With the 2025 proxy season in full swing, most calendar year-end companies have already submitted or prepared a 2025 proxy statement, laying the foundation for future Annual Meetings (AGMs). The majority can expect a high level of investor support for the voting items supported by management, but each year a considerable number of publishers are found to be prepared for the potential for challenging votes. For some, this contested environment was expected. For others, it may come as an unwelcome surprise.
“I hope within the former category, if possible, that corporate management and independent directors are aware that there may be investor pressure on executive pay due to issues such as missurgery of performance payments and decisions related to off-cycle equity grants due to corporate-specific retention considerations. “But every year there are several publishers who don't think this will come, but frankly, a bit blind when proxy advisor recommendations are published.”
News of seemingly, potentially problematic votes from nowhere, whether anticipated, begins a fierce period of investor outreach. In the best of cases, the board will inking towards the 2025 proxy season, with wage measures in 2024 likely to encourage scrutiny and some advance preparations likely to occur, but this is important.
“These are companies that have prepared (external) presentation materials, (internal) talking points and Q&A in advance, hopefully when the decision was made in 2024, or by the first quarter of 2025.” “They are ready to explain to reasonable investors why they took the action they took and have put together their targeted plans for investors.” Companies who have come as a surprise where the challenge is not welcome should move quickly to develop their investor outreach plans and all related materials at the same time.
Proxy Challenge Preparation
Identifying which shareholders to approach is an important first step informed by the shareholder register. “Companies need to carefully consider their shareholder base to ensure that their engagement efforts will generate the largest ROI in the condensation period and reach a critical mass to swing the vote favorably,” says Sikca. “Who is our biggest shareholder and what is their recent voting history? Which shareholders do we establish in advance? At the end of the day, it becomes an exercise that is a healthy combination of art and science.” Once the list of investors is framed, providing background information outlining the stewardship priorities of each institution on issues of executive pay and corporate governance, and detailed voting track record can be extremely useful for clients, especially independent directors, as they prepare for constructive dialogue.
Preparing for engagement for the proxy season also requires messaging creation and refinement to clarify how it can help you in your business strategy and shareholder value creation. It is also important to develop supplemental proxies and intensive investor presentations that distill and strengthen the rationale for shareholder support. Investor materials prepared for proxy season engagement are less concise and pointless compared to those prepared for offseason engagement following the annual meeting.
“Ideally, these should be 5-7 pages of presentations aimed at supporting discussions on these very pointy topics,” he says, noting that the material will usually be provided to investors before the meeting. “Companies need to realize that these meetings take place during a very busy period at institutions invested in thousands of companies, where they are trying to make an informed vote decision. Investors think, “Don't read 20 slides before going to the elephant in the room.” You need to highlight the issue from the gate that brings potential opposition and frames claims that shareholders will support you. ”
During the meeting, shareholders would like to hear from directors who were responsible for the critical decisions. Board members, such as the chairman of the Compensation Committee and lead director, should prepare to play an active role in investor meetings. “While management and external advisors certainly have a ton of heavy work to prepare, the responsibility to be convinced of the shareholders who may be on the fence can often fall into independent directors,” Sikca says. “Investors don't expect directors to answer all the questions in full, but the most effective directors in these voting solicitation meetings are those who can speak to important topics within the board's scope at a fairly detailed level (particularly issues of executive salaries and corporate governance).”
It should also be noted that large institutional investors often vote in the process. “If there are unexpectedly negative votes, there may be a way for the company to follow up with those investors,” says Sikca, who advises tracking vote attribution reports. “But at that point, changing your vote can be logistically difficult, so you don't want to wait until the vote arrives.”
Post a proxy engagement
In the event of an unfavourable voting outcome, businesses must continue their engagement efforts by contacting a wide range of shareholders who supported and opposed the payroll program immediately after the annual meeting.
Ideally, this offseason outreach should be scheduled to complement the board calendar as investors meetings will be held prior to scheduled boardroom discussions on executive pay and governance issues (usually fall/winter) to inform relevant board decisions. “The goal is to go back to both sides and get a perspective, so the board has a general view of the compensation program and the source of support for the opposite source,” explains Sparling. “That feedback can be used to create an appropriate response that shareholders deemed to be accepted in future votes.”
Without time constraints for meetings during the proxy season, investors should be involved during the offseason, with content wider and more broader, and it doesn't need to cover issues including, but not limited to, modern business strategies, effective board oversight, succession planning, director refreshment, and ESG issues. The opportunity to discuss investor decisions should be seen as an opening to establish regular dialogue with investors and proxy advisors, says Sparling, who views engagement opportunities as the silver colour of a challenging vote. “We will take the temperature of our shareholder bases and force us to understand where the integrity and support of our compensation decisions are,” he explains. “Opening that channel for feedback will help you start healthy, continuous engagement, which will help you build trust and build stronger relationships with shareholders.”
