Public companies recognize the importance of the proxy statement, using it to communicate with shareholders, big and small. But how do you successfully accommodate a diverse readership? The key is transparency.
Although standards of best practice and regulations evolve, the demand for transparency is consistently strong. And with investor activism on the rise, so is heightened scrutiny of companies’ messages from ever larger audiences. Clear and transparent disclosure is key to establishing investor confidence in your company, management and the board.
Maverick, Labrador’s corporate information research laboratory, recently conducted a benchmark study of the proxy statements filed by companies in the S&P 250, closely examining both content and design. The findings provide insight into how companies approach their proxy filings and how they can increase transparency.
A proxy statement should be organized systematically and follow a logical flow, allowing information to build sequentially. You can avoid repetition by grouping related information together and using navigational clues such as prominent headers to help readers find what they need. Whenever possible, the reader should be able to understand a single idea without having to look elsewhere in the proxy statement for supporting information.
Document structure and design influence the reader’s perception of the company’s message. Simple design tools such as secondary colors and page guides show readers what to read and where they are in the document. The study found that 88 percent of the S&P 250 used at least one color in their proxy, and 72 percent include descriptive page footers. Although these are small additions, the impact is significant. For example, when investors are reviewing multiple proxies at once, footers quickly tell them what company’s document they are looking at. Color makes a document more attractive, emphasizes key information and — when used strategically — reinforces brand identity.
In addition to strong document structure, the best proxies emphasize clear content and jargon-free plain language. One way to address demands from investors and the SEC for understandable and transparent disclosure is to offer an easy-to-read proxy summary at the beginning of your document.
Proxy statements contain a multitude of decision-useful information. A proxy summary provides an initial road map for the readers who want detail, and a general overview for more casual readers. In 2020, 79 percent of the S&P 250 proxy statements contained a proxy summary. Most summaries included both governance and compensation highlights, but there are differing views about what other information should be included. For example, only 20 percent included strategic or company highlights, which may be a missed opportunity to provide context for compensation decisions. We generally recommend highlighting changes to the pay program, management or the board, and summarizing the company’s response to extraordinary situations such as a global pandemic.
Further in the document, it pays to consider shareholders’ specific information needs. For example, calls for human capital management (HCM) information have become increasingly pronounced. Investors want to know about hiring practices, safety, diversity and inclusion, training, pay equity, corporate culture and the board’s role in overseeing those matters. Companies are beginning to share HCM highlights in their proxy statements, using the opportunity to drive traffic to their more detailed sustainability or corporate social responsibility reports.
This is a topic that is evolving. Even though HCM is mentioned in 52 percent of the S&P 250 proxies, companies vary in what they discuss. Among the companies that mention HCM, 31 percent address it as a company risk or board responsibility, and 19 percent include it as a board area of expertise.
Proxy statement disclosure has advanced over the past decade, but there are still ways to improve. As you strive to cater to a broad audience, use transparency-driven methods to bolster your communication about everything from governance to compensation.
By Molly Doran
Molly Doran is Director of Advisory and Design Services at Labrador. She works with compensation consultants, attorneys, corporate secretaries, and the HR and accounting departments of corporations, producing innovative and transparent stakeholder disclosure documents. She is often a speaker at conferences, such as the Society for Corporate Governance.