on term limits and age limits.

A board should have an annual governance committee calendar with explicit agenda items, just as it does for compensation committees and audit committees. A typical governance committee refreshment calendar might run as follows:
  • Q1: Review board composition, long-term succession planning and rotation schedules.

  • Q2: Map board skill sets to the corporation’s long-term strategic plan.

  • Q3: Review the board skills matrix to identify gaps.

  • Q4: Outline a plan for executing graceful rotations and engaging search firms to assist in filling gaps.
A standardized annual process for board refreshment establishes expectations on term limits from the beginning, ensures recruitment of new members is not a shotgun affair, and takes the personal element out of rotating members off the board. Board refreshment becomes a pure, professional process for identifying and filling needed skill sets.

3) Annually map board skill sets against the company’s long-term strategic plan.

In the absence of a detailed vision of board composition, it’s human nature to place a premium on good working relationships. Therefore, it’s very important when taking a strategic approach to board refreshment to identify whether the board’s skill sets align with the company’s long-term strategic needs.

A board needs to look closely at its company’s long-term strategy, map that against the skills around the table, identify potential gaps, and create a matrix. The skills matrix is not a one-and-done task-it’s a living document, updated every year against the company’s strategy. For example, the board of a bricks-and-mortar retailer planning to establish an ecommerce channel might determine it needs a board member with ecommerce, web advertising and data analytics expertise.

4) Do not let search firms drive the recruitment process.

Too often a board’s decision to replace a member is triggered by a retirement, an activist, or an institutional shareholder. The result of a passive refreshment process is that search firms wind up driving recruitment by default. A far better practice is for the governance committee to lead the board through it as part of the natural refreshment cycle. That way, the board gets the critical skills it needs and new members understand from the beginning that it’s not a lifetime appointment.

When refreshment is driven by a standardized process based on maintaining competitive skill sets, the board isn’t caught back on its heels if a board member is suddenly incapacitated or an activist rattles the doors. It’s also easier to tell a colleague that it’s time to surrender their board seat to somebody who has more critically relevant experience.

5) Set guidelines for retirement or term limits.

Retirement ages are extending, because people are staying active longer and working longer. Age limit guidelines are an effective way to trigger graceful rotations and maintain director independence. The term is guideline—not mandate—because it’s important to retain the ability to waive the age limit as part of governance. For example, at Berkshire Hathaway they’ll likely waive any age limit as long as Warren Buffet is sharp.

Europe is leading the way in board term limits; some European countries have already mandated 10-year terms. Institutional shareholders in the U.S. are taking note and beginning to discuss term limits as a method to maintaining director independence. Term limits also keep a board’s skill set fresh—but again, the governance committee has to retain the ability, by exception, to waive it. Microsoft isn’t going to ask Bill Gates to step down anytime soon.

6) Don’t get too comfortable with board colleagues.

It’s only human that people who serve together on a board will over time become friends, just as coworkers often do. So it becomes awkward to tell a long-time board colleague that they aren’t the right person going forward. To make it more difficult, boards lack the hierarchy of a private corporation. Instead they are led by a group of peers, with a lead director or a chairman who should together with the governance/nominating chair own the board makeup and refreshment topic.

Executing a proactive approach to refreshment eliminates the awkwardness of asking long-time colleagues to leave a board, because transitioning board members off becomes part of a natural, smooth cycle. The expectation is set from the beginning that board appointments are not for life.

7) Measure boardroom diversity using a holistic set of benchmarks.

Diversity shouldn’t be measured strictly by gender. What boardrooms need is diversity of perspective: gender diversity, ethnic diversity, international diversity, entrepreneurial diversity, and don’t forget technical diversity as technology is the biggest disrupter of virtually every business.

Betsy Atkins serves as President and Chief Executive Officer at Baja Corp, a venture capital firm. She is currently Lead Director and Governance Chair at HD Supply. She is also on the board of directors of Schneider Electric, Cognizant and Volvo Car Corporation. She also served on the board of directors at Nasdaq LLC and as Clear Standards CEO and Chairman. She is also on the SAP Advisory Board, among many others.

A self-proclaimed “veteran of board battle scars,” Ms. Atkins will be collaborating with Nasdaq to produce a series of corporate governance “nuts and bolts” articles. Stay tuned for an upcoming interview with her about the importance of executive sessions as a risk mitigation strategy.

Do you have a question about corporate governance for Betsy Atkins? If so, please send your question to and we may address it in a future post.
Publication Date*: 4/3/2017 Identification Number: 1347 Mailto Link
Frequently Asked Questions
  BDO's 2017 Meeting Alert: Preparing for Your Company's Annual Meeting
Identification Number 1340
BDO's 2017 Meeting Alert: Preparing for Your Company's Annual Meeting
Publication Date: March 20, 2017

Nasdaq talks to Amy Rojik, a Partner with BDO USA, LLP’s Center for Corporate Governance and Financial Reporting, about their 2017 Shareholder Meeting Alert and how corporate governance topics have changed in the wake of the 2016 election.

Q: What are some of the topics that corporate management and boards may want to be prepared to address in connection with their 2017 annual meetings?

A: This season, there is no shortage of topics to be considered. We have compiled several along common themes pertaining to: growing anticipation for promised deregulation, trade and tax reform under the new administration; readiness to execute on significant accounting standard changes that go beyond financial reporting and will impact systems and operational considerations for companies; transparency of communications and disclosures related to cyber-breach and cyber-readiness; use of non-GAAP metrics; and responses to whistle-blowing and ethics compliance along with conduct of shareholder meetings themselves. Global economic and M&A concerns continue to confound many companies with international operations and global customer bases as well as the scrutiny of director time, expertise and diversity relative to the boards they serve.

Q: How has this list changed since 2016’s proxy season?

A: The most notable changes stem from the 2016 election results and how the new administration is positioning itself in gaining congressional approval for its deregulation and reform goals. These changes are intended to ease the burden for corporations, particularly smaller organizations, in terms of compliance, tax measures, and trade arrangements to promote U.S. businesses on a global stage. While there is great anticipation about this agenda and much focus on recent Executive Orders, there remains a significant amount of work to be done that will require full collaboration with Congress to not only appoint and get new regime leaders in position, but to provide detailed plans of action that Congress can consider and approve.

