News & Insights

Directors Governance Center

July 1, 2014

Enhanced Proxy Statement Disclosure (E&Y Report)

Historically, many public companies viewed the primary purpose of their annual proxy statements as being to satisfy the line item requirements of the SEC. As such, these companies did not consider how to use their required proxy statement disclosures strategically to improve shareholder relations.

In recent years, an increasing number of companies are more effectively utilizing their proxy statements to convey important information to the companys many stakeholders. Companies are not only including information that goes above and beyond the SEC disclosure requirements, but they are also presenting the information in creative and understandable formats in order to increase shareholder engagement.

In the May 2014 issue of Lets Talk Governance, the EY Center for Board Matters issued a report on how companies have enhanced their proxy statements in response to calls for more meaningful governance disclosure. The publication reports on developing trends uncovered by reviewing the most recent proxy statements of 419 of the S&P 500 companies. The following are some of the key findings of the report:

*Executive Summary. EY finds that 42% of the proxy statements now include an introduction, which typically highlights leading governance practices, efforts at shareholder engagement, and recent changes in governance and executive compensation.

*Executive Compensation. Instead of merely disclosing the raw numbers for executive pay as mandated by SEC rules, many companies are choosing to provide shareholders with supplemental disclosures that explain specific pay practices and show how well the company pays for performance.

*Board Evaluations. EY states that almost 60% of the companies are disclosing the frequency of their performance evaluations, and three out of four companies are disclosing which committee or director leads the evaluation process. Only 6% of the companies disclosed that individual directors are each assessed.

*Board Diversity. EY finds that 57% of proxy statements report that gender and ethnicity are taken into consideration when identifying director nominees, and 21% state whether the board evaluation process included considerations of diversity.

*Skills Matrix. Many boards maintain a skills matrix, showing the skills they seek to have on the board and identifying the directors who bring each of these skills to the board. EY found that approximately 5% of the subject companies are publishing this matrix in their proxy statements.

*Innovative Formatting. EY reports that a growing number of companies are using infographics and informative visual aids in their proxy statements in order to more clearly communicate to shareholders complex information. Companies have also begun to include hyperlinks in their proxy statements, giving shareholders quick and convenient access to important governance documents hosted on the company website.

In this era of Say on Pay votes and increased shareholder activism, directors of public companies should consider whether their proxy statements could be used to improve shareholder relations through innovative and robust disclosures highlighting the companys best governance practices. As public companies are improving their corporate governance practices, the proxy statement can be a useful channel to ensure that they get credit for these practices. To read EYs full report on how S&P 500 companies are improving their corporate governance disclosures, click here.

This posting was co-authored by G. Scott Edwards, a student at Vanderbilt University Law School, who is a summer associate at King & Spalding.