Corporate Secretary Magazine Awards 2008 'Best proxy statement' winner RiskMetrics
Being the center of attention is never an easy thing. It is even more difficult when a lot of people are just waiting for you to fail. Few people look forward to reading a corporate proxy statement. They do not make for the most compelling reads and are unlikely to ever win best- seller titles, but RiskMetrics Group’s proxy statement, the first the company had issued since going public, was one of the most eagerly awaited corporate disclosures of the year.
In its inaugural proxy statement, RiskMetrics, parent company of Institutional Shareowner Services (ISS), broke new ground and put together a disclosure document that was worthy of winning ‘Best proxy statement’ at the 2008 Corporate Secretary Magazine Awards. One of the best indications of the quality of the proxy statement was the caliber of the companies that RiskMetrics beat in taking the award, several of which have long been lauded for the quality and consistency of their disclosures. The four other companies that were shortlisted for the category, which was sponsored by the Bank of New York Mellon, were JetBlue Airways, GE, Intel and El Paso Corporation.
Apart from a long list of competitors, RiskMetrics was also up against people whose governance standards or disclosure it had previously criticized. Under its ISS operation the company evaluates and issues voting recommendations on a range of governance issues at public companies both in the US and internationally.
In fact, one of the awards judging panelists, speaking under the condition of anonymity, remarked, ‘Given my past experiences with RiskMetrics and ISS, I have to admit that I really wanted to hate this proxy disclosure. When I first picked it up I went through it just itching to find something wrong with it. I think I read this proxy more carefully than any, except those which I have written myself. But despite my feelings I am forced to admit that I didn’t find anything to dislike about the proxy. It is clear, well-written and contains everything a proxy should and very little that it shouldn’t.’
Balancing act
One of the most impressive elements of the proxy statement is the balance RiskMetrics was able to strike between communication and compliance. This was one of the central themes when the company set out to compile its disclosure.
Kayla Gillan, chief administrative officer at RiskMetrics, explains, ‘One of the first things the CEO Ethan Berman said to me when I joined the company was that he wanted the proxy statement to be unlike any other that had ever been written. We wanted it to be something that the CEO, CFO, the board and executives, and in fact the entire company, could be proud of and happy to put their name to. It needed to be easy to read, intelligent, broad-based and comprehensive yet not overladen with unimportant information.’
Putting together an award-winning proxy doesn’t just happen. The first step was to have the general counsel meet with the outside legal advisers to create a legal framework that included all the elements that are required from a regulatory perspective. ‘I then took this framework and started playing with it. I began by reading proxy statements from a lot of other companies and identifying elements that worked well, and those that did not,’ explains Gillan.
Achieving that balance between legal and communication is an ongoing battle. One technique that the company used to achieve this was adopting a ‘conversational’ style of writing and a lengthy Q&A-style section. This helped the document ‘sound’ more like a real conversation and helped to minimize excessive legalese.
Understanding the investors
Apart from consulting its lawyers, RiskMetrics did not do a lot of outreach when writing the proxy statement. ‘I know a lot of companies do this but we feel that, because of the line of business we are in and the amount of daily interaction we have with investors, that we have a very good feel for what they want to see,’ says Gillan. ‘Given what we do it would be a problem if we did not understand the needs of investors. I think I have a good idea of what good disclosure and transparency look like.’
Two areas that the team at RiskMetrics felt were of particular importance were the compensation discussion and analysis (CD&A) and the description of their own governance processes. These two things, according to Gillan, are of particular interest to investors and, ‘most of all, we want to ensure the proxy contains all the things investors want to see.’
The challenges in writing a good proxy are not just internal. As Gillan cautions, ‘One of the major hurdles in putting together a proxy statement is the current state of legislation. It is very difficult under the rules to compile a proxy that is easy to read and understand. There are a lot of elements that need to be included – and in a particular format – that do not make for a good flow. The legalistic approach will be an ongoing challenge for everyone next year and readability will continue to be a major focus for us as we look to improve upon what we did in 2008.’