Some of the areas addressed in the prior year have changed a bit in scope for 2017. Last year, the issue of “overboarding” was very prominent as proxy advisor firms had unveiled plans to oppose non-executive directors serving on more than five boards. This year, the overall composition of the board is under examination. The ever-growing subject matter that the modern board must address highlights the need for those charged with governance to demonstrate diverse thinking, a wide breadth of knowledge, and the ability to execute oversight responsibilities given the time requirements such duties demand.

Growing uncertainty around the implementation of previously planned executive compensation disclosures, internal controls under Sarbanes-Oxley and other proposed regulations are now in question under the Trump administration that will require boards to stay abreast of regulatory developments.

Cybersecurity, M&A and global economic concerns remain - and will continue as hot-button corporate governance issues in 2017.

Political contribution concerns, leveraging data, succession planning, and proxy access are not as prominent on this year’s agenda, but they remain relevant concerns that boards should be prepared to address should they be raised by shareholders.

Q: What are the strongest influencers driving shareholder concerns (e.g., the new administration, global economic challenges, geo-political unrest)?

A: Yes, yes, and yes - and at the pinnacle is transparency of communications related to these concerns. The U.S. is under a sizeable microscope given events in recent months that impact not only domestic concerns but also global markets as the U.S. rolls out new policies, regulations and diplomatic strategies designed to protect U.S. interests and spur growth for our corporations. While there is currently much talk and speculation, the devil will be in the details as rulemaking and policy begin to crystalize. Shareholders will want to hear that the company is remaining vigilant during the shifting landscape in the current political environment, and that it has plans in place for a number of alternative outcomes. Companies will need to be knowledgeable and transparent on how changes may impact them from a variety of angles including taking stock of tax planning strategies at the state, federal and international levels. Businesses also need to consider where their global operations may be in terms of favorable importer/exporter trade practices should the sentiment of “American protectionism” continue to rise.

Companies hoping that cyber breach stories will just go away are deluding themselves as cyber-attacks are becoming more sophisticated. The impacts of these events can be so profound that organizations are strongly advised to be thinking through worst-case scenarios that look beyond their own operations to further include consideration of the potential exposure their third-party business partners may present. Boards should be analyzing the company’s resources as well as the resources directly accessible by the board. They should also be discussing the value in performing cyber risk assessments and having such measures validated by independent advisors to determine the efficiency and effectiveness of the organization’s cyber risk management system.

Continuing with the transparency theme:
  • Disclosure is critical for companies across a variety of other fronts. Scrutiny by the SEC of non-GAAP measures used by public companies continues to be front and center in terms of why such metrics are necessary and how they are disclosed. Moreover, unprecedented accounting changes being brought about by new revenue, leasing, and financial instrument standards are requiring significant effort and receiving considerable attention by regulators - particularly regarding how companies have assessed the impact of implementation and how they are portraying that to the markets within annual and interim required disclosures under SEC SAB 74.
  • Corporate growth through M&A activity is not new, but recent failed transactions highlight the need for boards to have sound due diligence and integration policies in place to ensure successful bids.
  • Finally, last year’s highly publicized Wells Fargo scandal has put whistle-blowing programs – or their failure – in the spotlight. Management and boards of directors must be able to ensure that strong compliance, controls, and ethics messaging and training exist within corporations.
The concept of holding virtual or on-line shareholder meetings (versus hosting in-person events) is another newer area that is getting some attention – both positive and negative. Companies pursuing this new means of interactive communication must be able to clearly communicate the benefits – cost savings and greater participation - while proactively addressing any negative perceptions – selective engagement - associated with the new technology.

Q: Your paper states that engagement is a two-way street, with investors holding up their end of the bargain. Do you think the investors are ready for it?

A: Most major investors—especially BlackRock, State Street and Vanguard—have equipped themselves for engagement, and most are committed to strengthening their engagement capability. Engagement is strongly supported by FCLT Global (not-for-profit organization dedicated to developing practical tools and approaches that encourage long-term behaviors in business and investment decision-making) and all of the major investor associations.

Q: Can you point to some additional pieces of thought leadership and/or learning opportunities to help companies prepare?

A: BDO’s Center for Corporate Governance and Financial Reporting contains a variety of resources, including the BDO 2017 Shareholder Meeting Alert. Within the alert itself, we point directly to additional thought leadership and educational programming germane to specific topics of interest and encourage our readers to explore such resources according to their interests.

 BDO USA, LLP is a professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately help companies. Amy Rojik is Partner, National Assurance and has been with BDO for 13 years.
Publication Date*: 3/20/2017 Identification Number: 1340 Mailto Link
Frequently Asked Questions
  Interactive Proxy Statements Transforming Online Shareholder Engagement
Identification Number 1319
Interactive Proxy Statements Transforming Online Shareholder Engagement
Publication Date: Februrary 8, 2017

Nasdaq reported last year that “interactive proxy statements are revolutionizing the way companies tell their corporate governance stories.” Designed for web browsing versus print browsing, the features of interactive proxies continue to evolve, making it easier for shareholders to locate the information they want and to access shareholder voting platforms.

A number of providers offer a range of interactive proxy design and hosting services, including EzOnlineDocuments,  ISS Corporate SolutionsRR Donnelley, and Mediant. Nasdaq spoke with Rich Andrews, CEO of EZOnlineDocuments, a provider of online proxy services since 1998, to find out how interactive proxies have begun to impact online shareholder engagement: “Interactive proxies visually marry corporate branding with a vastly superior user interface that anticipates intuitive reader navigation and offers robust searchability. The user analytics of our clients’ interactive proxy statements show that 80% of online readers don’t bother looking at the linked PDF version of the proxy statement at all—they engage solely with the interactive version.”

Interactive proxies allow online readers greater control over which elements of the proxy they choose to engage with. Companies can leverage that behavior by tracking analytics in real time to anticipate investor concerns and improve shareholder engagement. Online proxy platforms also make it easy and cost-effective to highlight important corporate messaging by embedding videos and graphics within the proxy. According to Andrews, “The sections of our clients’ interactive proxies that are most popular are tiles navigation, proxy summary, election of directors, ‘Meet the Board’, executive compensation, and videos.”

To the online reader, there is a profound difference between the experience of reading a static PDF and navigating an interactive proxy platform. Progressive Nasdaq-listed companies are offering interactive proxies that are much easier to navigate than their PDF version. To compare, see how each of these companies provide stronger branding and a better user experience in their interactive versions: Atlas Air Worldwide (interactive proxyPDF version), Galena Biopharma (interactive proxyPDF version), and Inovalon (interactive proxyPDF version).

