July 17, 2020

SEC Calendars ‘Open Meeting’: Proxy Advisor Rules on Agenda

Earlier this week, the SEC issued a Sunshine Act notice for an open meeting scheduled for this coming Wednesday – July 22nd.  Here’s the agenda that lists two items:

The Commission will consider whether to adopt proxy rule amendments to provide investors who use proxy voting advice with more transparent, accurate, and complete information on which to make voting decisions, without imposing undue costs or delays.

The second item on the agenda says the Commission will consider whether to publish supplementary guidance to the Commission Guidance Regarding Proxy Voting Responsibilities of Investment Advisers, Release No. IA-5325 (Aug. 21, 2019), 84 FR 47420 (Sept. 10, 2019), regarding how the fiduciary duty and rule 206(4)-6 under the Investment Advisers Act of 1940 relate to an investment adviser’s proxy voting on behalf of clients.

The last time I blogged about the Commission calendaring an open meeting it was cancelled on fairly short notice.  The proposed rules on proxy advisors are top of mind for many so hopefully the Commission keeps this meeting – those interested can listen in via audio webcast on the SEC’s website.

And, if rules are adopted, we’ll be covering this and discussing what it means at our upcoming “Proxy Disclosure” & “Executive Pay” Conferences – which will be held entirely virtually over three days – September 21 – 23.  We’ve offered a Live Nationwide Video Webcast for our conferences for years – one of the only events to do so – and we’re excited to build on that platform and make your digital experience better than ever. Act now to get an “early bird” discount – here’s the registration information.

Return to Sender: Company Received $250 Million in Relief Funds – But Board Gives it Back

A recent Harvard Business Review article provides a quick read about how one company decided to return $250 million in government relief funds.  The funds weren’t part of the PPP rollout fiasco where some companies applied for funds and then returned them as questions mounted about good-faith need certifications.  So, with continued economic uncertainty some might question what led a company entitled to funds to give the money back.

As the article explains, the board decided to do what was right and made a unanimous decision to return the money.  The article is in the form of a Q&A with the company’s CEO and provides a good case study illustrating board deliberations that considered “stakeholder interests.”  The article says the CEO hopes to influence discussions in other boardrooms:

We’re a publicly traded company, and if our decision to return the money helps give other companies a bit of air cover to make the same decision, that’s a good thing. If more companies that aren’t risking their survival decide to return the money, millions will turn into billions of extra funding that can go to those truly in need. Then, hopefully, we emerge stronger as a country. There’s been a decade-long debate about ESG and the role of a company. In my opinion, we’re at a unique time in which CEOs need to act.

Fall Shareholder Engagement: Prep Questions

Here’s something I recently blogged on Off-season shareholder engagement is always important but this year it may be even more so with attention focused on social issues, company responses to the pandemic and related matters.  As proxy seasons seem to be rolling from one right into the next, Teneo recently issued a memo titled “20 Imperatives for Fall 2020 Shareholder Engagement” to help companies prepare for upcoming off-season shareholder engagement and the 2021 proxy season.

The memo lists 20 topics and questions, primarily focused on diversity and executive compensation and suggests companies prepare for Fall engagement by asking themselves those questions. Here are a few:

– Strategy: How are we reassessing and resetting our strategy, business, brand, and reputation to align with the new normal? Over the medium and long term, the new normal may call for a different strategy, brand changes that mitigate inclusiveness concerns, or a reprioritization of business lines. Stakeholders will view the strategy through a new lens and expect companies to do the same.

– Diversity Goals: Should we set and disclose concrete diversity goals? The evolution of sustainability reporting has led to the practice of companies setting and disclosing concrete goals, typically relating to the environment. It is less common for companies to set and disclose any goals relating to social issues. However, the current environment could prompt investor calls for goal setting on this issue as well.

– Consistent Grant Values: How will our year-over-year grant values be perceived by investors? Maintaining year-over-year grant values during periods of extreme stock price volatility poses a unique set of challenges. While lowering annual grant values may raise retention and motivation concerns, proxy advisors and many shareholders expect lower grant date values when the stock price is low, as granting more shares has a dilutive effect. The recent stock market rally has only increased the scrutiny of significant gains from equity awards at the height of the pandemic.

– Lynn Jokela