Sullivan & Cromwell's "Practical Guidance for the 2019 Proxy Season" shares insightful common practices & trends and disclosure guidance on the key hot topics that are likely to be the focus of investor scrutiny and engagement for the 2019 proxy season, including board composition, refreshment & evaluation; sustainability; workforce management; gender pay equity; and director & executive compensation.
Key takeaways include:
- The firm expects companies' board composition disclosures to continue to address the Nom/Gov Committee’s philosophy of board refreshment and general objectives, such as enhancing board diversity. The firm notes that disclosure of specifics, e.g., a specific number of directors to be replaced in a specific timeframe, likely isn't necessary unless specific company circumstances (e.g., shareholder activism or other investor criticism of the board's composition) warrant.
- Companies are increasingly disclosing information about their board self-evaluation processes in their proxy statements and investor communications.
- Directors are increasingly participating in the company's shareholder engagement meetings. Companies should prepare accordingly by, e.g., identifying spokesperson-directors in advance who can then engage in mock Q&A sessions with the CEO, CFO and IR.
- Although some boards are expanding their Nom/Gov Committee's remit to include ESP (environmental/social/political) oversight, such oversight may be best effected at the full board level (or a different board committee) depending on the company's specific facts & circumstances.
- ESP disclosure or expanded disclosure and the medium for such disclosure should be carefully considered taking into account investors' desire for this type of information and relevant proxy advisor practices/policies, as well as the potential unintended legal implications of disclosure of data/information in SEC filings that could subject the company to Securities Act liability.
- Some companies have amended their Compensation Committee charters to encompass human capital management oversight inclusive of talent pipeline and workplace culture issues like D&I; however, the firm notes that periodic discussion of these issues at the full board level is also warranted. Additionally, many companies report employee and compliance hotline data to the board quarterly, and require management consultation with the board before settling workplace misconduct involving senior management or in excess of a specified dollar amount.
- The firm recommends the board's or designated board committee's periodic review with management of the company's code of conduct, particularly (as concerns HCM issues) to ensure appropriate coverage of sexual harassment policies and training procedures, as well as proper reporting and enforcement mechanisms.
- Gender pay ratios, if voluntarily disclosed, should be reviewed by legal counsel to ensure any legal issues, e.g., whether the information could be deemed "additional soliciting material" under the SEC rules, are appropriately considered.
See our recent report: "Here's How to Enhance Your Board Evaluation Disclosure," and additional information & resources on our Annual Meeting, Board Composition, Board Diversity, Board Succession/Refreshment, ESG, Gender & Other Pay Gap/Parity, Political Contributions and Disclosure Proxy Season 2019 pages.