According to a recent study conducted by EZOnlineDocuments, 80% of S&P 500 companies have invested in making their websites responsive to mobile devices, yet only 11% of them created interactive proxies during 2016. “Most companies don’t realize that static PDF proxy statements are not engaging online readers. And they may not fully meet SEC compliance standards for readability and searchability of online proxies,” said Andrews. (His company’s website summarizes certain of the SEC's rules for posting proxy materials online.)

So why aren’t more companies utilizing an interactive format for proxy statements?

“The greatest hurdle is that many companies are satisfied with meeting the bare minimum of SEC requirements for online proxies. They fail to take into account that static PDFs are not optimized for online reading, that reading a PDF online is a cumbersome and time-consuming process for investors and shareholders,” shared Andrews. “The second hurdle is cost. Most companies don’t realize that the cost of interactive proxy statements isn’t prohibitive at all and that it’s nothing near the substantial investment most companies have already made to improving the mobile responsiveness of their websites.” Research indicates that the cost of developing a standard interactive proxy statement is reasonable, with prices starting as low as $3,000 up to around $15,000 depending on provider and services selected.

Rich Andrews and his colleagues foresee further evolutions in proxy design and content on the horizon as companies begin to digest and leverage data from online proxy analytics. “Reformatting content so that it’s accessible via ‘click-to-learn’ navigation, like our ‘Meet the Board’ feature, is becoming increasingly popular,” shared Andrews. “Online readers primarily engage in content that is structured that way. We also expect companies to evolve their proxies by redesigning the summary so that it is entirely readable on the phone and tablet. We tell our clients to stop thinking landscape and start thinking Wall Street Journal—information is best presented on mobile platforms in columns and tiles to optimize online reader experience and engagement.”

Taking into consideration the recent growth of mobile web browsing (it has now eclipsed desktop browsing), it seems clear that interactive proxy statements offer significant opportunities to improve shareholder engagement.

The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular company, industry or security mentioned herein and nothing contained herein should be construed as legal or investment advice.

Publication Date*: 2/8/2017 Identification Number: 1319 Mailto Link
Frequently Asked Questions
  Nasdaq Talks to . . . Tom Kloet, Thirty-Year Industry Veteran, about Risk Management and How It Fits into the Audit Committee Mandate
Identification Number 1314
Nasdaq Talks to . . . Tom Kloet, Thirty-Year Industry Veteran, about Risk Management and How It Fits into the Audit Committee Mandate
Publication Date: January 30, 2017

Tom Kloet is a thirty-year veteran of the stock exchange industry — a former CEO of both the TMX and Singapore Exchange, he’s served on nearly a dozen boards (both corporate and non-profit) and joined Nasdaq’s board of directors in 2015. He is Nasdaq’s current audit committee chair. Given this breadth of experience, we asked him to share his thoughts on the essential ingredients for building and maintaining an effective audit committee and how risk management fits into today’s audit committee mandate.

Q: How does a company go about building an effective audit committee?

A: It starts with attracting a mix of professionals who have a variety of executive and board experiences. It’s not sufficient to just gather a group of accounting or finance professionals. For example, at Nasdaq, the members of our audit committee represent a broad and varied mix of executive, financial, operating, technology, audit and risk backgrounds. As a result of those different backgrounds, I believe we’re better able to effectively consider and discern what the key risks of the organization are—and where those risks and financial reporting intersect—so that we give our shareholders the value of looking at our business in a very holistic way.

Q: You talked about the importance of different professional backgrounds of audit committee members. What about the personal dynamics of people on the committee? What are the characteristics of a strong audit committee member?

A: Individual characteristics of audit committee members should parallel or support a group dynamic that drives a board towards excellence. So along with a broad mix of executive, operating, risk, technology, audit and finance backgrounds, you want individuals with a commitment to excellence, a willingness to work and perform as a team, and keen attention to detail.

Boards and audit committees of today should be composed of professionals who put the interests of the various stockholders, stakeholders, employees and communities in which they operate at the front of their mind as they work through their responsibilities, on either an audit committee or a board. Those same characteristics that you’d want in strong board members also define who will make a strong audit committee member.

Q: What are the attributes of an effective audit committee chair?

A: The audit committee chair has to have strong financial and risk management acumen, so previous experience as an operating executive in finance is very helpful for anyone chairing an audit committee. Now, that can come from several different experiences—it doesn’t necessarily have to be that the chair is a CPA. Previous experience can be related to corporate finance or banking, so long as the chair understands the financial reporting the company has to do and the requirements that go along with that.

And what is becoming more prevalent for audit committee chairs is deep experience in risk management—particularly for financial services companies—because in many cases, audit committees are now tasked with monitoring a myriad of complex risks faced by an organization.

Q: Speaking of risk, should public company boards form a separate risk management committee?

A: There’s not a one-size-fits-all approach for how corporate boards should deal with risk management, but companies should examine carefully whether to create a separate committee. Risk management oversight should vary with the individual company’s business, its board composition and the risk profile the business operates within.

Nasdaq doesn’t have a separate risk management committee. Risk management falls to the audit committee for oversight, and we actively report up to the full board on corporate risk issues, exposures, and how they are being monitored.

Q: How do audit committees ensure they’re proactive in monitoring and managing risk?

A: I think it starts with understanding the enterprise risk management program of the company, along with a core understanding of the potential risks the enterprise faces. It’s an iterative process that continues to grow as the company evolves.

Equally important are the committee’s skills of asking both the right and the difficult questions and its willingness to probe. Audit committees have a variety of risk reports they receive at regular intervals through their meetings; it’s critically important to take all that data and convert it into meaningful conversation, to investigate the current and potential risks that are important and that need to be monitored. From there, the board or audit committee needs to determine that management has the appropriate infrastructure and processes in place to monitor those risks.

Q: Nasdaq Listing Rules require that a company’s audit committee be entirely compromised of independent directors. But how does a company ensure that audit committee independence is really meaningful, versus just addressing the conflict of interest issue?

A: First, there’s the usual process of annual questionnaires and assessments to ensure the governance committee understands any connection points between the board members (including the audit committee members) and management or the company in general.

Beyond that, it’s an ongoing observation to determine the independence of thought of individual board members. How do they handle various situations that come up? Are they showing independence in thought as well as in fact? Ideally, you want board members who can wear the hats of various stakeholders as they’re reviewing material and asking questions.

Finally, back-end assessments—conversations between the audit committee chair and various board members—should take place to discern the independence of the particular board member they’re speaking to.

