On July 23, 2020, The Conference Board and Cleary Gottlieb Steen & Hamilton LLP hosted a panel discussion on the 2020 proxy season highlights and trends, including the impact of COVID-19 on the 2020 proxy season and offseason engagement. The panelists were Francesca L. Odell, Partner, Cleary Gottlieb, Helena K. Grannis, Counsel, Cleary Gottlieb and Rick E. Hansen, Assistant General Counsel and Corporate Secretary, General Motors Company. The panel was moderated by Paul Washington, Executive Director, ESG Center, The Conference Board.

The panelists began by discussing the SEC’s recent adoption of final rules on the regulation of proxy advisory firms, and major developments and surprises in the 2020 proxy season. In particular, as a result of COVID-19, the 2020 proxy season witnessed a shift from physical workplace activity to remote working activity, which impacted disclosures, guidance, engagement and the format of annual meetings. There was increased emphasis on and engagement about voluntary disclosure and content with regard to the risks of climate change, human capital management, diversity in the boardroom and beyond, employee populations, corporate citizenship and responsibility, and COVID-19-related compensation. In addition, there was a continued rise of ESG trends and increasingly successful E&S shareholder proposals.

The discussion covered the SEC’s adoption the day before of amendments to the proxy solicitation rules and their impact on proxy advisory firms. The new rules reaffirm that proxy voting recommendations are solicitations. Under the proxy solicitation rules, proxy advisors currently have an exemption from the information and filing requirements. The SEC’s amendments add conditions to those exemptions, including requiring conflicts of interest disclosure, requiring proxy advisors to adopt written policies to ensure that the proxy recommendations are made available to registrants and requirements that proxy advisors provide notice to their clients of the companies’ responses to the proxy voting advice. The amendments provide non-exclusive safe harbors that satisfy the conditions to the exemptions. Cleary Gottlieb’s alert memo on the new proxy advisor rules is available here. The panel noted, however, that the SEC amendments did not include the prescriptive “speed bump” mechanism that had generated extensive discussion leading up to the amendments.

Another topic of discussion was the impact of COVID-19 on offseason engagement and next year’s shareholder proposals. The panelists advised that companies should be prepared for more in-depth engagement with shareholders during the offseason and have a clear agenda for each investor meeting. The panelists noted that workforce protection, in particular how companies’ capital allocation prioritizes the health, safety and stability of their workforce, will likely be a topic of focus. Furthermore, COVID-19 and related stock market volatility led to a rush of poison pills being adopted in the 2020 proxy season, but it’s yet to be seen whether most companies will keep those poison pills in place or if new pills will continue to be adopted by others.  Although proxy advisors and institutional investors have generally not contested the adoption of such poison pills given the context of the pandemic, it is uncertain whether they will do so in the future.

The panelists addressed the key topics that were covered in environmental and social shareholder proposals. In the 2020 proxy season, environmental and social proposals outnumbered governance proposals. With respect to the environment, the majority of proposals addressed climate change; some proposals addressed reports on lobbying, reports on environmental impact, and reports on how companies are working toward achieving Paris Agreement-levels of emissions. The panel noted that climate change proposals were supported by major shareholders such as BlackRock and BNP Paribas, and gained majority support at major issuers. In the offseason, it is important for companies to be prepared to communicate with shareholders on their sustainability and climate change strategy in a coherent, cohesive and consistent manner.

Social proposals this year focused on diversity, human capital management and human rights. While prior proposals tended to focus on gender diversity, in the 2020 proxy season, the focus on diversity broadened and engagement on these issues increasingly focused on racial justice as a result of recent racial violence and tension. The panel noted that companies can expect a continued rise of E&S proposals in terms of volume and support, expanding scope and depth of social proposals, proposals regarding human capital and diversity resulting from COVID-19 and the anti-racism protests and a continued focus on corporate purpose and stakeholders in the next year.

With the shift to virtual annual meetings this year, many companies are considering whether to hold a virtual annual meeting or return to in-person meetings for 2021. The panelists advised that if a company is thinking about conducting a virtual only annual meeting in 2021, early planning and advance discussion with institutional investors would be important, as it would allow the company to take feedback into consideration and make the annual meeting as much like an in-person meeting as possible.