If you look beyond the dense text and confusing images, proxy statements are a mine of useful information and when done right, it can serve as a powerful narrative that can entice investors and satisfy regulators. For those responsible for drafting a proxy statement, i.e., the corporate secretary—the challenge has always been trying to strike the right balance between meeting SEC compliance requirements and gauging investor interests with practical information.
Another part of the problem is that companies want to keep shareholders engaged and up-to-date by providing timely information, but sometimes this does not always go as planned. “When it comes to disclosures, more is not always better,” said Robert McCormick, Esq, Chief Policy Officer, Glass Lewis & Co., in a recent episode of “Inside America’s Boardrooms” hosted by TK Kerstetter. “If you can’t explain in 40 or 50 pages how your compensation program works as a lawyer, then the blame is on the drafter and not the reader.” While McCormick recognized that some programs can be complicated to communicate, he stressed that disclosures should avoid the boilerplate approach and instead provide some context to shareholders that will help them make informed decisions.
On the other side of the spectrum, the SEC wants companies to be more transparent. For example, take the hotly debated topic of diversity disclosures. In an effort to help investors make better decisions, the SEC is planning to propose a new rule requiring companies “to include in their proxy statements more meaningful board diversity disclosures on their board members and nominees,” said the regulator’s Chairman Mary Jo White earlier this year. She also complained that companies are too “vague” when reporting their board’s diversity plans to the authority. Case in point: The watchdog believes that companies need to do a better job at communicating how they are selecting candidates from a wider, more diverse pool of talent to fill boardroom positions.
And this is where Corporate Secretaries are left scratching their heads.
According to an investor survey, “Deconstructing Proxy Statements—What Matters to Investors,” across the board, shareholders are dissatisfied with the “quality and clarity” of information they receive in the corporate proxy. The study, which was conducted last year by Stanford Rock Center for Corporate Governance and Equilar found that 55 percent of investors believe that a typical proxy statement is too long. Moreover, they report that the ideal length of an easily digestible proxy is 25 pages—compared to the actual average of 80 pages among companies in the Russell 3000.