Shareholder Engagement Trends and Considerations

January 11, 2021

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In 2020, the COVID-19 pandemic, economic uncertainty, divisive politics and a historic social justice movement presented unprecedented challenges for boards. While the pandemic eliminated the concept of an in-person boardroom, as well as investor site visits, one-on-one meetings at conferences and strategy retreats, work did not slow, and most directors reported devoting significantly more time to their duties.[1]

Boards stepped up to the challenge during the crisis, showing heightened awareness of and focus on environmental, social and governance (ESG) issues highlighted by the COVID-19 pandemic, such as company culture, human capital management, long-term strategy and executive compensation.

In 2021, maintaining and building shareholder relationships through effective engagement will be more important than ever as boards reflect on 2020 and plan for the future. Shareholders will likely be pushing companies to address strategy adjustments, changes in capital allocation and executive compensation in advance of the 2021 proxy season.[2]

Below, we discuss what is motivating shareholders and considerations for companies and their board members in crafting and executing an effective strategy for communicating with investors and other constituents, during proxy season and the off-season.


Shareholder engagement continues to be an important consideration for companies in communicating long-term strategy and deepening relationships with investors. Investors have increased their focus on shareholder engagement in recent years, and large institutional shareholders have made it a priority by expanding their stewardship teams and increasing the number of engagements every year. In the past, shareholder engagement usually involved meetings with company management or the investor relations team, but board members have become increasingly involved in the process.

According to a recent survey, 94% of institutional investors stated they must trust a company’s board before making or recommending an investment.[3] In PwC’s 2020 Annual Corporate Directors Survey, 58% of the directors reported that a member of their board, apart from the CEO, engaged directly with a shareholder in the past year, up from 51% in 2019 and 42% in 2017.[4] This development is partly due to investors’ heightened focus on ESG and any deviations in strategy, as well as their view that directors are well-positioned to discuss company goals.[5]

Both investors and boards share positive feedback on their engagement. According to the Morrow Sodali 2020 Institutional Investor Survey, 91% of institutional investors surveyed stated that engagement at the board level is the most effective way for investors to influence board policies and engagement. From the boards’ perspective, 91% of directors thought investors were well-prepared for the engagement, and 87% of directors believe that engagement has or is likely to have a positive impact on proxy voting, substantially up from 59% in 2016.[6]

Off-Season: Shareholder Engagement

While a big part of shareholder engagement in the first half of 2020 was driven by the impact of COVID-19 on company operations and performance, large institutional investors continue to focus on strategic matters and remain committed to ESG issues, as part of their off-season engagement.

BlackRock’s Investment Stewardship team had more than 400 engagements in which they discussed the impact of COVID-19 in the first half of 2020 and noted they were able to be supportive as companies sought flexibility from investors in the early days of the COVID-19 pandemic. In its 2020 Investment Stewardship Annual Report, BlackRock noted that “given the unprecedented circumstances, we aimed to be constructive and support companies on proposals outside our normal governance policies, such as virtual shareholder meetings, supporting poison pills, dividend cuts, off-cycle revision of executive pay, and authorization for additional financing without shareholder approval.”[7] Concurrently, BlackRock emphasized the importance of corporate leaders seeking a “long-term strategic response to the crisis that is more responsive to the expectations of all their stakeholders.”[8]

BlackRock’s Investment Stewardship team engaged with more than 1,000 companies in 2020 on corporate strategy, an increase of nearly 50% over the prior year, and noted that companies are responding to an acceleration of strategic trends in digitalization and evolution in global supply chains with a reallocation of capital toward more sustainable business practices. Moreover, they expected companies to stay committed to societal impact and ESG issues. In 2020, the BlackRock team engaged with over 640 companies on human capital management issues and another 125 on other social issues.[9] Vanguard similarly emphasized the board’s responsibility in overseeing a company’s long-term strategy and material risks, with a particular focus on climate change and diversity issues.[10] For additional details on these sustainability topics, see Corporate Sustainability: Moving Faster and Faster to the Center of Strategy and Shareholder Value and Emphasis on Diversity Initiatives Broadens in Scope and Focuses on Impact in this memo.

