This Year’s Proxy Season: The Good News And The Bad News

Thursday, March 28, 2013 - 10:33

We’re writing to you this month as an editorial team. In looking over this month’s editorial content, we can report that no topic inspired livelier debate than the roles of the corporate secretary and of those deeply involved in governance. Especially intriguing are the kinds of challenges these parties face each year during proxy season and how the proxy season provides a window into the current attitudes of shareholders and management.  

Naturally, say-on-pay figures prominently in this month’s discussion of the 2013 proxy season. The Wall Street Journal (March 20, 2013) recently reported, “the shift in how CEOs are paid highlights the growing role of investors in shaping executive compensation – and their push to align pay more closely with corporate results.” This statement reflects the shift we’ve seen in recent years toward greater shareholder activism and broader demands being made of corporate disclosures.

Greater shareholder involvement has served well to inspire increased awareness and better corporate communications, but it also has raised new issues. Even the best disclosures cannot provide the same company-specific information to shareholders that the board uses when making executive compensation decisions. While companies may need to disclose more, in an ideal world shareholders would make the effort to understand the total picture.

Still, there is undeniable gravity to the broad idea espoused by many shareholders that executive pay should be tied to company performance, and that certain aspects of shareholder activism – social and environmental issues – have earned their rightful place in the grand scheme of things. Akin Gump’s Robert Dockery points out that the level of support for environmental and CSR proposals has more than doubled over the last half-dozen years, while Lanny Kurzweil of McCarter & English likewise notes that shareholders have become “outspoken in their desire to invest in companies that take their environmental stewardship seriously.”

It is regrettable that some lawyers have exploited the complexities of the say-on-pay disclosure process to raise minor technical issues in order to achieve lucrative settlements of lawsuits designed to delay annual meetings. We can't help but question a process that delivers hundreds of thousands of dollars in legal fees to plaintiffs’ attorneys.  

Reflected in this month’s pages is a sense of growing empowerment on the side of corporations and their corporate secretaries, in part fueled by more experience with the challenges posed by Dodd-Frank, as reflected in proxy disclosures that are being crafted with greater precision and a sharper focus on specific issues that shareholders have expressed concern over. Corporations have stepped up to the call for pay-for-performance initiatives and better proxy disclosures, and they are enjoying a positive impact as reflected in early voting results.

Further, the issue of director independence – a flashpoint for this proxy season, particularly in the wake of SEC, NYSE and NASDAQ rules released last year – inspired a pendulum shift that amounted to a corporate “rallying cry.” Far from lashing back at new regulations, some companies carried the logic of independence to extremes, reasoning that if some independence was good, then an entirely independent board was better. Now, as Kramer Levin’s Ken Kopelman reports, “the pendulum is swinging back somewhat, and the importance of factors other than independence – like industry background and expertise – is once again being recognized.”

Meanwhile, the corporate secretary is working to fulfill a “unique role,” as the chairman of The Society of Corporate Secretaries and Governance Professionals, Ken Wagner, comments in our Special Section cover story. This role finds him or her “[interfacing] closely with both executive management and the board of directors, while not necessarily being a part of either group in the sense of having a seat at the table.”

Far more than merely a messenger, today’s corporate secretaries must facilitate effective communication between the board and management but also, during this proxy season, avoid ambiguities in say-on-pay disclosures that might expose the company to litigation. 

All of the themes mentioned above, and many more, appear in this month’s issue. Please read, enjoy, ponder and, as always, feel free to continue the discussion by contacting us or those who are contributors to The Metropolitan Corporate Counsel.