Prep for Proxy Season

To do

Review prior year’s results, proxy advisor voting recommendations, and any follow-up items
Complete D&O questionnaires
- Follow up on exposures, sensitive areas (e.g. over-boarding, party-related transactions, changes in affiliation, etc.)
Get briefed on current issues
- ISS/Glass Lewis general communication – they put out a Proxy Season communication so you know what they are paying attention to this year
- SEC guidance
- Hot topics (via accounting, law firm communications). These firms usually put out a statement once a year before proxy season.
Review the current 10-K (the tone of the 10K and proxy should be consistent)
Get briefed by your investor relations
- Understand current ownership – have there been any major changes in shareholders?
- Understand any issues with shareholders that might affect how they approach voting
Get external advice for company-specific issues, e.g.:
- Say on Pay
- New Equity programs (what likely you can get approved what you need, how long it will last, how appropriate your current program is, etc.)
- Shareholder proposals

The proxy advisor does not advise the company, but instead advises shareholders, and generally institutions. They do not own the stock and big investors hire them to tell them how to vote. And that gives safe harbor to big investors and fiduciaries so generally the customers of ISS are investors.

ISS and Glass Lewis also sell services to companies, and those services help them prepare for proxy season, help them understand how they will be evaluated, give them more granularity into how they will be rated, and help them get a better opinion. Usually companies in trouble will get an outside advisor who is not ISS or Glass Lewis.

Committee work

Much of the board work that is done in preparation for the proxy is work that is in the normal workflow of the committees.

Nom/Gov Committee

Recommend to the board any governance changes
- By law it is up to management to recommend to the board the governance changes. There are usually one or two hot topics every year that boards might have to respond to and take a position on, e.g. proxy access.
Carefully review nominees’ qualifications, independence, and financial expert status
- A proxy will specify the qualifications of each proposed director, why those qualifications are relevant, why it’s appropriate for that nominee to serve the company, and demonstrate independence of the nominee.
- For those directors who will be designated as financial experts, under either the New York Stock Exchange or NASDAQ definition, the committee will ensure that they are appropriately qualified.
Carefully review the director recruiting and evaluation process
Review governance proposals submitted by shareholders and recommended response
Report on committee’s work and whether it is in compliance with its charter or not

Comp Committee

Much of the work is already completed:
- Current year’s executive compensation programs:
  - By now the current year’s executive compensation program has already been approved by the board because they’re already into the first fiscal quarter. It is very important that the comp committee pay attention to how the description of that comp plan will show up in the proxy, this year or next year. The optics are important, and the choices are important. When putting together a comp program the committee should consider how the program will play out over time, how it will be described over time, and how it will be graded over time.
  - You have already sought help from an independent compensation consultant and decided where you want to be in your peer group
- Report payout from prior year, achievement of goals, and metrics
Make recommendations regarding shareholder vote on additional equity
Report on committee’s work and whether it is in compliance with its charter or not
The comp committee is primary responsibility for CD&A

Audit committee:

Report on the prior year’s work and whether it is in compliance with its charter or not
Issue an auditor fees report
- These are generally broken down into a few categories: standard audit fees, tax, statutory audits (which sometimes are included in the main fees), and other projects (e.g. a whistleblower complaint).
- Be careful to disclose exactly what auditors have done and that they are not doing anything that is prohibited.
Report on related-party issues

Some general advice

All directors should read, comment, approve, and ensure the proxy is consistent with the 10K.
Do not be afraid to sell yourself, especially regarding compensation.
- Director compensation should consider the degree of difficulty, or the degree of risk, for the position, and not just a percentile of a peer group. Use the proxy document to make your case for higher compensation if you believe it is in the best interest of the company. Be descriptive in your documentation and approach is as a marketing presentation.
Highlight progress and commitments made
Use graphs, tabular data, make it understandable, and stand behind it
More disclosure is better than less
Think about the proxy when making comp decisions – think about how it will be viewed in the future.
- Do not cherry pick consultants and peer groups just to increase what is considered as acceptable compensation.
- Since most comp packages were in place before the pandemic hit, it will be interesting to see how compensation is viewed in the coming year.
Be clear, do not try to be clever, and do not obfuscate
Involve the comp committee consultant, IR, not just the lawyers
Use outside advisors when needed
If prior commitments have been made to investors, ensure inclusion/discussion
This is a good time to pay attention to executive/board ownership – to see which of the directors has a financial stake in the success of the company.
Giving a proxy refreshed content, a fresh look, and a fresh feel can make a big difference
Treat your proxy as a marketing presentation and be mindful that your employees and customers may read it. You can use this to make the case to justify executive compensation. You are also marketing to your shareholders, asking them to vote a certain way and asking them to support the direction in which management and the board are taking the company.
Also take into account ESG considerations – is what you are doing good for the world, or not?