On December 2, 2019, The Conference Board and Cleary Gottlieb Steen & Hamilton LLP hosted a panel discussion on key corporate governance considerations for the 2020 proxy season. The panelists were Sandra L. Flow, Partner, Cleary Gottlieb, Mary E. Alcock, Counsel, Cleary Gottlieb and William Ultan, Managing Director, Corporate Governance, Morrow Sodali. The panel was moderated by Paul Washington, Executive Director, ESG Center, The Conference Board.

The panelists began by discussing what trends to expect for the 2020 proxy season based on highlights from “off season” shareholder engagement and the 2019 proxy season. In 2020, environmental and social issues are expected to remain prominent, as well as a continued focus on governance topics, including special meetings and written consent. In the past year, companies provided more precise and granular disclosure specific to the company and its risks and tailored off-season engagements to the specific shareholder and its policies and concerns, trends which are likely to continue in 2020.

The panelists noted that gender diversity continues to be at the forefront of social and governance issues and there has been an increased focus on racial and ethnic diversity. The panelists underscored the influence of environmental and social proposals, with 2019 being the third year in a row that E&S proposals outnumbered governance proposals.  We can expect to see this continued focus in 2020, with the most popular topics likely to relate to political spending, the environment and climate change, human capital management and diversity. In the upcoming proxy season, shareholder proposals may focus on requesting more detailed disclosure from companies about these topics.

The discussion also covered the impact of Staff Legal Bulletin 14K, which was a follow up from prior proxy seasons’ Staff Legal Bulletins 14J and 14I. The new guidance focused in particular on the board analysis provided to help demonstrate that the policy issue raised by the proposal is not significant to the company under the ordinary business exception.

In addition, the panelists discussed the SEC’s recent changes to its process of responding to company requests for no-action relief regarding shareholder proposals, including the possibility that the Staff may respond informally by providing an oral response, which would be reflected on the new Shareholder Proposal No-Action Chart on the SEC website, or it may decline to state a view.  They also discussed Glass Lewis’ updated voting policies for 2020, where Glass Lewis will generally recommend a vote against members of a company’s governance committee (i) if a company omits a proposal from its proxy statement where the SEC has declined to state a view on the company’s no-action request or (2) if a company fails to provide disclosure in its proxy statement where the SEC has responded informally to the company’s no-action request without providing a written record of such response.  However, if the Staff uses the new chart systematically, it may limit the impact of Glass Lewis’ new policy on informal responses. The panelists noted that these updates may cause some uncertainty for companies in the 2020 proxy season and that it would be prudent to monitor developments on this issue.

The panelists also discussed compensation matters, including the requirement in effect for the 2020 proxy season for most public companies to disclose information regarding their hedging policies and practices. While many companies provide hedging disclosure, the panelists noted that issuers should consider whether to revise and expand that disclosure.

The panelists also noted that the SEC’s recent proposed amendments regarding proxy advisory firms’ recommendations to shareholders and modernizing the procedures for shareholder proposals under Rule 14a-8 are unlikely to have an effect on the 2020 proxy season and that it will be interesting to see how these proposals develop.

A replay of the webcast is available here (please note that your browser may require you to run an Adobe plugin to access this content). This blog post and presentation materials for the webcast were prepared with the assistance of Gaia Goffe and Rigoberto Chavez.