2021 Shareholder Meeting Agenda

March 2021

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The events of the past year have deeply impacted organizations and industries across the board, forcing management teams to strategically navigate unexpected challenges and new risks. In the boardroom, the need to maintain shareholder confidence remains the top priority, as the world eagerly awaits a return to some sense of economic normalcy.

We anticipate agendas for shareholder meetings to be extensive this year due to the wide-ranging issues organizations—and the world at large—faced over the past 12 months. Pandemic-driven liquidity challenges are of top concern for shareholders, who seek a closer look at how boards and management teams are planning to improve cashflow and drive recovery.

Priorities around a broad array of environmental, social and governance (ESG) matters that were already gaining steam in recent years were brought into greater focus in 2020, including impacts of climate change and the push for diversity, equity and inclusion (DE&I) and racial justice. 

Many boards will be facing increased scrutiny in a charged and heavily politicized environment, where expectations are high among all involved. Between proxy advisory organizations updating voting guidelines, heightened shareholder interest in ESG disclosure activity, lingering pandemic impacts and more, boards will need to balance short-term decisions with their long-term visions and provide support for plans that will help the organization prosper beyond the crisis.

BDO’s 2021 Shareholder Meeting Agenda weighs in on a variety of topics that will likely arise at shareholder meetings in the year ahead and provides considerations and insights for boards and management teams offered by professionals within the BDO Center for Corporate Governance and Financial Reporting.  
In 2020, proxy season was upended by the onset of the COVID-19 crisis causing the need for remote annual shareholder meetings. Despite the season’s chaotic start, the proposals put forth by shareholders generally followed predicted trends and were in line with patterns emerging in recent years.

ESG was a significant point of discussion with a record number of proposals reaching a vote and passing. Talk about ESG and DE&I no longer suffices—action is expected. Assisted by the SEC’s no-action process, the number of governance proposals related to board composition, written consent, access and voting matters continued the downward trend that began in 2015. Proposals that support adoption and disclosure of compensation structures tied to environmental and social performance metrics rose in quantity and scope.

Calls for disclosures have heightened, signaling shareholders’ escalating expectations around transparency and access to executives’ thought processes. If 2020 is any indicator, the 2021 proxy season will be packed with proposals.

 
Environmental and social issues continue to be top of mind for shareholders, institutional investors and large corporations.

The emphasis on ESG isn’t limited to U.S.-based companies. During the World Economic Forum’s annual meeting in Davos, some of the world's largest companies pledged to use a uniform set of "stakeholder capitalism metrics.” The move signifies growing support for the idea that corporations are responsible not only for their returns to shareholders but for their impact on society at large.

Sustainable is the New Standard
Companies can no longer put sustainability plans and practices on the back burner. Stakeholders see through approaches aimed at checking the box. Now, they are voicing expectations for boards to be further down the path to connecting long-term sustainable business practices with corporate risk management and strategy, as well as devising performance indicators to drive accountability within the organization.

Boards and management teams should use a clear mandate to view sustainability as an opportunity to closely evaluate the areas of related risk and opportunity within their organizations. Comprehensive risk assessments outlining plans for mitigating risk and clear KPIs will help boards monitor progress as well as satisfy shareholders.

Human Capital Management Hits New Heights
The “S” in ESG gained long-needed prominence in 2020, and scrutiny is only likely to grow moving forward. Diversity cannot simply be discussed as a general concept or a “nice to have,” but must be pursued with intention and action. Committing to enhancing DE&I within an organization is an opportunity to invite fresh ideas, challenge traditional thinking and unlock value. Now is the time to assess the company and board’s diversity practices to ensure they will produce the results intended and update them if they fall short.

Addressing this issue goes far beyond meeting shareholder demands and should be considered from the broader stakeholder lens of an organization’s employees, suppliers, customers, and communities. Improving diversity not only at the board and management level, but throughout the organization, will help companies forge a path that increases long-term value and minimizes reputational risk.

