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2021 proxy season: What we see on the horizon

Paul DeNicola Principal, Governance Insights Center, PwC US March 24, 2021

The challenges that rocked our society and economy in 2020 will shape the key issues to watch during this year’s proxy season. The COVID-19 pandemic and the economic recession it caused, as well as increasing calls for racial justice, all loom large as companies prepare to hold their annual shareholder meetings.

We’ll be watching how companies disclose the steps they’ve taken as they navigate these challenges—and, of course, how shareholders vote. Here are some of the big themes for 2021:

Virtual shareholder meetings

The 2020 proxy season came just as the first wave of the pandemic was reaching its apex. Many companies canceled in-person annual shareholder meetings and held the event virtually instead. These companies deserve credit for acting quickly to coordinate with regulators, state lawmakers, and technology vendors to protect public health. Some shareholders were pleased with the greater access that the pivot to virtual meetings offered. Others found the meetings unsatisfying because they felt they offered less opportunity for meaningful interaction with companies’ management teams. For others, technical challenges made it difficult to join meetings at all.

Most companies—though not all—are planning to conduct their annual shareholder meetings virtually again this year. And with publications like the 2020 Multi-Stakeholder Working Group on Practices for Virtual Shareholder Meetings available, which offers best practices and examples of what works well, the expectation is that this year’s meetings will go more smoothly than last year’s.

Board diversity and human capital management

Investors, regulators, and lawmakers are focused on diversity, equity, and inclusion (DE&I) disclosures like never before. When it comes to board diversity, State Street Global Advisors has said that it will vote against nominating and governance committee chairs at S&P 500 companies that don’t disclose the racial and ethnic makeup of their boards this year. And ISS announced that it will begin highlighting Russell 3000 and S&P 1500 companies that lack racial and ethnic diversity on their boards before it starts to recommend voting against them in 2022. Moves such as these mean that 2021 may see unprecedented levels of disclosure on board diversity.

Companies are also coming under increasing pressure to disclose more information about their workforces. The SEC recently introduced new disclosure requirements designed to provide stakeholders insight into human capital—from the operating model, to talent planning, learning and innovation, employee experience, and work environment.

Under the SEC’s principles-based approach, companies may tailor these disclosures to their own business and industry. That makes it difficult to predict precisely what kinds of disclosures it will bring. It is clear, however, that workforce DE&I disclosures are a priority for many large shareholders. Several have called for companies to release their EEO-1 forms, a filing required by the US Equal Employment Opportunity Commission that includes workforce diversity data.

Executive compensation

Companies usually try to avoid making midyear adjustments to executive pay, but the unprecedented economic fallout from the pandemic in 2020 and the possibility of widely missed targets spurred some to action. Proxy advisory firms have responded by amending their policy guidelines. Institutional Shareholder Services (ISS), for example, has said that it may view annual incentive plan changes driven by the pandemic as “a reasonable response so long as the justifications and rationale are clearly disclosed, and the resulting outcomes appear reasonable.”

Given all of this, it’s likely that compensation discussion and analysis (CD&A) disclosures will get extra scrutiny this year. Shareholders will be looking for clear explanations of executive compensation changes, particularly from boards that exercised discretion to adjust targets or payouts. They will also expect to see robust discussion of any prospective changes to 2021 compensation plans. Since this topic has probably dominated many compensation committee agendas for much of the past year, boards should be sure to have a strong grasp on what changes were made and why.

Shareholder proposals

Many of the most-watched shareholder proposals will pertain to environmental, social, and governance (ESG) matters. It’s reasonable to expect a significant number of DE&I-related proposals. Another topic to monitor is corporate political giving. The number of shareholder proposals seeking greater disclosure around companies’ political activity has been increasing in recent years, and shareholder attention to the issue jumped after the contentious 2020 presidential election and its aftermath. 

The trends that we expect to see play out in the 2021 proxy season may have arisen during unique circumstances over the past year, but many are likely long-lasting. How companies approach them—and how shareholders respond—will provide valuable insight on the corporate governance landscape as we move forward.