Esterkin, Peisner and Noutsios Win DeWitt C. Morrill IR Update Editorial Excellence Awards
articles written by NIRI members that address a significant issue in the field of investor relations, are well researched, and well written. Te program honors DeWitt C. “Dick” Morrill, who was one of the 22
T PROXIES
2023 Proxy Trends and
the Universal Proxy Card
Change is afoot for the upcoming proxy season, driven in part by the new universal
proxy card now mandated by the SEC. Find out how IROs can best prepare for success.
BY KIMBERLY ESTERKIN J
ust blink your eyes or snap your fingers and it’s there—proxy season. Before you know it, that fateful time of year, when executive compensation is put on a platter for all to see and board directors are looking for investor
approval, will arrive. It is up to you the investor relations officer to stay
one or more steps ahead of market sentiment. What concerns will be top-of-mind to shareholders this voting season? What issues were important to your shareholder base last proxy season? Will off-season proxy outreach be more critical this year due to last year’s lack of support for one or more topics? Investor concerns have shifted during the past 12
months and the way shareholders will vote on contested director elections. Te 2023 proxy season will be unlike any other to date. As of August 31, 2022, all publicly traded companies are required to use a universal proxy card for any contested director election.
Past is Prologue for Proxy Contests As a former history major, I find myself looking to the past to understand the present. Let’s start then with the past, how contested proxy elections were previously managed. In a proxy fight, shareholders were asked to
vote for one of two competing slates of directors: the company’s slate, which included incumbent directors, or the dissident’s slate, which included a new potential set of directors chosen by an activist investor or investors. Te dissident shareholder, similar to that of the
issuer, issued their own proxy statement, including a separate proxy card for shareholders to vote on behalf of their director slate. Te costs could be quite substantial. For 148 proxy contests that took place between 2017 and 2020, the SEC found that the aver- age cost to the registrant or issuer was $1.65 million and the average cost for the dissident was $750,000. Tese figures only represent the direct costs and not the indirect costs such as management’s time, which add to those figures. In explaining the historical process, Patrick Gad-
son, Partner at Vinson & Elkins and Co-Head of the firm’s shareholder activism practice, noted, “Ok, you guys want to contest us? You bootstrap the costs,
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you print a proxy statement, you mail out [proxies] to millions of shareholders. You do it on your side; we’ll do it on our side.” During that same four-year time period of 2017
to 2020, the SEC identified 101 election contests with a competing (dissident) slate of nominees. Approxi- mately 30 of those contests were for majority control. Nevertheless, as some companies have staggered boards in which not all directors are up annually for election, only 31% of those where majority control was being sought had full boards up for election. In terms of the results of such elections, the SEC found that 62% of the time the issuer retained all its seats that proceed to a vote. In contested director elections there have his-
torically been two proxy cards, and investors had to choose whether they would vote on the issuer’s proxy card or on the dissidents proxy card. Tere was no picking and choosing—it was one slate or the other. The only way to vote on behalf of nominees
on both cards was to physically attend the annual meeting and vote in person. Tis was rarely done. Te SEC noted in its Final Rule on Universal Proxy Cards, “Institutional and other large shareholders can split their vote between registrant and dissident candidates because they can arrange for a represen- tative to attend the shareholder meeting and vote in person. Retail and other small investors, however, are unlikely to have the resources or sophistication.” Te answer to this dilemma of not being able to
vote in person and thus on one single card was to unify the issuer’s proxy slate with that of the activist’s slate on a single proxy card. Te SEC tried doing so through the introduction of “Proxy Access.” Proxy Access was established under SEC Rule 14a-11 and is the ability for a long-term shareholder or group of shareholders to place a limited number of alternative board candidates on a company’s proxy. Tis access is only available to shareholders who have at least 3% ownership in the company over a continuous three-year period. According to the Council for Institutional Inves-
tors, a nonprofit, bipartisan association of U.S. asset owners, “Proxy Access is very rarely invoked, but its availability makes boards more vigilant in their oversight of management and more responsive to
IR UPDAT E ■ FA L L 2 0 2 2 3 1
Gold Winner “2023 Proxy Trends and the Uni- versal Proxy Card,” by Kimberly Esterkin, Managing Director, Addo Investor Relations (Fall 2022 Issue)
RESEARCH
The SEC no-action letter regarding payments for research that is set to expire in July 2023 has research firms speculating about the effect.
BY JONATHAN PEISNER T
SEC RESHUFFLES THE COMPENSATION
he Securities and Exchange Commission (SEC) recently announced that it plans to let its current “no-action” letter regarding
broker-dealers ability to accept hard dollar payments for research if they are not registered as investment advisors (RIA) expire on July 3, 2023. Ramifications of this move may include a decline
in the number of sell-side research analysts, con- solidation of small/mid-tier broker-dealer firms, new legal exposure for broker dealers, and potentially less broker-dealer coverage, particularly for small-cap and mid-cap companies.
