Proxy season highlights need to control corporate narratives, experts say

The proxy season has underlined the importance for companies of controlling their own narratives, governance experts explained during a recent Corporate Secretary Webinar.

Although the 2023 proxy season has not yet fully closed, initial data indicates that there has been a drop in average levels of support for environmental and social shareholder proposals, even as the number of those resolutions remains at record levels.

Gregory Reppucci, senior director for sustainability and corporate governance at Morrow Sodali, told the webinar audience that this overall decline in support is due in part to companies becoming more transparent about how they are dealing with the issues raised in proposals or in explaining why those issues are not material to the company.

Shareholder proposal topics in the environment and social space continue to include climate change, diversity, equity & inclusion and racial equity and this year increasingly address reproductive rights and biodiversity. Not only have many companies started to offer disclosures about their efforts in those areas or why the issues are not relevant to them, but institutional investors are also taking a more nuanced approach in responding to those disclosures, Reppucci said.

It is important for companies to control their narrative both in disclosures and through their engagement with top investors, he explained. In doing so, it is helpful to address even topics that are not the subject of a shareholder proposal so that the firm has credibility if one arises later, he added.

TAKING CHARGE
‘Shareholder proposals are a lousy way to have a thoughtful conversation on these serious and often complex topics,’ said fellow panelist William Ultan, managing director for corporate governance at Morrow Sodali. Companies cannot control whether they will face a proposal on an environmental or social matter, and cannot control whether the SEC will grant no-action relief for excluding a proposal from its proxy statement, he noted.

But Ultan pointed out that they can control their narrative through their disclosures and engagement with investors and other stakeholders, explaining their challenges and efforts.

Heather Houston, secretary and chief counsel for corporate at Empire State Realty Trust, provided a practical example of the importance of narrative. She noted that her firm had faced voting pushback this past proxy season after its board diversity level dipped below the 30 percent threshold set by Glass Lewis when a director stepped down.

In response, the company issued a supplemental proxy statement in which it pledged that the replacement director would be a woman and directed some of its largest investors to that disclosure. Houston reported that these actions enabled the company to turn around some of its investors’ votes, although others were determined to follow the quotas in their voting guidelines. 

Click here to watch a replay of the webinar ‘Behind the numbers: What the recent proxy season means for governance’