Q: What should companies think about as they prepare for the 2017 proxy season, in terms of effective disclosure surrounding their audit committee?

A: When I read public company proxies, I want to learn what was important to the audit committees as they were adjudicating their responsibilities. Don’t just republish the charter (which most companies share on their website anyway); outline for stakeholders what the board did during the year to execute the audit committee’s charter’s mandate.

I would suggest companies begin by reviewing their past proxy disclosures to see if the company has let stakeholders into the mind of the audit committee: Did the company share how the board evaluated risk, what oversight it had of the risk management process? Did the Board evaluate the independence of the company’s external auditors and how did it oversee their work and that of the internal audit department? Did the board meet independently in executive session with various department heads? What did the board do during the year to ensure that oversight of the company’s risk management processes evolved as the organization evolved?

Q: How does a board chair build effective relationships between the audit committee and the board, and between the audit committee and company management?

A: I’ll tackle these separately, as they are two very different types of relationships.

As audit committee chair, I try to be very transparent with the board, as we’re executing some of the mandate that belongs to all of us as independent directors. I’ll report at every board meeting what we've done at the audit committee meetings in between board meetings, so the board has a comprehensive view as to the depth of the work of the committee. It’s important to solicit questions from the board while giving them those highlights, and to invite them to ask questions of myself, the CFO, the heads of IT or internal auditing. I also invite the other audit committee members to report on anything I might leave out during my report or field questions from other directors. In this way, we offer full transparency to the board without replicating all the work we did.

With respect to the relationship with corporate management, some of that culture is set by the audit committee chair, as well as the CEO and CFO of the organization. Nasdaq has a very healthy culture between the company management and its board, including the audit committee. We have active participation from a number of management’s key support and business areas regularly at the audit committee meetings and executive sessions alone with key leaders.

Having a healthy respect between management and the board stems from understanding what each other's roles are and the importance that both parties bring to the success of the enterprise. The board is not management—we are independent directors with a governance role. Our job is to fearlessly ask questions and be willing and able to have the kind of honest discussions that help the enterprise overall.

Q: How should the audit committee structure its relationship with external auditors?

A: Managing the relationship between the audit committee and the company’s independent public accounting firm is an important responsibility of an effective audit committee. It’s general practice at most public companies these days for the independent public accountants to attend the audit committee meetings (with the exception of executive sessions).

That’s our practice at Nasdaq. The two partners from our auditing firm attend audit committee meetings, and they actively participate. I will call on them periodically to jump in on a conversation, all the time being respectful of not violating or impairing their independence. We also meet in executive session with the independent auditors at the end of every committee meeting.

We’ll schedule additional meetings with the independent auditors to share any unexpected developments at the company that we’d like their view on, or to ensure that communication is flowing well between management and the auditors. And offline, I’ll speak to the audit partner ahead of every audit committee meeting to get an understanding of what’s on our auditors’ minds as they’re doing their work.

And as a result of all that, our auditors get a feel for the things that are on the minds of the committee and vice versa.

Tom Kloet was the first CEO and Executive Director of TMX Group Limited, the holding company of the Toronto Stock Exchange, TSX Venture Exchange, Montreal Exchange, Canadian Depository for Securities, Canadian Derivatives Clearing Corporation and the BOX Options Exchange, from 2008-2014. Previously, he served as CEO of the Singapore Exchange and as a senior executive at Fimat USA (a unit of Société Générale), ABN AMRO and Credit Agricole Futures, Inc. He also served on the Boards of CME and various other exchanges worldwide. Mr. Kloet is a CPA and a member of the AICPA. He is also a member of the U.S. CFTC’s Market Risk Advisory Committee and was inducted into the Futures Industry Association Hall of Fame in March 2015.
Publication Date*: 1/31/2017 Identification Number: 1314 Mailto Link
Frequently Asked Questions
  Larry Fink's Advice for CEOs as They Prepare for Proxy Season
Identification Number 1312
Larry Fink's Advice for CEOs as They Prepare for Proxy Season
Publication Date: January 26, 2017

Each year, Larry Fink, CEO of BlackRock (the world’s largest investor), crafts his annual letter to “advocate governance practices that BlackRock believes will maximize long-term value creation.” In this year’s letter, dated January 24, Fink wants to know how public companies are incorporating “the underlying dynamics that drive change around the world” into their strategic planning process.

He provides an overview of geopolitical events of the past 12 months and global labor market dynamics and says he wants CEOs to answer these two questions:

“How have these changes impacted your strategy and how do you plan to pivot, if necessary, in light of the new world in which you are operating?”

Fink also highlights how environmental, social, and governance (ESG) factors relevant to a company’s business can provide essential insights into management effectiveness and asks that CEOs discuss the following issues as they engage with stakeholders during the 2017 proxy season:

  • Sustainability of the business model and company operations as they relate to environmental, social, and governance factors. “A global company needs to be local in every single one of its markets.”

  • The company’s priorities for investing in research and technology as well as the development and long-term financial well-being of employees. “The events of the past year have only reinforced how critical the well-being of a company’s employees is to its long-term success.”

  • How capital allocation strategy balances returning excess capital to shareholders with investment in future growth. “Companies should engage in buybacks only when they are confident that the return on those buybacks will ultimately exceed the cost of capital and the long-term returns of investing in future growth."

Fink advocates for corporate and government policies that will help shift “the tide of short-termism afflicting our society”, including:

  • a capital gains regime that rewards long-term investments over short-term holdings;
  • if tax reform includes reduced taxation for repatriation of cash, an explanation of whether they will bring cash back to U.S. and if so, how they will use it;
  • improved corporate capacity for internal training and education of employees to better compete for talent in a global economy;
  • development of a more secure retirement system for all workers; and
  • a concerted effort to build financial literacy in the workforce to help solve the retirement crisis.

Fink warns that where companies are not making sufficient progress toward creating long-term value, “we will not hesitate to exercise our right to vote against incumbent directors of misaligned executive compensation.”

Read Larry Fink’s 2017 Corporate Governance Letter to CEOs >>

Read Larry Fink’s 2016 Corporate Governance Letter to CEOs >>

Publication Date*: 1/26/2017 Identification Number: 1312 Mailto Link
Frequently Asked Questions
  Taking Your Proxy Statement from Good to Great by Ron Schneider
Identification Number 1292
Taking Your Proxy Statement from Good to Great by Ron Schneider
Publication Date: December 8, 2016 

This article was written by Ron Schneider, Director of Corporate Governance Services with Donnelley Financial Solutions.

