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How Companies Handle Hot-Button Proxy Issues

January 21, 2016

Dodd-Frank continues to shape the way companies engage with their shareholders, particularly with matters dealing with executive compensation such as Say-on-Pay and Pay for Performance. Equilar recently hosted a webinar featuring Alex Bahn and Alan Dye, partners at Hogan Lovells, to discuss what to expect for the 2016 proxy season and how companies can adequately respond to shareholder proposals.

C. Alex Bahn
Hogan Lovells

As detailed in Equilar’s report, Compensation & Governance Outlook 2016, the number of companies disclosing how they engage shareholders is rising significantly. But deciphering how to engage with shareholders can prove to be a tall task, coming down to a few key factors that make for successful outreach. Bahn explained: “It’s better to be proactive with your investors, particularly your largest ones, because you don’t want to be in a position of approaching them only when you need their favorable vote. It’s best to have that dialogue established ahead of time with the key decision makers of your most influential shareholders. “

A key trend that we will see in 2016 is a greater number of disclosures regarding board composition, the panelists discussed. Shareholders have a vested interest in whether or not boards accurately represent their companies and investors, and it is evident that companies are beginning to feel the pressure.

However, there are some challenges that companies face when attempting to align their boards to company strategy and shareholder interest. It may not necessarily indicate that there is a disconnect between what shareholders want to achieve and what boards are doing to address shareholder interests. Rather, there seems to be a hurdle when it comes to refreshment, particularly when notifying a current senior board member of the change as well as identifying the right candidate to succeed a senior board member.

Alan L. Dye
Hogan Lovells

Furthermore, attempting to establish board diversity when replacing a director can be cause for conflict. “Suppose that director represented a particular skill set and the company wants to replicate that skill set, looking at the qualifications that the company has identified as naming to be filled by the next candidate and also trying to match that skill set to a gender or diversity goal can sometimes be a challenge,” explained Dye. If the very best candidate or clearly superior candidate that meets the skill set doesn’t meet a diversity objective, then the company has to make a decision and I think that in many cases it will choose the person who has the best skill set.”

Regardless of which shareholder proposals companies may be addressing, activists and proxy firms will not only be scrutinizing how companies reach out, but also how they react.

For more information on Equilar’s research and data analysis, please contact Dan Marcec, Director of Content & Marketing Communications at Amit Batish contributed to this article.

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