DECK FOR EQUITY RESEARCH
Changes Driven by MiFID II Restrictions on accepting cash payments for broker- dealer research has its origins in Europe as noted in the Markets in Financial Instruments Directive II [MiFID II]. MiFID II is a legislative framework instituted by the European Union (EU) to regulate financial markets in the EU bloc and improve protections for investors. Its aim was to standardize practices across the EU and restore confidence in the securities industry, especially after the 2008 financial crisis. In essence, the regulation improves transparency
by requiring payments from investment managers to broker dealers to be split into two components; trading and research. Te MiFID II regulations that came into effect in Europe in January 2018 unbundled trading and research and pushed almost all European asset managers into paying for investment research in cash. Currently, the sell side ensures that their research is only available to investors with whom they have a
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commercial relationship. In the case of broker deal- ers that are not registered as investment advisors the buy side has only two options with which they can compensate these brokers: 1) by directly trad- ing with them, or 2) through indirect payments (so called soft-dollar arrangements or CSA payments). Te MiFID II regulation specifically puts an end
to these methods and calls for direct payments in the form of hard dollars – a method that runs counter to SEC rules. In its 2017 no-action letter to the Securi- ties Industry and Financial Markets Association (SIFMA), the SEC determined that they had no plans to implement these changes in the United States, but the SEC did agree to delay any enforcement action against the sell side while the market adjusted to these changes in Europe. In his speech this past July, William Birdthistle,
the SEC Director, Division of Investment Manage- ment, noted that the SEC expects to let its “no action” position expire on July 3, 2023, and the SEC “does not expect to issue further assurances with respect to the adviser status of broker-dealers accepting compensa- tion under MiFID II arrangements.”
Potential Ramifications for Broker- Dealers So what are the potential ramifications for Wall Street and corporations if the SEC lets its “no action” letter expire next July? To assess this, IR Update talked to the CEOs of two paid research firms: Teodore O’Neill IRC, CEO of Litchfield Hills Research and Stuart Linde, Executive Chairman of Water Tower Research. We also
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Silver Winner “SEC Reshuffles the Deck for Eq- uity Research Compensation,” by Jonathan Peisner, Founder, Value Creation/Value Protection (Fall 2022 Issue)
IR EDUCATION SAVE THE DATE
2. Step up and move forward. Martin Luther King Jr. once said, “Te ultimate measure of a man is not where he stands in the moments of comfort, but where he stands at times of challenge and controversy.” When your executive team is visible and accessible during challenging times, management underscores the resiliency of the company. Tis is more than a soft skill: it lends credibility and shows that management is open to taking on hard questions, even if they may not be capable of fully answering them at the moment. Also, avoid last-minute cancellations of investor meet- ings or conferences – doing so can be interpreted as evasive and as an indicator of instability.
The Opportunity in Crisis Communications
BY NICOLE NOUTSIOS
in a sense of normalcy. Instead, Russia’s invasion of Ukraine has dramatically affected the global economy and unleashed an excruciating humanitarian crisis. As any communications professional will tell you,
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every day presents a balancing act. Business lead- ers need to convey stability but also consider every word for tact and sensitivity, and communications professionals need to be nimble, resourceful, calm, and empathetic – part ninja and part therapist. All while knowing that one poorly chosen word can result in a punishing backlash. It helps to step back and embrace President John
F. Kennedy’s suggestion that inherent in every crisis is the opportunity to show that your company’s execu- tives know the importance of conveying credibility and
S P R I N G 2 0 2 2 ■ IR UPDAT E
or more than two years, communications profes- sionals have navigated a dynamic environment filled with unprecedented challenges, with circumstances changing one day to the next. We all hoped that this year was going to usher
empathy to investors, sell-side analysts, employees, customers, and the media. When done right, crisis communications can shore up relationships among key stakeholders. Every crisis and company are different, and there’s
no standard crisis playbook that applies across the board. However, there are several communication principles and tactics to consider when dealing with a crisis of any sort:
1. Address multiple audiences in your communica- tions. Remember that the messages you send will be heard by a variety of stakeholders, including those on Wall Street, journalists, employees, customers, and partners. For example, employees are engaged in IR communication, so you need to address their concerns, even if in some cases you are primarily addressing investors. Highlighting your company’s culture and the health and well-being of employees can go a long way in demonstrating empathy and support.
ni ri .org/ irupdate 4 4
“When written in Chinese, the word ‘crisis’ is composed of two characters. One represents danger and the other represents opportunity.” – John F. Kennedy
JW MARRIOTT CAMELBACK INN RESORT & SPA SCOTTSDALE, AZ
3. Clearly delineate the short- and long-term growth drivers of the business. If your company is impacted by a crisis, be transparent about the short- term challenges the company faces, from financial to operational. However, take the opportunity to reiterate long-term growth drivers and emphasize that the fundamentals and the value proposition remain intact. For example, it can be helpful to highlight messaging and proof points on the company’s growth opportunities, competitive differentiation, track record of execution, and leadership in the market.
NOV 30 – DEC 2, 2022
4. Be proactive and as specific as you can. With every problem the company faces, offer a solution or action plan that shares how to address or fix an issue. Tat way you clearly demonstrate that you have the executive leadership and expertise in place to manage the problem. For example, citing specific examples of how to plan to solve an issue in an earnings call will lend additional credibility to management.