Companies are constantly innovating and pushing the boundaries of traditional proxy statement disclosure, inspiring others about what can be accomplished. Proxy innovations should align with a company’s corporate culture and support business, corporate governance, and proxy solicitation goals. Donnelley Financial recently published its 2016 Guide to Effective Proxies that is intended as a tool to help inspire and guide companies in improving the visual appeal and clarity of their proxies, as well as develop a style and format that is right for their organization.

There is no one perfect proxy or CD&A that all other companies should emulate; rather, there are many excellent proxies that work well for their companies at particular points in time. Even these successful proxies must evolve, as performance changes from year to year, areas of investor focus shift, and the key messages companies wish to highlight change.

The best place to start when refreshing the proxy is ensuring you know your audience.

Understand that different investor types read and “use” proxies differently.

For retail (i.e., individual) or employee investors – it’s a reading document. The printed and mailed proxy is the most effective and proven way to maximize retail voting participation. For employee shareholders, electronic reminder notices and follow up campaigns can be effective in generating voter turnout.

For most institutional investors – it’s a reference document. The larger institutional investors that have dedicated corporate governance, engagement and voting teams report that they use proxy advisors as screening tools, along with their own internal policies and review. These institutional investors then use proxies as reference documents. If your company is flagged by a proxy advisor or investor on an issue, that investor will likely do a deeper dive into your proxy before voting to see what you are saying about the issue. Here, navigation is critical as the investor will want to find the section or topic quickly. In this case, what’s written needs to be clear and compelling if it is to help that investor “get to ‘yes’” and support you.

Many of the larger institutional investors access online versions of the proxy – but where? Our research shows that ISS’s voting site is the top destination of major investors, and this may well continue with ISS’s recent purchase of iiWisdom, a creator of enhanced online proxies. In advising clients, we first focus on the filed and printed version of the proxy. We then ask: What else do you want to do with the enhanced online proxy, whether through a company-branded hosting site, additional color (which doesn’t cost more in a digital environment), enhanced navigation, links to videos and other interactive features?

Know the top areas of investor focus.

Through our primary research with institutional investors about their use of proxy statements, Donnelley has confirmed that the top areas of institutional investor focus are:

  1. Boards – Their independence, skills and qualifications, diversity, tenure and refreshment.
  2. Performance metrics – How do pay plans work, and does “pay support strategy”?
  3. Pay for Performance Alignment – Do you connect how you pay executives with how they and the company have performed or do you let proxy advisors and others tell this story for you? Perceived Pay for Performance disconnects are a primary driver of negative Say on Pay votes.
  4. Peer Companies – How are peers used and selected? What is the rationale for changes from year to year? Are the majority of peers size-appropriate for your company?
  5. Engagement – If you conduct regular engagement with investors, are you taking sufficient credit for this practice? You want to make sure others you haven’t or can’t engage with are aware of your efforts.

Engage with investors to develop relationships and understand informational needs.

Engagement in this context is defined as company (management, board or both) interaction with the governance teams and proxy voters at institutional investors, especially outside of proxy season when you are “chasing the vote.” These conversations typically involve relationship building, learning about investor views, hot-button issues and informational needs, as well as clarifying important aspects of the company’s story.

This engagement over governance and compensation issues typically supplements the traditional IR dialogue about company strategy, performance and outlook.

Many of our clients report that such outside-of-proxy-season (or post-meeting) engagement has been instrumental in helping them better understand how investor informational needs are not bounded by SEC disclosure requirements. It also helps them sharpen and target their messaging accordingly, helping investors better understand their companies and why they make the decisions that they do. Clearer proxy messaging helps secure investor support and also can mitigate the impact of inevitable negative proxy advisor recommendations.

Understand the relationship between content, navigation, design and context.

Content is key, as your content reflects the reality of your company, your practices and how you tell your story. Design can help make content more visible and impactful, but you can’t design your way out of a weak story. Efforts to do so likely will be seen through, which can damage your credibility and reputation.

Ease of navigation is critical, particularly for institutional investors and others using the proxy as a reference document. Not all readers gravitate to the same sections or topics for all companies they own. If you are satisfied that your content adequately and effectively tells your story, why not make it easily located and accessible? In other words, why risk key content being missed and overlooked? Navigational tools include detailed Tables of Contents, CD&A roadmaps, clear section headings and sub-headings, and page headers and footers. Online proxies should feature hyperlinked tables of contents, drop-down menus, key word search functions and other features that promote rapid and easy navigation.

Design should support the messages, and can include company-specific branding (such as branded document covers, enhanced navigation systems, page footers and web-hosting sites), as well as visual elements that by definition draw the reader’s eye and make key points quickly and impactfully.

  • When you are discussing performance achievements, why not use graphics?
  • When discussing peer companies or performance metrics, why not use a tabular format?
  • When discussing governance and compensation practices, why not use a checklist?
  • When discussing a process such as pay-setting, succession planning or investor engagement, why not use a timeline?

We’re not suggesting that every page has to feature visual elements, but increasingly, long passages of dense text risk losing readership and retention. At Donnelley Financial, we believe in “design with a purpose” as opposed to “design for design’s sake.” In other words, design can and should support and reinforce key messages and ease of location.

Context is crucial to helping investors understand and appreciate your governance and compensation programs and why they are appropriate for your company. For example, the SEC does not require companies to explain how pay supports strategy, yet that is the number one question investors have about executive compensation. Context is particularly important if you have certain practices that may not be considered standard or best practice, yet believe are appropriate for your company and thus its efforts to generate shareholder value.

Also, consider the fact that most of the proxy voters at larger institutional investors are not portfolio managers who are experts about your industry and company, but rather are governance and compensation generalists. They do wish to cast thoughtful, company-specific votes on many issues, but lack the time and resources to do in-depth research including reading the annual report, your IR website or analyst research reports. For this reason, we are seeing more companies spoon feed some business context within the proxy statement. Often this context and content are borrowed from the annual report cover letter or MD&A, or company investor relations messaging. This business content often is contained in a robust CEO or board cover letter, proxy summary or CD&A summary.

“I know my proxy is in need of a refresh, but where should I start?”

We hear this daily from clients.