Compensation Considerations
Responsibilities of the board’s compensation committee will continue to be scrutinized as shareholders ask for more insight into financials. Directors should plan to address how they are evolving executive compensation reporting to align with clearly defined KPIs related to company performance, ESG initiatives and other value-creation metrics. Taking a proactive approach and implementing compensation-performance measures before proposals are brought to the table will allow boards and management to demonstrate action and drive decisions.

COVID-19 highlighted a need to connect compensation to executive behavior amid claims that some executives prioritized earnings and profits over the safety of employees and the general public. Creating a link will help incentivize executives to ensure all stakeholders are considered in urgent and long-term decision-making.

For companies experiencing pandemic-related, reduced cash flow, reductions in pay, staff or both have been necessary to keep companies financially viable. Proxy advisory firms have been clear that saving money at the expense of employees should not translate into increased pay levels for executives and will continue to take notice in the current proxy cycle.

Demand for Disclosure
As the number of required disclosures continues to rise, proper communication channels with external and internal auditors will be more important than ever. Keeping up to date with new and evolving SEC requirements, guidance from institutional investors and shareholders alike will help boards in their oversight of management processes and procedures to mitigate risk.

Determining and conveying the most material aspects of a company’s business is one of a board’s most pressing areas of focus, and decisions should be driven by data. In December 2020, SEC Commissioner Elad Roisman gave a statement reminding boards that in order for disclosures to be useful to investors, it must be easy to understand how investors are to benefit from them.

It is prudent for boards to consider securities laws and legal liability, especially until a standardized approach to ESG reporting is developed and embraced. Shareholder trust is easy to lose and difficult to regain—there is a fine line between transparency and risk.

 
Virtual Meetings and Shareholder Rights
Meaningful shareholder relationships are the foundation of a successful board. Understanding the perspective not only of shareholders as a broad group but also the specific concerns and viewpoints of more niche groups within only increases confidence and leads to more productive communication and response.

Overall, COVID-19 and its impacts highlighted the importance of shareholder rights and perceptions. Boards can often divert unwanted proxy proposals by demonstrating appropriate consideration of shareholder concerns and put plans into action before proposals are submitted or come to a vote. The relationship between shareholder and company functions best when shareholders hold the organization reasonably accountable, and in turn, the organization institutes proactive governance structures and communications that serve the best interests of all stakeholders.

Board Refreshment
A board is much more likely to bring success to the company they service if individual wants and needs are taken out of play. Boards should be engaging in discussions about and analyzing their composition in a way that reflects the wider needs of the company and its various stakeholders rather than the desires of the directors themselves.

Informed boards are less likely to see proposals related to term limits and encounter penalties around a lack of diversity as they are more likely to already be conducting meaningful assessments of the board’s composition on a regular basis. Informed directors are also less likely to view a board seat as an appointment for life and recognize when their skillset needs to be enhanced or may no longer be of value to a company’s board.

Boards must ask: Do our members have the skills needed to guide the company’s strategy through long-term changes? Does the makeup of our board reflect the interests of shareholders and stakeholders? Are we adequately exploring the full range of options when seeking a new board member? These critical assessments will naturally and more regularly spur board refreshment and allow for productive dialogue about how the board’s makeup serves the best interests of all shareholders.

 
In times of crisis, liquidity needs often trump the many other risks faced by companies. However, this does not usurp the requirement for boards to be transparent with shareholders about the intended use of capital. BDO’s Resilience Playbook provides a roadmap to help companies build resilience into their post-COVID-19 strategies.

For boards and management teams engaged in M&A activities, proper due diligence and integration of target companies will be critical in managing both business strategy and stakeholder expectations. Identifying targets, examining the synergies to be realized and incorporating them into the existing culture and business environment are no easy tasks. Appropriate resourcing, advice, counsel and communications with stakeholders will be critical in driving successful transactions.