Insights from the Best Practices Symposium
State-of-the-art reporting on CSR and the next steps in shareholder engagement were the focus of Corporate Secretary’s second annual Best Practices Symposium, held on November 5, 2014 in the MetLife Building atop Grand Central Terminal. The half-day event was attended by nearly 50 general counsel, corporate secretaries and other governance professionals.
Sponsored by Argyle, American Stock Transfer and Davis Polk, the event also featured a fireside chat with Stephen Norman, a former president of the Society of Corporate Secretaries and Governance Professionals and prior recipient of Corporate Secretary’s lifetime achievement award.
A panel discussion on the latest trends in CSR reporting gave attendees an opportunity to hear about some of the factors that AES, Monsanto and PepsiCo considered before and in the process of reporting on their sustainability efforts. In deciding whether or not to issue a CSR report, AES weighed the positive publicity it could generate against concerns about ‘teaching to the test, allowing the [Global Reporting Initiative] or other sustainability frameworks to dictate which things you measure and report on,’ said AES assistant general counsel Zafar Hasan. Andrés Gluski, AES’ CEO and president since 2011, said he ‘wasn’t worried about that’.
When it first began its CSR reporting, Monsanto, which had dealt mostly with farmers, didn’t see itself as a consumer-oriented company. ‘Over the last few years we’ve pivoted and started to see CSR as a good communications tool,’ said Chris Martin, senior assistant general counsel at Monsanto.
But one thing companies need to be prepared for is that ‘it takes a lot of resources, both financial and human resources-related, to set up the infrastructure to report on things you may not have been tracking,’ Martin continued. When conducting a materiality assessment, companies need to consider the impact their operations could have on factors such as water usage, nutrition and food security. The materiality assessment charts which factors have the biggest impact on Monsanto against things that are of relative importance to the company’s stakeholders.
To highlight its growing commitment to social responsibility, PepsiCo has tried to draw more public attention to some of its lesser-known brands such as Quaker Oats and Naked juices, which are more in sync with health-conscious diet choices than some of its better-known snacks. Krista Pilot, vice president of global internal communications at PepsiCo, said that effort seemed overwhelming at first.
PepsiCo now talks about ‘goals around the health and wellness of our portfolio’ as well as its ‘commitments to reduce the use of sugar, salt and fat in our products’, she explained. PepsiCo has also focused on environmental impacts, including striving for more efficient water usage and reducing emissions in its delivery vehicles: it now has the largest commercial fleet of electric vehicles in North America.
She also spoke about tensions that can exist between the company’s legal and communications teams, noting that these can affect ‘how audacious [you can] be with your goals’. ‘Cutting sugar [content] in a beloved brand and possibly having an adverse impact on the product’s popularity makes the legal team nervous,’ she explained.
During the roundtable session on shareholder engagement that followed, representatives from Marsh & McLennan, Prudential Financial and proxy solicitation firm DF King shared lessons from their efforts to strengthen communications with their investors. Marsh & McLennan saw a dramatic improvement in shareholder support for its say-on-pay proposal in 2014, from 68 percent to 98 percent, partly as a result of closer co-ordination between the governance and investor relations (IR) teams, said Tiffany Wooley, senior benefits and compensation counsel and assistant secretary at the insurance brokerage company. ‘We got subject matter experts on compensation involved in compensation-related investor calls,’ she noted.
But deciding who should participate on investor calls and meetings can be a delicate balancing act. ‘You don’t want to bring out a senior person like the head of executive compensation or a director on every call, as it sends a message that the company regards that call as very important,’ one attendee said.
Talking to the board
Still, when there is a question about the company’s compensation plan, an investor wants to speak with the chair, or at least a member, of the board’s compensation committee, not a hired pay consultant, said Theresa Molloy, director of corporate governance at Prudential.
Prudential receives 2,500 comments per year on average from investors, each of which gets a response, Molloy said. ‘It encourages a sense of commitment [among] retail shareholders and, more important, acts as a catalyst for them to cast their vote on the proxy.’ More than anything else, responding to shareholders’ comments is ‘an instrument for creating good will through the retail investor community,’ she added.
Jordan Kovler, senior vice president at DF King, said it’s critical that companies think of innovative ways to increase retail investor participation, through the use of social media, for example.
An attendee from a major agriculture firm said his company’s governance team makes it a habit to brief members of the IR team about any matters in the proxy statement that could raise issues for investors so that the IR team can be prepared.
One corporate secretary who attended the symposium said her firm has yet to put in place a shareholder engagement program. When one of its board members, who is from the UK, recently suggested that a director participate in engagement efforts with investors, his fellow directors from the US balked and the discussion was tabled until a later date.
A key function
Norman sent a clear message during the fireside chat that the corporate secretary’s role must be treated as a key function within the company as a matter of best governance practice. He asked three questions that point to the hallmarks of an empowered corporate secretary:
- Does the secretary handle annual director evaluations, or is that farmed out to a law firm?
- Does the secretary sit in on all board sessions, even when all other members of management are asked to leave the room?
- Is it the corporate secretary who explains the compensation plan to proxy advisory firms like ISS and to major institutional investors?
Corporate secretaries can usually be more proactive in their role when they have a supportive CEO, Norman explained. ‘If the CEO wants to communicate something to the board and not appear heavy-handed, he or she will ask the corporate secretary to do it.’
He spoke about the creation of an organizational ombudsman function at American Express during his tenure. ‘One of the most effective ways to avoid scandal is to have a climate where wrongdoing can surface early,’ he said. ‘Most employees are afraid to confront a wrongdoer because usually it’s the person who pays him or her.’
During the Q&A, Norman said he’s surprised the advent of bounties being paid to whistleblowers by the SEC hasn’t spurred more adoption of the ombudsman approach. He suspects it has to do with pressure at many firms to keep down the headcount, which would explain the preference for whistleblower hotlines.