The Pros of Proactively Engaging with Proxy Advisors
Meeting with proxy advisors can give companies invaluable information and insights ahead of proxy season, allowing them to:
- Gain a clearer understanding of how their company is perceived by the market;
- Explain why they consider specific policies appropriate for their company and shareholders;
- Understand how proxy advisors’ views and preferences may have changed;
- Identify issues and risks which they may face during proxy season; and
- Build trust and personal relationships.
It is recommended that companies should engage annually with proxy advisors, because whether or not a company believes it has anything new to say, the market is constantly changing and might look very different from a proxy advisor’s perspective compared to a year ago.
Importantly, these meetings also allow people to put faces to names and build relationships, enabling proxy advisors to better appreciate the people and the thinking behind specific corporate decisions, or to seek commitments or suggest initiatives that would make them easier to support.
For a company, they provide opportunities to find out where they stand relative to the rest of the market, and what other companies in their space are doing. Proxy advisors have seen it all, assessing a huge range of companies and have a great wealth of knowledge about the market which company representatives can tap into.
It is also always useful to learn how proxy advisors’ policies may have recently changed, what issues they are currently focusing on, what they will potentially start recommending against and what their clients (the company’s investors) are currently saying.
Each proxy advisor has a slightly different lens: while some might be focused primarily on individual directors and their track records, others tend to concentrate more on executive remuneration and alignment to performance, or on sustainability matters such as climate change and modern slavery.
Even where these are not voting items, proxy advisors still closely scrutinize how boards are managing issues related to ESG performance and disclosure. These topics represent the next frontier in corporate reporting and are increasingly impacting on director elections, as evidenced by the Exxon Mobil Corp board spill in May. Proxy advisors, and by extension their clients (investors), are increasingly holding directors accountable for what they have been doing and the decisions they’ve been making on new and emerging risks. As an example, in the mindset of proxy advisors, if it appears that a company has not been looking at climate change then it begs the question what else are they not considering and are the directors fulfilling their oversight duties well?
To ensure that companies get as much as possible out of meeting with proxy advisors, preparation is key. Even when non-executives’ directors and IR teams have the requisite confidence and experience, proxy advisor engagement specialists such as Morrow Sodali can help them better understand the people they will be meeting with, the issues specific issues proxy advisors are focused on, and the questions they are likely to be asked.
Timing is an important consideration, as it can vary between proxy advisors. For example, some will meet with companies after the notice of meeting has been published, while others will not. Meetings are often scheduled for the period between the release of the annual report and notice of meeting, but for companies which are comfortable with their disclosures and have a clear sense of what they want to achieve, there is no reason not to meet earlier in the reporting cycle.
Whether companies choose to engage by sending executives, non-executive directors or functional experts, such as the company’s executive compensation team, to meet with proxy advisors, the goal is not to head off specific issues but to foster open dialogue and build ongoing channels of communication.
Morrow Sodali has been supporting listed companies around the world through the provision of strategic shareholder engagement support and advice for almost 50 years. Morrow Sodali’s team is uniquely equipped to contribute to the proxy advisor and ESG rating agencies engagement process, with a number of former proxy advisors on the team, helping us to ensure our client's disclosures address ESG-conscious stakeholder expectations and concerns.
If you would like to have an obligation-free discussion with our expert Morrow Sodali team to find out more about our proxy advisor engagement services, and how we could assist you with your 2021 AGM campaign, please request a call through the link below. We look forward to hearing from you.