A Checklist for 2023 Proxy Statements (And Annual Meetings)

Shearman & Sterling reviewed regulatory changes over the past year along with future “watch-outs” to provide a comprehensive proxy checklist in their 2023 Proxy Season Quick Reference Guide. While Pay Versus Performance disclosures are top of mind this proxy season, there were many other new and proposed rules and lesser-known changes that could have an impact on your company’s governance this year. Shearman’s guide highlights 24 items to consider for disclosures and compliance.

A few items worth paying attention to along with some recommendations to consider:

• Risk Management.The SEC has been particularly interested in risk management oversight, specifically regarding the board’s leadership structure and role in overseeing risk. Disclosure of how the board manages risk should not be “boilerplate” - in 2022, the SEC provided over 30 comment letters to companies seeking more specific details in this area.
  
  
  • Recommendation. Companies may want to consider a more robust disclosure that details the specific and material risks the company faces, how responsibilities are delineated between committees and the board and the process by which the board evaluates and makes decisions with the company’s unique risk challenges. Details regarding how the compensation committee evaluates compensation plans should be included. Additionally, the SEC has proposed rules on climate, cyber and data security which require disclosure of how the board sets targets and governs.
    
    
• Director Skills Matrix. While this section has grown over the years to include more explicit details of a director’s professional background, it continues to expand as investors and proxy advisory firms are interested in understanding a director’s ability to oversee new topics like information technology, human capital, diversity and environmental risks.
  
  
  • Recommendation. Review the matrix and update as necessary to highlight all relevant skills and experiences that relate to these broader topics.
    
    
• Equity Plans. Per the SEC’s 10b5-1 Plan rule, a narrative disclosure in the proxy is required to describe stock option grant policies and practices regarding the timing of option grants and release of material non-public information (MNPI), including how the board determines when to grant options and how MNPI is considered. The final rule requires disclosure for option awards to NEOs made in the four business days prior to filing a periodic report and ending one business day after the release.
  
  
  • Recommendation. Avoid issuing option grants around these periods as the SEC will likely begin scrutinizing the disclosures. Ensure the Investor Relations and Legal teams responsible for putting forth press releases are aware of this rule so option grants are not inadvertently issued or the disclosures are in place if a grant does occur.

In addition to the reference guide, Shearman & Sterling released its 20th Annual Corporate Governance & Executive Compensation survey that includes commentary on themes and analytics from the 2022 proxy season and identifies more trends for the upcoming year.