Engage: First, if you haven’t yet engaged with your larger investors on corporate governance, compensation and other proxy-related issues, start developing those relationships now. During this process you may receive some valuable feedback on the quality and clarity (or lack thereof) of your current disclosures. If you are not ready for that step, review our latest survey of institutional investors about proxy statements, titled “Deconstructing Proxy Statements – What Matters to Investors.” By reading the survey data, you will get a better idea how institutional investors consume proxy statements and what can make your proxy more useful to them.

Benchmark: In addition to the governance leader companies whose proxies we may admire and even envy, take a look at the proxies produced by your peers. Your investors may own many of your peers, and they may compare the quality and clarity of their disclosures to yours. Do you appear to be making an equal effort to communicate clearly and help investors understand your company and actions?

Incremental refreshment: Remember that proxy evolution is often just that – an evolutionary process that initially takes two to three years before achieving your ultimate goal. Even then though, your philosophy should not be “set it and forget it,” since performance, investor interests and the key messages you wish to highlight may vary from year to year.

Specific areas in which we have helped clients begin a process of proxy improvement:

  • Modernize the document’s look and feel with a company-branded cover page, clearer fonts, and improved navigation via a robust table of contents and page headers and footers.
  • Add a new proxy summary at the beginning.
  • Highlight aspects of board diversity and skills via diversity graphics, and various types of skills matrices (both traditional, check-the-box matrices as well as “matrix-lite” versions that highlight board skills without naming which directors possess those skills).
  • Update and make the CD&A more visual and layered in its disclosure flow.

Start with a couple of these points one year, and then add another one or two more each subsequent year. Simply by making incremental improvements, you may be amazed at how far you will progress in just three years’ time!

Download Donnelley Financial’s 2016 Guide to Effective Proxies >>


Ron Schneider is Director of Corporate Governance Services at Donnelley Financial and can be reached at

Donnelley Financial helps thousands of companies deliver accurate and timely business communications to investors, regulators and other stakeholders on our global delivery platform. A single point of contact helps you stay on top of the dynamic regulatory landscape and create, securely store, localize, analyze and disseminate critical business content for regulatory compliance, capital markets transactions, shareholder communications and language localization.

The views and opinions expressed herein are the views and opinions of the author at the time of publication and may not be updated. They do not necessarily reflect those of Nasdaq, Inc. The content does not attempt to examine all the facts and circumstances which may be relevant to any particular situation and nothing contained herein should be construed as legal advice.
Publication Date*: 12/8/2016 Identification Number: 1292 Mailto Link
Frequently Asked Questions
  Glass Lewis to Allow Companies to Review Data
Identification Number 1286
Glass Lewis to Allow Companies to Review Data
Publication Date: November 21, 2016

Glass Lewis has announced that it will allow certain companies prior access to the data it relies upon in making proxy voting recommendations about the company. Glass Lewis will allow the company to review key data points used in its analysis, such as information about the company’s board composition, governing documents, auditor, compensation practices, summary compensation data and equity plans, before a full research report is published for institutional investor clients. The company will have 48 hours to confirm that the data accurately reflects the information publicly available to shareholders or to provide any suggested corrections to Glass Lewis. This Issuer Data Report will be available to a limited number of companies on a first-come, first-served basis. Companies must enroll no later than January 6 or before the company limit is filled.

Learn more >>
Publication Date*: 11/21/2016 Identification Number: 1286 Mailto Link
Frequently Asked Questions
  Shareholder Proposals with Social Agendas Hit Record High
Identification Number 1267
Shareholder Proposals with Social Agendas Hit Record High
Publication Date: October 14, 2016

Who are the shareholders submitting proposals? What are their motives? What impacts are they having on corporate governance? Answers to these questions can be found in the Proxy Monitor’s 2016 Annual Report on Corporate Governance and Shareholder Activism, survey of the experiences of the 250 largest publicly traded American companies. A summary of the findings follows:
  • The shareholder-proposal process continues to be dominated by a small group of shareholders. Six “corporate gadfly” investors (individuals who repeatedly file multiple common shareholder proposals at a large number of companies) sponsored 33% of all proposals, while institutional investors and labor-affiliated institutional investors (such as Teamsters’ Union and public-employee pension funds) sponsored the remaining 67%.
  • Shareholder proposals are increasingly aimed toward making social and political changes. In fact, 50% of all shareholder proposals involved social or policy concerns. Corporate governance proposals made up another 39%, and executive compensation related proposals accounted for the remaining 11%.
  • With the exception of proposals related to proxy access and shareholder majority voting rules, shareholder proposals rarely win majority support. Only 3% of shareholder proposals received majority support, while shareholders continue to reject overwhelmingly proposals relating to social or policy concerns.
The authors of the report stress that “increasing activity on the part of certain shareholders pursuing social and policy agendas should not be confused with broad shareholder support for these activists’ pet issues.” However, they go on to note that “[d]espite this broad shareholder opposition, shareholder activists with social or policy concerns have continued to introduce shareholder proposals with little to no chance of passage, year after year. The costs of such activity fall on the corporation—and hence other shareholders.”

The report also includes a number of recommendations designed to mitigate the expenses associated with processing shareholder proposals, including these:
  • The SEC should revisit its 1976 rule forcing companies to include most issues on their proxy ballots.

  • Force shareholder-proposal sponsors to reimburse the corporation at least some portion of the direct costs of assessing, printing, distributing, and tabulating their proposals, if any proposal fails to receive majority or threshold shareholder support.

  • The SEC should revise its rule permitting companies to exclude resubmitted shareholder proposals, if they fail to garner minimum threshold shareholder support within the preceding five calendar years.
Read the full report here >>

For more information on corporate gadflies, read A Gadfly’s Perspective on Harvard Law School Forum on Corporate Governance and Financial Regulation and Gadflies at the Gate: Why Do Individual Investors Sponsor Shareholder Resolutions?
Publication Date*: 10/14/2016 Identification Number: 1267 Mailto Link
Frequently Asked Questions
  Tech, Basic Materials Sectors Disclose Least About Board Diversity, Study Finds
Identification Number 1268
Tech, Basic Materials Sectors Disclose Least About Board Diversity, Study Finds
Publication Date: October 14, 2016 

According to a new Equilar study, only 12.8% of S&P 500 companies disclosed board member diversity in terms of race or ethnicity in their most recent proxy statements. Technology companies trailed almost every other industry in terms of diversity disclosure, with only four (5.7%) firms disclosing information in their 2016 statements, followed by basic materials companies (consisting mostly of oil and gas companies), with only one reporting. Despite this, tech companies have improved board diversity in recent years after having the largest percentage growth of women on boards during the last five years (14.4% in 2012 to 21.0% in 2016); however, that growth was not enough to reach the overall S&P 500 average (21.3%).

