With January 2024 just around the corner, most companies have concluded their dialogue sessions with shareholders and proxy advisors and have begun the unenviable task of drafting their annual proxy disclosure statements. These efforts are aimed at hearing what compensation, governance, environmental and social (E&S), or sustainability risks investors may perceive and how to avoid future negative voting decisions. The emphasis was on In response to this feedback, companies are now asking themselves how much information they need to disclose in their 2024 proxy statements.
For many companies, investor outreach has become an annual tradition with the goal of building relationships and staying on top of evolving investor expectations, but board meetings after low turnout have Some companies undergo this process to demonstrate responsiveness and to pre-empt potential issues during voting time. For these companies, thoroughly communicating the engagement process and the board's response to feedback received from investors is a critical task that, if not completed properly, can spell disaster for the board.
In fact, a lack of responsiveness to either management proposals that received low approval ratings or shareholder proposals that received majority support is a major factor in the decline in board approval ratings the following year. According to ISS, insufficient board action was likely the main voting driver for the 17 directors who did not receive majority support from shareholders in the first half of 2023.1. By the way, within the Russell 3000 companies, his 38 directors failed to receive majority support in the first half of 2023.
To gain any credibility from investors and proxy advisors, proxy voting disclosures must detail engagement efforts. Companies need to be aware of the scope of their outreach, including disclosure of the number of shareholders contacted and the number of shareholders the company has engaged with. From a corporate perspective, many initiatives are led by independent directors. Particularly for companies trying to recover from poor voting results, it is important to focus on corporate participants, including independent directors. Proxy disclosures also include feedback the company has heard from investors, both positive and negative, and most importantly, how the company is responding to shareholder concerns. It is important to include it. Are changes being made based on this feedback? If not, why?
This type of information not only strengthens cooperation by demonstrating action through dialogue, but also demonstrates to shareholders with whom the company has not spoken that the company can change course. Companies hope that recent conversations will lead to support at shareholder meetings. These include board elections, a say in salaries, stock grants, amendments to articles of incorporation, and even support for shareholder proposals.
One obstacle some companies encounter in deciding to make changes to reflect shareholder feedback is that many institutional investors do not publish updated voting guidelines. This means that companies may not know whether stakeholders adopt new redlining policies or change targets based on other guidelines, such as the number of external mandates for non-executive directors. means. Additionally, the timing of the latest guidelines complicates even the compliance-or-explain issue, as companies cannot determine what changes have occurred in the voting guidelines.
This is another area where professionally managed shareholder engagement can deliver effective long-term dividends. By talking with their governance/stewardship teams in late fall or early winter, companies may be able to determine where the pressure points will be in the next voting cycle. Additionally, Alliance Advisors' experience is that when investors have existing concerns about policy, they provide immediate feedback and offer suggestions for improvement.
