It’s proxy season again, so boards need to prepare

By: Catherine Jackson & Helle Bank Jorgensen

Proxy season has always been a hectic time for both companies and investors.  Companies expend significant resources ensuring that their proxy statement contains the information that they believe is relevant to investors.  And investors spend a lot of time scrutinizing proxy statements, annual reports and other information, all aimed at making informed vote decisions.  Both companies and investors spend time preparing for and attending meetings and calls with each other.  They do this because proxy vote outcomes matter.

This year, investors are significantly increasing the number of staff responsible for scrutinizing company reports and engaging with company representatives. Over the past year, Blackrock has hired 11 people bringing its Investment Stewardship team to 31, Vanguard has nearly doubled its team to 20 individuals and, State Street Global Advisors plans to have 13 staff, up from 5.  Over time, this will likely mean heightened levels of activity throughout the year.  But what does it mean for responsible and responsive boards of directors in the 2017 proxy season?

In the lead up to annual general meetings being held in 2017, boards will have to be better prepared than in the past by:

  • Knowing the new questions investors will be asking
  • Preparing for the unexpected
  • Communicating proactively.

Knowing the new questions investors will be asking

With more hands on deck, investors will have time to do deeper dives into new issues.  Thus, boards should be prepared to respond to new and more challenging questions from their investors.

Investors do a good job of communicating; their governance principles are publicly available, as are their voting guidelines or policies.  Boards should be familiar with how investors think about certain issues of importance to the company.  Having said that, these documents are not the definitive answer on how an investor will execute their vote.  Investors can, and do, vote contrary to their policies if the situation warrants it.

Annual letters from investors are increasingly being used to signal areas of importance or concern.  Boards should ensure that they receive and pay attention to these letters.  State Street Global Advisors CEO, Ron O’Hanley said in his annual letter “…. in 2017 we will be increasingly focused on board oversight of environmental and social sustainability in areas such as climate change, water management, supply chain management, safety issues, workplace diversity and talent development….” (emphasis added).  Then, on March 7, 2017, the eve of International Women’s Day, the same investor called upon the over 3,500 companies in which it invests to take “intentional steps to increase the number of women on their corporate boards”, stating that they would use their vote to effect change if necessary.

This mainstream asset manager with over $2.4 trillion in assets under management clearly indicates that boards should expect to be questioned on their oversight of environmental and social risks and opportunities, as well as their efforts towards increasing gender diversity in boardrooms.

Further, boards should be familiar with how investor expectations differ from what the board has actually delivered in terms of governance outcomes.  By this we don’t mean, explaining the differences between investor policies and company policies.  What we mean is, the board should undertake a critical review of how it, in reality, has governed.  The review should identify areas where the board may have fallen short in terms of investor expectations, and help board directors to understand and fill that gap.

Preparing for the unexpected

With the resource constraints on investors being loosened, we believe boards should expect more focussed questions that go beyond proxy matters on hand.  To that extent, they should anticipate what informed investors may want to know.  Some of that will come from the critical review prepared above, but some of it will come from outside-of-the-box thinking.

In a previous issue of the Harvard Business Review, we learned about the long termism focus[1] by investors such as Blackrock, State Street Global Advisors, Canada Pension Plan Investment Board, Ontario Teachers’ Pension Plan and others.  It is reasonable to expect questions that center around the long-term strategy of the company.  Consider how a board director might respond if being asked whether the company he/she is overseeing is built to last and to explain their answer.  What would that look like?  Does the response include an awareness of trends and potential disruptions?  Would all the board members be aligned on their answer and if so, how could the response be delivered in a way that instils confidence in the board?

There is no shortage of questions which could be asked that will test the board’s oversight processes.  For instance, how would your board provide evidence of a robust and independent board process?  How would you demonstrate that candor exists in the boardroom?

State Street Global Advisors expects that boards of directors should be prepared to answer questions on how they oversee environmental and social risks that are core to the company’s strategy.  Boards must understand, for example, what the impact of energy transition and water scarcity is and will be on their business, how the constraint impacts short and long-term strategy, how the board oversees these risks and opportunities.

In addition to the above, some other questions that board members should be prepared to answer are:

  • Does the board think that the company has secured a licence to operate and grow? If so, could you provide evidence through alignment to the Sustainable Development Goals, or to public support of the company’s operations?
  • Could you explain how the board is overseeing the impact of climate change and energy transition on the company, its supply chain and its main customers in the next 1, 5, and 20 years?
  • Could you explain how the board is overseeing the impact of water shortage on the company, its supply chain and its main customers in the next 1, 5 and 20 years?


Communicating proactively

When investors are voting on important issues such as the re-election of directors, it seems critical that boards proactively address issues rather than waiting for them to be raised by investors.  The proxy statement may have been filed already, but this does not preclude a board from issuing a communique to highlight a particular issue which they know prudent investors will question.  Doing so earlier in the season is better than later, and demonstrates that the board is not only proactive, but also informed.

In the face of increased expectations of boards to engage with investors, boards should use the opportunity of the 2017 proxy season to begin new practices.  One practice they may consider is writing a letter to their investors, signed by directors, addressing the previous years’ experiences from their perspective.  This should be part of a healthy and ongoing communication process, and not just be used in time of crisis.

Unlike engagement during the proxy season which is targeted at securing votes of support, a healthy relationship requires that boards endeavor to foster relationships of trust with investors prior to needing their support.  But what is the board’s ongoing investor communications strategy?  Boards should ensure that they make efforts to communicate with and listen to their investors throughout the year, giving opportunity for issues to be raised and resolved during the operations cycle.  We recommend that boards of directors align on their future style of engagement and communicate their approach and commitment to ongoing engagement during their meetings with investors in this proxy season.


It is precisely because proxy vote outcomes matter that boards of directors should take it upon themselves to consider how to best prepare.  Therefore, at the next board meeting, we suggest that boards consider the questions below as a preparedness test for the upcoming proxy season and proxy seasons to come.

  • Do we agree that the company is built and run to last? Do we also agree on the reasons for this and how to communicate it?  Do the incentive and bonus schemes underpin the long-term strategy?
  • Do we think that the company has secured a licence to operate and grow, and how can we support our answer?
  • Do we know what the impact of energy transition is on the company, its supply chain and its main customers in the next 1, 5, and 20 years?
  • Do we know what the impact of water shortage is on the company, its supply chain and its main customers in the next 1, 5 and 20 years?
  • Can we demonstrate how we are championing diversity in the boardroom and within management?
  • What other potential constraints does the company have and are we appropriately considering these risks?
  • How can we use risks and opportunities arising from the Sustainable Development Goals in our oversight practices?
  • Have we met our investors’ expectations?
  • What is our proactive communications strategy?
  • Are we prepared to converse with investors on the issues they wish to engage with us on?
  • How would we best provide evidence of the candid nature of conversation that exists in our boardroom?


The quality of the answers to these questions may indicate a need for training to develop a deeper understanding of sustainability, climate change, energy transition, social license and other matters, all related to the Sustainable Development Goals and Agenda 2030.