Read more from Equilar >>
Publication Date*: 10/14/2016 Identification Number: 1268 Mailto Link
Frequently Asked Questions
  Tips and Tricks of Proxy Season Engagement from the World's Largest Asset Managers
Identification Number 1153
Tips and Tricks of Proxy Season Engagement from the World's Largest Asset Managers
Publication Date: April 28, 2016

Global governance experts Michelle Edkins of BlackRock and Glenn Booraem of Vanguard shared best practices of proxy season engagement during a recent webinar. For companies seeking to avoid unpleasant surprises when the votes are counted, the following is a synopsis of the tips and tricks of proxy season engagement from the perspective of the world’s largest asset managers.

Understand the difference between off-season and proxy season engagement

As the date of a company’s shareholder meeting approaches, the nature of engagement necessarily changes: the closer to the meeting, the more narrow the asset manager’s focus becomes on the specific ballot issues at each company on which they will vote.

Off season, investors want to spend substantial time covering a broad range of issues in the context of the company’s strategy for creating long-term shareholder value, including governance, compensation, and (especially) board composition.

Familiarize yourself with institutional investor voting guidelines

The proxy voting guidelines and approach to engagement for BlackRock and Vanguard are available on their websites. In addition, BlackRock publishes quarterly voting and engagement reports highlighting their stance on current issues. Investors also seek to ensure that companies understand their broader perspective through direct engagement with management out of season.

Don’t assume your investors will vote with ISS, Glass Lewis, or proxy advisor recommendations

Institutional investors rely heavily on the common format provided by the proxy advisors to find exactly the information they need quickly during the busy proxy season. However, their decision making process is completely independent of the voting recommendations of the proxy advisors. (Companies often make the mistake of filing supplemental materials as rebuttals to proxy advisors, assuming that investors will share the same concerns as the proxy advisors.)

And don’t assume because ISS and Glass Lewis have no recommendations that your company’s position is also consistent with investor voting intentions—there are plenty of instances when investors voted against companies that weren’t flagged by ISS or Glass Lewis. And investors often take a totally different view on activist slates than that of ISS or Glass Lewis.

Tell your best story in the proxy statement

It’s important to make your best case in the proxy statement, especially when opposition over particular concerns is anticipated. This is where prior engagement with shareholders is critical: frame your proposals in a way that is proactively responsive to their issues and concerns.

Investors don’t just look at proxy statements to vote—it’s also how they prepare for out of season engagement. To the extent that there is an important story to be told or a perspective to be clarified on an issue, use summaries liberally to pull that up front. The easier it is to find and understand, the better investor analysis is going to be—presumably in the company’s favor.

Use supplemental materials sparingly

Use supplemental materials to clarify misunderstandings or share significant last minute developments. (Although putting out supplemental materials is preferable to arranging last-minute meetings or calls with analysts.) For companies that have established relationships with their institutional buy-side analysts, it is perfectly acceptable to email analysts to share significant last-minute developments which may impact voting.

Don’t engage proxy solicitors to pester large investors about votes

Investors prefer to minimize unnecessary contact during proxy season, particularly with proxy solicitors. They will use solicitors as scheduling agents, but for clarification on important issues investors want to speak directly to decision makers.

Large investors ALWAYS vote, so proxy solicitors don’t need to call to solicit votes.

Call if a vote doesn’t go the way you expect it to

Votes against management are used sparingly. Whenever possible, investors prefer to have conversations about voting rationale before voting to clarify and reconcile decisions that may be at odds with broader positions.

That said, if there is confusion about a specific vote that went against expectations, ASK what your investors meant rather than trying to read into it yourself.

Tell a holistic diversity story

Companies should communicate their diversity philosophy, approach, and long-term goals in their website and proxy materials. Investors take a long term view on diversity and prefer to engage off-season on the topic, versus responding reflexively by voting.

Investors are seeking a holistic understanding of how the various components of diversity (gender, ethnicity, experience, tenure) lead to the ideal board composition for maximizing long term shareholder value, including:
  • the board’s understanding of the various components of diversity currently;
  • what the board aspires that diversity mix to be in the context of long-terms strategy;
  • the process for identifying the skills a company has vs. the skills it may need for the next generation; and
  • how diversity targets will be met over time, as well as how board evaluation and assessment factor into that process.
Read more:

BlackRock: Proxy voting guidelines for U.S. securities
Vanguard: Vanguard’s proxy voting guidelines
Blackrock: Corporate Governance & Responsible Investment Report: Americas
Publication Date*: 4/28/2016 Identification Number: 1153 Mailto Link
Frequently Asked Questions
  Why CEO Succession Planning Disclosure Matters
Identification Number 1158
Why CEO Succession Planning Disclosure Matters
Publication Date: March 9, 2016

CEO succession planning is one of the most important responsibilities of a corporate board. Institutional investors--BlackRock, CalPERs, and CalSTRs among them--are calling for robust disclosure of CEO succession planning in their corporate governance policies. Shareholders submit proxy proposals on the issue. But does CEO succession planning disclosure make a difference in the success or failure of a company in transitioning to a new CEO?

According to Does CEO Succession Planning Disclosure Matter, a new study by the Investor Responsibility Research Center Institute, it does. Companies that successfully execute CEO transitions are far more likely to have disclosed CEO transition plans to shareholders. On the other hand, 63% of companies that did not execute a successful transition provided little or no disclosure. The report also reveals that while such disclosure is increasing, it is overall lacking among the majority of companies surveyed.

Among the key findings of the report were the following:

  • 24%of the issuers surveyed provided no disclosure regarding succession planning in the two year period prior to the CEO change.
  • When disclosure was provided, it was relatively poor: just over half the issuers surveyed disclosed who had responsibility for the succession planning, 10%disclosed how often the board reviewed succession planning, and 2% of issuers described the board’s process for identifying CEO candidates.
  • Less than one in ten companies surveyed mentioned the existence of an emergency plan for replacing a CEO, for example in the event of death or incapacitation.
Also of interest was that 20% of companies executing transitions had to replace the new CEO within a two year period. Of those companies, 48% of the CEOs resigned.

