As the proxy season approaches, we sat down with Sarah Fortt, an expert on proxies at Vinson & Elkins LLP to ask about what companies should expect and prepare for on some trending disclosure topics.
Are you advising your clients if they present non-GAAP measures in graphic form to also present GAAP measures in graphic form too?
Companies should be aware that the “equal prominence rule” is now a “greater prominence rule.” Companies that use graphics to represent performance highlights involving non-GAAP measures should take care to also disclose the applicable GAAP measure, before and with the same degree of attention as the non-GAAP measure. Another area where I see companies frequently fall short of the SEC’s expectations is with respect to the chairman or CEO’s letter in the proxy statement or quotes from the chairman or CEO in the proxy statement or earnings release. Companies should be careful about including non-GAAP measures in these sections; the SEC has indicated that it will not deem these sections immune to the new non-GAAP guidance.
Do you think the specific risks that Board and management oversee are missing from the proxy statement? Even though this information is presented in the 10-K, do you think this could support board effectiveness stories?
Increasingly, the proxy statement must also be a sales document. As a sales document that addresses the election of directors, the central role of the board in overseeing corporate strategy needs to be discussed. Beginning with proxy statements filed in 2012, we have seen a sharp rise in the number that present information in a more responsive and “user-friendly” manner. Then, starting in 2016, we saw a significant increase in the number of proxy statements that clearly address the board’s role in overseeing corporate strategy, including risks inherent to the company’s business. I think these trends are likely to continue and companies will face greater pressure from investors to communicate effectively on this and other areas of voluntary disclosure.
Sustainability is a hot topic around the world and some companies are seeing 2° Celsius proposals succeed. Do you think companies will begin to add more substance around sustainability or are they more likely to continue to point readers to their sustainability report?
I think there is a lot of resistance among companies with respect to adding more substantive disclosure around sustainability and climate change-related matters because of the potentially vast amount of work that this can require. At times, investors ask for disclosures without understanding the significant costs and time involved. That being said, investor interest with respect to climate change-related matters is consolidating, so I expect companies to be under increasing pressure to find ways to “move the ball” in this area. Competent counsel can help, and for companies that are considering making substantive changes to their sustainability policies counsel with environmental and disclosure expertise is a must, but ultimately the degree of disclosure will come down to each company’s unique circumstances.
The answers herein do not represent legal advice.