Proxy Statements Revisited

The proxy as a tool for investor engagement


The importance of the proxy statement is growing. Disclosure requirements are expanding. Shareholder expectations are mounting and scrutiny of compensation and governance policies is intensifying.  Increasing — and increasingly vocal — demands from shareholders leave no room for a proxy that baffles readers with poorly organized information, tortuous writing and confusing graphics.

By treating the proxy as little more than a reporting record, managements and boards miss an opportunity to engage shareholders and engender goodwill.

And yet, over the years many companies have seen their proxy statements grow into unwieldy amalgams of data driven by the SEC, remnants of past corporate communications initiatives, and more or less successful efforts to inform the financial community.

Certainly proxy statements must satisfy SEC rules. When done well, they can also contribute to the company’s standing within the investment community. So it’s worthwhile to consider how a proxy statement can be crafted to optimize its impact on shareholders and potential investors. A focus on audience engagement and basic principles of good communication can make a meaningful difference.

Focus on communication, not just compliance

Historically, companies have tended to view proxy statements as mere disclosure documents. By treating the proxy as little more than a reporting record, however, managements and boards miss an opportunity to engage shareholders and engender goodwill.

Shifting the mindset from “proxy as SEC reporting document” to “proxy as investor communication tool” is a first step in creating more shareholder-focused proxy statements. Traditionally, corporate counsel has spearheaded proxy development. But where legacy processes hinder the potential of a proxy to shape opinions among shareholders and investors, those processes should be brought up to date. Communications and investor-relations professionals can bring key insights to the writing and production of proxy statements whose purpose is to influence — not just inform.

Organize information rationally

Without rational, transparent organization, the complexity inherent in every proxy statement can lead to opacity and muddle. While convoluted writing and irrelevant information contribute to confusion, a major cause is the absence of meaningful organization.

In determining what information is relevant and how to organize it in a compelling way, it’s important to step back and consider the intent of the proxy. Beyond meeting SEC disclosure requirements, the primary purpose of the proxy is to inform shareholders of matters to be voted on and give them the information they need to cast informed votes.

So the content should be organized to present compelling arguments for management’s voting recommendations, and extraneous details should be cut. The narrative should make clear how each piece of information is relevant to the matter to be voted on. For example, an explicit explanation of how executive compensation supports and advances corporate goals would strengthen any Compensation Discussion and Analysis.

Summarize key information — in both prose and pictures

As proxy statements have grown in length, shareholders are less likely to read the documents in full and are more likely to overlook key information. They may also turn to summaries prepared by proxy advisory firms. To control the message and ensure that readers see and understand major points, companies should summarize key information within the proxy statement — both in an executive summary at the front of the document and within longer sections such as the CD&A.

Use of visual elements like color, tables and graphics is also an effective way to call attention to key points. Charts and graphs must be easy to understand, which means that the primary design principle should be clarity.

Adhere to classic hallmarks of good writing

Finally, adhere to the classic hallmarks of good writing: short sentences, uncomplicated grammar, and recognizable terminology.

All these suggestions should lead to a clear, powerful proxy statement that people will actually read and understand, satisfying the SEC and enhancing the image of the corporation in the eyes of the investment community.

© 2017 Gargiulo + Partners