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Heads up! State Street Global Advisors has issued its “Proxy Voting & Engagement Guidelines” for 2023 – and they include what may be an unwelcome “Easter egg” for Russell 3000 companies. Thanks to Aon’s Karla Bos for calling this to our attention and highlighting key changes in the US & Canada Guidelines:

• Directors and Boards – Added: In our analysis of boards, we consider whether board members have adequate skills to provide effective oversight of corporate strategy, operations, and risks, including environmental and social issues. Boards should also have a regular evaluation process in place to assess the effectiveness of the board and the skills of board members to address issues, such as emerging risks, changes to corporate strategy, and diversification of operations and geographic footprint.

• Board Gender Diversity – We expect boards of all listed companies to have at least one female board member and the boards of Russell 3000 companies to be composed of at least 30 percent women directors [emphasis added]. If a company does not meet the applicable expectation, State Street Global Advisors may vote against the Chair of the board’s nominating committee or the board leader in the absence of a nominating committee. Additionally, if a company does not meet the applicable expectation for three consecutive years, State Street Global Advisors may vote against all incumbent members of the nominating committee or those persons deemed responsible for the nomination process.

Added: We may waive this voting guideline if a company engages with State Street Global Advisors and provides a specific, timebound plan for either reaching the 30-percent threshold (Russell 3000) or for adding a woman director (non-Russell 3000).

• Board Racial/Ethnic Diversity – We believe effective board oversight of a company’s long-term business strategy necessitates a diversity of perspectives, especially in terms of gender, race and ethnicity. If a company in the Russell 1000 [emphasis added – formerly S&P 500] does not disclose, at minimum, the gender, racial and ethnic composition of its board, we may vote against the Chair of the nominating committee. We may withhold support from the Chair of the nominating committee also when a company in the S&P 500 does not have at least one director from an underrepresented racial/ethnic community on its board [emphasis added].

• Virtual/Hybrid Shareholder Meetings – New policy describing support for proposals that maintain specific best practices.

• Advisory Vote On Executive Compensation – No change

• Employee Equity Award Plans – No change

• Risk Management – New policy: We believe that risk management is a key function of the board, which is responsible for setting the overall risk appetite of a company and for providing oversight on the risk management process established by senior executives at a company. We allow boards to have discretion regarding the ways in which they provide oversight in this area. However, we expect companies to disclose how the board provides oversight on its risk management system and risk identification. Boards should also review existing and emerging risks that evolve in tandem with the changing political and economic landscape or as companies diversify or expand their operations into new areas.

As responsible stewards, we believe in the importance of effective risk management and oversight of issues that are material to a company. To effectively assess the risk of our clients’ portfolios and the broader market, we expect our portfolio companies to manage risks and opportunities that are material and industry-specific and that have a demonstrated link to long-term value creation, and to provide high-quality disclosure of this process to shareholders.

Consistent with this perspective, we may seek to engage with our portfolio companies to better understand how their boards are overseeing risks and opportunities the company has deemed to be material to its business or operations. If we believe a company has failed to implement and communicate effective oversight of these risks, we may consider voting against the directors responsible.

Karla noted that if you’re working with small or mid-sized clients, you may want to highlight SSGA’s board gender diversity threshold of 30%. The 2022 CEO letter had stated the 30% threshold would apply in 2023 to “companies in major indices in the US, Canada, UK, Europe, and Australia.” Many had expected that to mean S&P 500 for the US, since SSGA often starts with S&P 500 when raising expectations for US companies, so this may also come as a surprise to smaller companies who thought the main US entity applying a 30% threshold this proxy season would be Glass Lewis.

Thanks again to Karla for this info! We always welcome tips from members – and we’re pretty friendly to chat with, if I do say so myself. If you see something that you think the community would want to know about, feel free to email John at john@thecorporatecounsel.net, me at liz@thecorporatecounsel.net, or anyone else on our team.

– Liz Dunshee