Below are key takeaways from ISS’ recently released 2020 U.S. Proxy Season Preview covering governance and compensation issues. The full report is available to institutional subscribers by logging into ISS Link then selecting the Governance Exchange and its Report Center tab and to corporate subscribers by logging into Governance Analytics then selecting the Governance Exchange and the Report Center tab.
COVID-19 Impacts and Regulatory changes.
Companies switch to virtual shareholder meetings after SEC gives the go-ahead: Following SEC guidance stating that companies wishing to switch to a “virtual-only” meeting format would not need to refile their proxy statements, and in line with orders in many states to restrict public gatherings to protect the public health, a large proportion of U.S. companies have announced that their 2020 annual meetings will be held exclusively as virtual meetings.
Boards of Directors.
Investor scrutiny of corporate governance practices at newly public companies expected to continue in 2020: The trend of more IPOs with dual-class share structures with unequal voting rights appears likely to continue, particularly in the technology sector, and investor scrutiny is expected to also increase. Firms with dual-class structures are also more likely to have other problematic governance issues such as a lack of board gender diversity. Shareholder proposals requesting an independent board chair expected to continue to be prominent in 2020: Shareholder proposals requesting an independent board chair were the most prevalent governance-related shareholder proposal in 2019, with 60 proposals on the ballot for the full year. Going into the 2020 proxy season, the importance of the board’s risk oversight role may be a driver for many of these proposals.
Board responsiveness to investors’ concerns and payments in connection with executive transitions expected to remain key issues in 2020: The 2019 proxy season saw a record number of low say-on-pay vote outcomes. As a result, the 2020 proxy season is expected to feature more companies dedicating proxy disclosure to explaining engagement efforts and actions taken to address investor concerns. Investors are expected to continue to scrutinize the appropriateness of severance packages, particularly when disclosure suggests a voluntary resignation. With the far-reaching economic impacts of the COVID-19 pandemic, some boards may announce plans to materially change the performance metrics or targets used in their short-term compensation plans, in response to the drop in the markets and the possible recession that many now predict in the wake of the pandemic. Decisions by directors to make such adjustments to 2020 compensation programs generally will be analyzed and addressed by shareholders at next year’s AGMs (i.e. in 2021). Boards may be expected to provide contemporaneous disclosure to shareholders of their rationales for making changes to metrics or targets as well as consideration on whether such changes warrant reduced payout opportunities. Such disclosures will provide shareholders with greater insights now and next year into the board’s rationale, as well as the circumstances under which the changes were made.