United States: Cleary Gottlieb Participates In Panel Discussion On Highlights Of The 2019 Proxy Season

On July 18, 2019, The Conference Board and Cleary Gottlieb Steen & Hamilton LLP hosted a panel discussion on the 2019 proxy season highlights and trends, including the considerations companies have been evaluating during engagement with investors. The panel also discussed the continuation of significant governance issues for companies, such as in the areas of board composition, diversity, environmental issues and the interrelationship between shareholder issues and those in the news cycle. The panelists were Pamela Marcogliese, Partner, Cleary Gottlieb, Elizabeth Bieber, Associate, Cleary Gottlieb and Theresa Molloy, Vice President, Governance and Shareholder Services, Prudential Financial. The panel was moderated by Paul Washington, the new Executive Director of ESG Center at The Conference Board.

The panel described how companies navigated two unexpected developments at the beginning and in the middle of proxy season: the federal government shutdown, which paralyzed requests for no-action relief from SEC staff that traditionally provided issuers comfort in excluding shareholder proposals, and Vanguard's announcement of its more stringent overboarding policy, which occurred after many companies had already disclosed their director nominees.

The panelists underscored the influence of environmental and social proposals, which in 2019 marked the third year in a row that these proposals outnumbered governance proposals. In particular, the panelists noted that increased awareness around ESG issues in recent years has contributed to an expanded audience of those focused on environmental and social concerns, such as employees, consumers and the media. It was emphasized that there is a confluence of stakeholders, as issues that concern shareholders are also of interest to employees, consumers, the media and other stakeholders. As a result, the time outside of proxy season is now generally considered to be "engagement season" instead of "off season."

The panel also discussed that as the proxy statement audience broadens, including more quantitative information in addition to qualitative factors is important and that those seeking to analyze sustainability progress are increasingly expecting to see information in one document instead of disparate documents. Investor feedback on proxy statement disclosure has become more detailed as well. Finally, directors sitting on multiple public boards have also become a source of benchmarking as the directors compare disclosures across the companies on whose boards they serve.

The discussion covered the impact of Staff Legal Bulletin 14J, which was a follow up from the prior year's Staff Legal Bulletin 14I. The new guidance detailed board analysis factors that should be discussed in company no-action letters. Panelists analyzed the trade-offs inherent in bringing issues to the board for such discussions against the incremental benefit to the prospects of excluding a shareholder proposal, particularly if timing considerations would require a special meeting. It was noted that while the new guidance was seen as an encouraging signal for boards, more no-action requests were granted on the basis of micromanagement concerns.

Another topic of discussion was human capital management and the relationship between the number of skilled employees at a company and the importance of retention issues being brought to the board level, particularly as it relates to balancing incentive compensation with risk management. The discussion also focused on how regulators in the US like the SEC have been hesitant to get ahead of private ordering in measuring and defining new issues like human capital management, for fear that any regulatory standards would ultimately become supplementary to and inconsistent with investor expectations, rather than a means of harmonizing disclosure.

A replay of the webcast is available (please note that your browser may require you to run an Adobe plugin to access this content).

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