My last post was a re-posting of Adam Epstein’s great piece on the importance of the proxy statement. I promised that I would follow up on Adam’s thoughts with some recommendations of my own. Here goes.
- Manage your proxy statement “real estate” to maximize user-friendliness and create an optimal flow: Think about where things go. For example, if your company is owned largely by institutions (and perhaps even if it’s not), should you lead off with an endless Q&A about the annual meeting and voting, discussing such exciting topics as the difference between record and beneficial ownership and how to change your vote? Some of it is required, but consider taking out what’s not required and moving what is required to the back of the book.
- Use executive summaries: Investors like them, and even the SEC has more or less endorsed their use. Think of it this way – whatever you think of ISS, it does a great job of summarizing your key disclosures, albeit not with your company’s best interests in mind. Why pass up an opportunity to convey your key disclosures with those interests in mind?
- Simplify, simplify, simplify: Use plain English, infographics, tables, and bullet points to tell your story. Don’t state every single factoid that supports your board’s position. Lead off with your conclusions rather than building to them, because your readers may not get that far (especially if you’ve put them to sleep by then).
- “Humanize” your board: This isn’t in most lawyers’ wheelhouses, but you need to demonstrate that your directors are the right ones for your company and are intelligent, engaged and committed. As one major investor has stated, proxy statements should demonstrate why it’s better to elect each nominee than to leave his/her seat empty at the board table. The SEC’s rules on “skill set” disclosure were supposed to do that, but anyone who’s drafted those disclosures knows that they became useless before the ink dried. Some companies have developed innovative approaches to this challenge, such as linking bios to online videos or including a personal statement for each director/nominee. (I have no idea whether this is required under Japanese law, but I’ve seen these personal statements in a number of Japanese proxy statements, and while they’re often too long, they work.) Include direct communications between your board and your investors, such as a letter from your board chair or your lead independent director, or brief notes to investors from your committee chairs. (BTW — investors increasingly also want to see a CEO letter like those that used to be included in glossy annual reports.)
- Discuss the board’s role in overseeing strategy: Of course, this is it’s not required, but if you take the position (which I do) that overseeing strategy is one of the board’s most important responsibilities, shouldn’t you at least try to let your investors know how the board addresses this responsibility?
- Talk about how the board handles management succession: Again, not required. However, it’s another key board responsibility – some governance nerds think it is the only board responsibility – so talking about it seems like a good idea, particularly if your company has experienced any kind of succession issues in the past.
- Describe your board’s oversight of the “E” and “S” in ESG: If you needed any proof that sustainability issues have become important, look at some recent votes on shareholder proposals on the subject.
- Explain what your committees do, rather than what they are: The SEC rules regarding key committees are antiquated and, frankly, silly; is it really necessary to say that your audit committee operates under a board-approved charter that can be found on your website? Of course, you have to disclose this, but that doesn’t mean it’s all you should disclose. Chances are your committees work very hard; why aren’t you justifying their existence by explaining what they did?
- Discuss your strategy: Don’t assume that your investors know what your strategy is. They probably don’t (possibly because you’ve never explained it). But if your NEOs’ compensation has increased because of “strong performance”, shouldn’t you explain how/why that performance was strong – i.e., how it helped to achieve your strategy?
- Simplify, simplify, simplify: What was discussed earlier goes double (or triple) here. There’s a reason that investors complain that so many compensation programs are too complicated – we make them seem that way. This is one area where less is more and you should avoid citing every detail of every plan.
I have lots more where these came from, but I’ll hold off for now with two final notes. First, please don’t tell me that some of what I’ve suggested isn’t required. I know that. But I also know that investors – even retail investors – increasingly need to be persuaded, and if you don’t give them information they reasonably request, they may not support you, particularly if an activist comes a-knocking at your door.
My final note is that I probably should have posted this last year, when those of you whose companies are on a calendar year were starting to prepare your 2017 proxy statements. I’ll blame that on Adam [insert smiley face]. However, it’s never too soon to start planning for next year!