NIRI Senior Roundtable 2022 Annual Meeting
5. Avoid reading the crystal ball. When situations are dynamic, predicting the future doesn’t do anyone any good. Get comfortable with admitting that the company doesn’t have all the answers, but also be confident in expressing what management does know. Clearly differentiate what is known and what is unknown, and keep in mind that there are situa- tions in which the company will need to withdraw or amend guidance to Wall Street.
6. Actively monitor your peer group and others in the broader sector. Keep a close eye on how other leaders in the industry are framing their messag- ing and use this information as context if it seems relevant. If competitors are impacted differently in a similar situation, be prepared to explain why. For example, many companies have used the term “industry-wide supply chain shortages” in the past two years, creating a shared vocabulary that every- one understands.
7. Be authentic and show empathy. Good crisis communications demands showing just a little bit of personal vulnerability at times. While commu- nicating clearly and truthfully is paramount, there are plenty of ways to balance conveying business- critical information by expressing humility and compassion. After all, many crisis situations – illness, death, terrorism, humanitarian disasters – have a personal impact on communications professionals and business leaders as well as the public’s morale. It’s not just what is said, but how and when you say it; be mindful of tone by showing sensitivity and know that it is okay to show vulnerability. While crisis situations are never enjoyable, they
EXCLUSIVE TO NIRI SRT MEMBERS • FOR MORE INFORMATION VISIT
www.niri .org/srt
do offer an opportunity to demonstrate leadership and empathy, both of which have the power to deepen relationships with key audiences. Sticking to the facts, being transparent and truthful, and expressing compassion can build credibility and bolster your company’s reputation in the investment community. IR
Nicole Noutsios is the Founder of NMN Advisors and a board member of NIRI San Francisco;
nicole@nmnadvisors.com.
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FUNDAMENTALS OF INVESTOR RELATIONS
SEPTEMBER 13-14, 2022 | VIRTUAL SEMINAR 12:00–5:00 PM E.T. (BOTH DAYS)
www.niri.org/fundamentals
This comprehensive, live seminar offers a broad, introductory overview of all aspects of investor relations, including marketing, communication, and finance.
SEMINAR SPONSOR:
IRC® credential holders can earn up to 8 professional development units (PDUs). IRC-credentialed volunteers and speakers may also earn PDUs. More information is available at
www.niri.org/certification.
5/13/22 7:26 AM
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Bronze Winner “Te Opportunity in Crisis Com- munications,” by Nicole Noutsios, Founder, NMN Advisors (Spring 2022 Issue)
5/4/22 9:11 AM ON THE MOVE
Shelly Hubbard, IRC, was named Vice President, Investor Relations at Pentair plc. Before joining Pentair, Hubbard served as Vice President of Investor Relations at Vista Outdoor. Prior to that, she spent nearly eight years at Nike, Inc. with a major- ity of that time as the Director of Global Investor Relations. Hubbard is a member of the NIRI Senior Roundtable and in
2022 was elected to the NIRI National Board of Directors. ni ri .org/ irupdate
Christina Cheng, CFA was recently ap- pointed Vice President of Investor Rela- tions at Kimberly-Clark. She previously led the IR function at several consumer and healthcare companies, including Alcon, Bausch Health and Designer
Brands. Cheng was also previously a sell-side analyst. IR UPDAT E ■ WI N T E R 2 0 2 3 7
great power when we work together toward a shared pur- pose. I’m very optimistic about our future and look forward to working together with all of you to advance NIRI’s im- portant mission.” IR
founding members of NIRI, established in 1969. He was an extraordinary communicator who began his career as a reporter for Te Wall Street Journal and went on to spend many years as an investor relations professional. NIRI congratulates each of the winners and thanks all those who contributed articles to IR Update in 2022 IR.
hree NIRI members—Kimberly Esterkin, Jonathan Peisner and Nicole Noutsios—are winners in the 2022 DeWitt C. Morrill IR Update Editorial Excellence Awards, which recognize IR Update magazine
NIRI Announces New Strategic Plan
the product of a nearly year-long process involving the NIRI Board of Directors and a wide range of NIRI stakeholders. Te new plan focuses NIRI efforts on a very relevant and concise Mission: “Advance and elevate the professional practice of inves- tor relations.” NIRI President and CEO Matthew Brusch, CAE, ex-
N
plains, “Te NIRI community clearly communicated this desired organizational direction through the strategic plan- ning process. Te updated mission is responsive to your needs and will center our decision making and workplan around providing the networking, tools and resources to help you do your jobs better and broadening awareness of the value of IR.” This new direction is further embodied in the new
NIRI Vision: “NIRI aims to be the leader in providing indispensable education, networking and support for the investor rela- tions (IR) community that results in management and the investment community valuing IR professionals as es- sential partners in providing long-term stakeholder value. NIRI is a growing community that supports networking and advancement of the interests of IR professionals.” Brusch adds, “Tere’s strength in our community and
IRI recently announced its new Strategic Plan that will guide the organization through 2025. Tis new plan supersedes the 2018 plan and is
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