Publication Date*: 4/20/2016 Identification Number: 1158 Mailto Link
Frequently Asked Questions
  Building Investors' Trust through Transparency
Identification Number 1157
Building Investors' Trust through Transparency
Publication Date: March 29, 2016 

Transparency around the composition and qualifications of a board builds trust, as it helps investors evaluate the board’s independence and potential effectiveness.  With this in mind, Nasdaq took a close look at the board composition disclosure in our recently filed 2016 Proxy Statement to ensure that our presentation reflected important emerging trends in disclosure and could serve as a roadmap for our listed companies as they drafted their proxies.  It is in this spirit that we expanded our board disclosure to include:  

  • A board skills matrix, identifying the skills, knowledge, experience and capabilities of each director most relevant to help the board meet both current and future challenges.
  • A director qualifications analysis, detailing the tenure, age and skills of board members and illustrating the cognitive diversity of the board, with a range of experience, knowledge and perspectives.
Nasdaq also provided enhanced discussion of board, committee and individual performance assessments throughout the proxy, explaining the mechanics of how the board evaluation process is conducted and utilized. 
Publication Date*: 3/29/2016 Identification Number: 1157 Mailto Link
Frequently Asked Questions
  How to Build a Better Shareholder Letter?
Identification Number 1177
How to Build a Better Shareholder Letter
Publication Date: February 23, 2016

Just in time for the 2016 proxy season, Larry Fink, CEO of BlackRock, has some advice for CEOs of publicly-traded companies: articulate your company’s vision and plans for the future in shareholder letters.

For the past several years, Fink has strongly advocated that corporations turn their focus toward long-term health versus short-term reactions to activist and market pressures. In this year’s corporate governance missive to CEOs, dated February 1, Fink lamented that annual shareholder letters and quarterly earnings updates are “too often backwards looking” when a “perspective on the future…is what investors and all stakeholders truly need.” He emphasized that BlackRock’s corporate governance team, in their engagement with companies, will be looking for a strategic framework for long-term value creation along with explicit affirmations from CEOs that corporate boards have reviewed those plans.

Fink hopes that if corporations use quarterly earnings reports to educate shareholders about—and demonstrate progress towards—strategic plans, they “would be transformed from an instrument of incessant short-termism into a building block of long-term behavior.” In his letter Fink also proposes that corporations move away from providing quarterly earnings per share guidance, stating that “today’s culture of quarterly earnings hysteria is totally contrary to the long-term approach we need.”

Weaning investors and analysts off of quarterly earnings data may not be feasible. However, Fink offers a compelling argument for consistently communicating progress toward long-term plans and goals: a CEO who fails to articulate strategic plans for long-term growth runs the risk of activist investors imposing their own on the company. He shared in his letter that Blackrock’s corporate governance team will support activists’ plans when they offer better strategies for long-term value creation than management. In the 18 largest U.S. proxy contests during 2015, Blackrock voted with activists 39% of the time.

Fink would like to see shareholder letters (and other communications with stakeholders) include some or all of the following information:

  • Strategic framework for long-term value creation
  • Financial metrics that support framework for long-term growth
  • Compensation plans linked to metrics
  • How the company is navigating the competitive landscape, including how it is adapting to technological disruption and/or geopolitical events
  • How the company is innovating
  • Where the company is investing capital
  • How the company is developing its talent
Read Larry Fink’s Corporate Governance Letter to CEOs in full here >>

There are a number of CEOs who already take this tactic with shareholder letters (including Mr. Fink himself) and we’ve gathered a few examples from 2015 below. They don’t share common formats: one of these letters is so long and detailed it includes a table of contents, while another is just a page. All, however, provide a framework of their corporate strategy to some degree.

Alphabet Founders Letter by Larry Page >> Letter to Shareholders by Jeffrey Bezos >>

BlackRock Chairman’s Letter to Shareholders by Laurence Fink >>

JPMorgan Chase & Co Chairman and CEO Letter to Shareholders by Jamie Dimon >>

Microsoft Shareholder Letter by Satya Nadella >>

Starbucks Annual Letter to Shareholders by Howard Schultz >>
Publication Date*: 2/23/2016 Identification Number: 1177 Mailto Link
Frequently Asked Questions
  Interactive Proxy Statements: A New Way to Engage Shareholders
Identification Number 1178
Interactive Proxy Statements: A New Way to Engage Shareholders
Publication Date: December 1, 2015

In recent years, regulatory and corporate governance developments have made public company engagement with shareholders, increasingly important and several recent innovations provide companies with new and exciting ways to do it. These include: real-time, two-way interaction between a company’s board and shareholders and online videos to introduce board members and management to shareholders.

Now, some companies engage shareholders another way: through an “interactive” version of their proxy statement.

Interactive proxy statements are revolutionizing the way companies tell their corporate governance stories. To see an example of this, compare Microsoft's 2015 Interactive Proxy Statement with the Word version or compare Otter Tail Corporation’s latest Interactive Proxy with their PDF version. Through sophisticated user interfaces, advanced search capabilities, easy access to a shareholder voting platform, and accessibility to materials from a variety of mobile devices and tracking analytics, interactive proxies allow companies to bring their reports to life for shareholders.

Interactive proxies provide easier access to information for both retail investors and institutional holders. Even for sophisticated investors, proxy statements can be long and difficult to digest. In fact, according to a 2015 survey by RR Donnelley, Equilar, and the Rock Center for Corporate Governance at Stanford University, 55% of investors believe that the typical proxy statement is too long while 48% believe that proxy statements are difficult to read and understand, which leads to investors reading only 32% of the document, on average. Interactive proxies address many of these complaints, providing shareholders with the ability to go directly to different sections of the proxy or search for specific references or terms. These capabilities allow investors to spend more of their time analyzing relevant information rather than trying to find the information they need.

Interactive proxies also benefit companies. Interested in knowing what information is important to investors? Interactive proxies can include sophisticated behavior tracking analytics that allow companies to know the most popular sections and search terms for shareholders, as well as how much time people spent viewing certain sections. Companies can use this information to help them anticipate investor concerns, structure presentations, and guide discussions.

Interactive proxy design and hosting services have client portfolios that include many marquee public companies. We identified a number of companies offering a range of services at various price points, including EzOnlineDocuments, iiWisdom, and RR Donnelley (NASDAQ: RRD).

Publication Date*: 12/1/2015 Identification Number: 1178 Mailto Link
material_search_footer*The Publication Date reflects the date of first inclusion in the Reference Library, which was launched on July 31, 2012, or a subsequent update to the material. Material may have been previously available on a different Nasdaq web site.
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