The Say-on-Pay World According to Broc
(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)
June 12, 2011
Broc Romanek, the editor of theCorporateCounsel.net and writer of the associated blog, spoke in Minneapolis last week at a meeting of the local chapter of the Society of Corporate Secretaries and Governance Professionals. His main topic was “Post-Proxy Season Wrap-Up,” and Broc gave practical advice on dealing with Say-on-Pay and other governance reforms during the remainder of this proxy season and in preparation for next year. He also talked about technology developments and offered some predictions on the impact of social media on investor relations.
There were several good takeaways from the program. How do I know? I was surrounded by in-house counsel, and I tried to take note of the times when everyone picked up their pens and scribbled notes on the handout. Here’s my list:
- One big lesson: engagement with institutional shareholders is really difficult, especially for smaller companies that may have trouble getting their attention. This will continue unless and until the investors beef up their staffs big-time. How to deal with the issue? After proxy season is over, contact your big investors and ask how they want to be contacted (if at all) in the future. Get a dialogue going now.
- The shareholder advisory service ISS has issued negative recommendations on Say-on-Pay for around 12% of companies so far this year. In other words, ISS has been friendlier to boards and management than many expected. ISS’s future direction is a little uncertain – the company has been sold several times, and Broc reported that it’s on the block again. But public companies shouldn’t wish for ISS to “just go away” unless it’s clear that any leading alternative would be better.
- Companies need to be more careful about how they count the votes on Say-on-Pay and other matters. Broc cited data to the effect that a large percentage of companies are making mistakes in counting the votes (e.g., how will abstentions or broker non-votes be counted in determining whether a proposal was passed). Some companies are counting the votes in a way that does not match corporate bylaws and state corporate laws. Further, in some cases the voting results, as reported in Form 8-K, are not consistent with the previous proxy statement disclosures about how the votes would be counted. He urged professionals to double check the standards and the numbers.
- Several companies have been sued after negative Say-on-Pay votes, with the complaint citing the vote as evidence of a breach of the board’s duties. The lawsuits may well be groundless, but boards of directors of these companies are reacting very strongly. Be sure to warn the board of the possibility.
- Pay more attention to the investor relations page on your company’s web site. Company web pages are becoming more influential. Broc cited the writings of Dominic Jones on the IR Web Report blog, see “Stats show PR wires less effective than company web channels.” Google your company name and “executive compensation” and note the top 10 results – this provides clues about who is controlling the narrative. In this regard, pay attention to search engine optimization. For example, if you have an IR web page with “executive compensation” in the URL, the page’s search results will be improved. Keep tabs on services that make it easier for people to access your company’s information and provide feedback from mobile devices – soon, nearly everyone will be using tablets.
- Broc expects shareholders meetings to become more like political campaigns. In a recent New York Times article, “Inciting a Revolution: The Investor Spring,” Gretchen Morgenson reported on a movement among the smaller shareholders of Celgene Corporation to organize a negative Say-on-Pay vote through social networking. Events like that are not yet common, but this is the wave of the future. Look at the IR web pages of European companies, where investor relations and shareholder meetings have been treated more like political campaigns, with video, etc.
- On a related note, company personnel need to get conversant with Twitter fast, especially since many proxy solicitors don’t “get” social media yet. Institutional investors are reading tweets, and a majority of IR departments are on Twitter. Don’t get left behind. See Broc’s post from earlier this year, “Time for You to Consider Tweeting? The IR Pros Are....”
Broc also spoke effectively about the expanding use of social media, and the need for all of us to get more familiar with the new technology. I’ll blog about this in a future post.