In 2020, investors placed high expectations on company disclosure, especially in light of the COVID-19 pandemic and various corporate measures that were taken in response. BlackRock noted, “companies will have to justify these difficult choices in their 2020 reporting and explain how they weighed their decisions in relation to balancing the interests of investors, employees, customers, suppliers, and communities.”[11] Shareholders are not only requesting additional information but also are focusing on the quality of disclosure, in particular with respect to topics such as climate change, human capital management, board involvement in establishing the culture at the company and health and safety indicators.[12]

According to the 2020 Morrow Sodali survey, investors recommend Sustainability Accounting Standards Board (SASB) (81%) and Task Force on Climate-related Financial Disclosures (TCFD) (77%) as best standards to communicate ESG information. Notably, both BlackRock and Vanguard encouraged companies to publish reports aligned with the recommendations of TCFD and the SASB standards. Further, 91% of investors expect companies to demonstrate a link between financial risks, opportunities and outcomes with climate-related disclosures.[13] BlackRock noted in its 2020 annual letter that it will be increasingly disposed to vote against management and board directors “when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”[14] State Street similarly noted that it “will take appropriate voting action against board members at companies in the S&P 500, FTSE 350, ASX 100, TOPIX 100, DAX 30, and CAC 40 indices that are laggards based on their R-Factor scores and that cannot articulate how they plan to improve their score.”[15]

As investors’ expectations for enhanced disclosure rise, companies and boards should consider proactively disclosing information of shareholder interest and be prepared to communicate ESG information through relevant metrics.

Considerations for 2021

In preparation for the 2021 proxy season and engagement with shareholders, boards and management should consider the following in developing a strategy for engaging with shareholders and communicating with other stakeholders.

Strategize on Long-Term Plan and Crisis Management

  • Be informed and aligned in developing the company’s long-term strategic vision. The board should rearticulate the long-term plan for the company based on the lessons learned from the COVID-19 pandemic.
  • Ensure there is consistent messaging among all constituencies (e.g., investors, employees, customers and suppliers). A unified and consistent message with robust shareholder communication builds support for the company’s long-term plan, as well as any corporate measures and responses to be taken in response to the pandemic.
  • Be specific and aligned in identifying a corporate purpose and culture and demonstrating how it informs the company’s plans for growth, financial performance and crisis management.
  • Be ready to discuss how key ESG and sustainability topics that are particularly salient to the company and the industry relate to the company’s long-term plan.

Know Your Investors

  • Identify and pay particular attention to the company’s largest shareholders and key stakeholders for regular outreach.
  • Review investors’ stock holdings, published guidelines, policies, statements, voting history and involvement in campaigns for shareholder proposals, governance initiatives or activism, including any recent adjustments driven by the pandemic.
  • Maintain an open mind. Directors often think of a shareholder proposal as a line of attack or an escalation tactic, but some investors think of it as a strategic approach to engagement. Once an investor opens the line of communication with the company, it may be willing to discuss the issue and come to a resolution that results in a withdrawal of the proposal.[16]

Review and Revise Disclosure

  • Include voluntary disclosure regarding current engagement with shareholders, feedback received from shareholders and how the company responded. Many companies are providing this information in their proxy statements in the summary, corporate governance and executive compensation sections. Some companies describe the number of shareholders with which they met, whether directors participated in the engagement, topics discussed and any changes that the company is implementing or considering implementing as a result.
  • Consider making the connection between shareholder engagement and board member skills. Some companies are not only describing how and why the board participates in shareholder engagement but also leveraging disclosure about directors’ skills to highlight what the directors bring to the discussion.[17] When proxy materials state that directors are discussing certain topics with shareholders, it is helpful for investors to see what makes those particular directors qualified on those topics.
  • Provide more granular ESG-related and other disclosure specific to the company, its business and its risks.
  • Take investor concerns into consideration when creating and updating public information, including disclosure, presentations, websites, sustainability reports, CSR reports and other publicity vehicles, including social media.
  • Ensure that the board, management and other members of the company coordinate to maintain current and consistent disclosure and communication with investors and other stakeholders.

