1. Board Skills Matrix
The board skills matrix, which presents the qualifications and experience of each individual director, is key to demonstrating that the proposed slate of nominees has the expertise needed to guide the company’s long-term strategy and create shareholder value. The initial iteration of the matrix included a list of skills with checkmarks or similar indicator for each of the applicable directors possessing the requisite experience. Later versions of the matrix include, or are supplemented with, a description of each desired skill and (ideally) how the skill is relevant to board effectiveness for that specific company. To emphasize the connection to strategy, some skill matrices now visually present qualifications related to strategy separate from other necessary competencies of its board members.
Lumen 2024 Proxy Statement
2. Director Biographies
As companies enhance their board skillset disclosures, nominee biographies also have been reimagined. To some extent, it seems that disclosure around director experience has come full circle and perhaps the newest presentation of board qualifications and skills in bios most closely aligns with the intent of the rule promulgated 15 years ago requiring “specific experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director . . . in light of the registrant’s business and structure.” Bios that once laid out a director’s career path, together with a narrative discussion, moved to a bulleted format with career highlights and skills lists or icons. While easy-to-digest, readers needed to make the connection between the director’s professional background and the acquired skill. More recently, however, biographies directly and succinctly link qualifications with experience. Some companies even distinguish between type or level of experience.
Coca Cola 2024 Proxy Statement
3. Re-nomination Process
Director nomination disclosures historically have focused on the nomination and corporate governance committee’s recommendation of the slate of nominees for election. Often this section includes a statement that the committee annually considers the current composition of the board, as well as ongoing consideration of the board’s collective skills and needs in light of the company’s near and long-term strategic ambitions. Many proxies then move directly into disclosure about the process for identifying new director candidates. More recently, however, companies are sharing more detail about how they consider the renomination of incumbent directors, with some companies emphasizing that re-nomination is not automatic.
JPMorgan Chase 2024 Proxy Statement
4. Director Time Commitments
Most director policies limiting service on other boards reflect the stated guidelines of the company’s most influential investors and proxy advisors. Disclosure of company-specific board service policies is common to show alignment. While shareholders still show interest in these policies, there is increased interest in understanding the board’s analysis of each director’s ability to devote the time necessary for effective service rather than only a bright-line test. Accordingly, proxies are including more information about the board’s process for considering director time commitments.
Bank of America 2024 Proxy Statement
5. Shareholder Engagement Cycle
Companies generally want to show that they are actively engaging with their shareholders year-round. While quarterly earnings calls, investor conferences, and conversations with investor relations and management are ongoing, the primary focus of proxy statement disclosure has been around documenting the who/what/ when of the governance outreach program (although some companies also include an overview of their investor relations calendar). The “when” component of the disclosure led to a common graphic showing governance engagement efforts during each of spring, summer, fall, and winter. Recently, this graphic has moved away from emphasizing the seasonality of engagement to instead focus more on how each outreach campaign aligns with the board’s calendar and its consideration of feedback.
6. Beyond the Boardroom
Expectations of directors continue to increase with more topics directly falling under the umbrella of strategy and risk oversight. To demonstrate that the board understands the business and is more engaged than a limited quarterly schedule of meetings might suggest, proxy disclosures often show ongoing director involvement. The “beyond the boardroom” presentation in proxies began six or seven years ago, but decreased during the covid period. Recently, there has been an emergence of this practice, which brings together director orientation, continuing education, and meeting attendance disclosure with other director touchpoints such as briefings and updates between meetings, board interaction with management and employees, and onsite visits.
7. Sustainability Governance
Remember when most proxies discussed board oversight only in the context of risk? Although not required, it is now common practice to discuss the board’s responsibilities more broadly, including at a minimum the board’s role with respect to strategy and CEO succession planning. Insight into the board’s approach to oversight of specific topics are also frequent disclosures. According to Labrador’s recent benchmarking, approximately three-quarters of companies include a section, subsection or callout discussing the board’s role in ESG oversight in the proxy statement. This disclosure is often accompanied by a visual element depicting the distribution of specific sustainability-related topics among the board and board committees. Inclusion of the governance framework supporting key initiatives can also be helpful – for example, the board oversight graphic may also include cross-functional management and operating committees tasked with day-to-day ESG responsibility.
8. Selection of Incentive Metrics
Most shareholders cast their executive compensation advisory vote based on an assessment of pay and performance alignment. Accordingly, in addition to required CD&A disclosures about program objectives and elements, including if material, “specific items of corporate performance(1)”considered by the compensation committee, it is also necessary to explain the rationale for selecting certain metrics for the company’s incentive plans and why they are important performance indicators given the company’s unique business and its strategic goals. Given the importance of metric selection, we have noticed recent efforts to make this disclosure more prominent, including use of headers or even dedicated sections.
9. Equity Grant Practices
The SEC’s 2023 insider trading rules require not only disclosure about Rule 10b5-1 trading arrangements and grants of option awards within four days of reporting material nonpublic information, but also annual disclosure about policies and practices related to the timing of option award grants and release of material nonpublic information. While the latter is not a new requirement in principle, CD&A discussion usually focused on the timing and pricing of specific grants or was embedded in the compensation committee’s decision-making timeline. With the new Item 402(x) of Regulation S-K now in effect, we expect more companies will choose to include a separate section dedicated to its equity grant timing practices (irrespective of whether options are currently part of the equity mix).
10. Compensation Recoupment Policies
Disclosure around companies’ recoupment policies slowly have evolved from a high-level bullet in the “what we do” list of compensation best practices to a summary of key terms, mostly to satisfy investor inquiries into whether the policy covers any unearned compensation (e.g., due to an accounting restatement) and/or whether forfeiture is required in situations arising from employee actions. With requirements stemming from Dodd-Frank and related exchanges to adopt compliant recovery policies by December 2023, more robust disclosures were found in the wave of 2024 proxies. Many companies adopted a second policy to comply with the new rules, but also maintained their existing policy, requiring an explanation of the overlap and differences.