Focus on Key Topics

  • Consider adding disclosure and reporting on key concerns for investors such as climate change and human capital management, consistent with frameworks and standards recommended by investors, such as the TCFD and SASB.
  • Highlight steps the company is taking to ensure value creation is not impeded by adverse impacts arising from neglect of ESG issues.
  • Consider linking executive compensation practices to strategy and performance, including financial, operational and sustainability measures.[18]
  • Address topics about which there are misunderstandings or controversies (whether raised by analysts, media or activists, or conveyed privately to the company).
  • Benchmark governance and other practices against similarly situated issuers, including competitors, others in the sector or index and others in a specific investor’s portfolio.

Other Process Considerations for Engagement

  • Determine who will be best-positioned to engage directly with investors on a particular topic or issue:
  • Management participants usually include the CEO, CFO and an IR officer and may include business development or sustainability teams and, in some cases, the heads of specific business units of interest.
  • Many large institutional investors, especially top shareholders, increasingly expect to be able to directly engage with directors, in particular on questions regarding strategy.
  • Directors should be trained on how to most effectively engage on these issues.
  • Take into account restrictions around quiet periods ahead of earnings releases, typically right after the quarter ends.
  • Be vigilant about avoiding disclosure of material nonpublic information that would violate Regulation FD.
  • Set a consistent procedure and internal standards on whether to hold audio-only or video meetings as engagement has been and will be virtual for some time.

Proxy Season: Virtual Annual Meetings in the Era of COVID-19

Given various government restrictions on travel, stay-at-home orders and social distancing measures that prohibited gatherings of more than a certain number of individuals, public companies needed to think creatively and quickly about how to approach the traditional proxy season and to hold annual meetings from April through June. Most companies shifted from a proxy season of traditional in-person annual meetings to virtual shareholder meetings. Broadridge Financial Solutions, Inc., one of the most widely used vendors for a virtual meeting platform, reported that it hosted 1,494 virtual shareholder meetings during the first six months of 2020.[19]

Looking ahead to the 2021 proxy season, companies can draw on the lessons from 2020 and analyze a few key considerations as they plan for whether and how to hold virtual shareholder meetings.

Considerations for 2021

Consider State Corporate Law

  • A company considering a virtual shareholder meeting should take into account the laws of the state in which it is incorporated. The majority of states, including Delaware, allow companies to hold virtual-only annual shareholder meetings. Many states that generally require an in-person meeting or a “hybrid meeting” with an in-person component provided relief in 2020 through executive orders or amendments to the governing statutes.
  • Originally, the New York Business Corporation Law (NYBCL) did not expressly authorize virtual-only shareholder meetings. New York Governor Andrew Cuomo issued an executive order in March 2020 that temporarily suspended certain subsections of the NYBCL that require meetings of shareholders to be held at a physical location. In June 2020, Governor Cuomo enacted temporary amendments to the NYBCL that codified such relief.[20] Section 602(a) of the NYBCL was temporarily amended to give boards of directors the discretion to convene a virtual-only shareholder meeting.[21] The amendments will remain effective for the duration of the state of emergency, subject to an outside expiration date of December 31, 2021. For New York corporations, boards will have an option of determining whether to hold virtual-only shareholder meetings so long as the state of emergency remains in place.
  • The California Corporations Code permits corporations to hold virtual meetings provided that all stockholders consent to the format, a requirement with which it is practically impossible for public companies to comply. California Governor Gavin Newsom in March 2020 issued an executive order that temporarily suspended this shareholder consent requirement for virtual meetings for the duration of the state of emergency.[22]
  • The status of this type of relief for 2021 annual meetings remains uncertain, given all the uncertainties around when pandemic related restrictions will wind down. Companies incorporated in states like New York and California will have to prepare for the possibility that a virtual-only meeting may be permitted when the company files its proxy statement but may no longer be permitted by the date of the annual meeting. Conversely, while restrictions on gatherings may be relatively loose when a proxy is filed, increases in COVID-19 cases could lead to restrictions and lockdowns at the time of the annual meeting. Companies should closely monitor developments in their state of incorporation and review their corporate governance documents to utilize any form of emergency relief provided from state restrictions on virtual-only shareholder meetings.

Consider Investor Feedback and Consult Virtual Meeting Service Providers

  • In planning for 2021, companies should engage with their shareholders during the off-season to solicit feedback on the virtual shareholder meeting process from 2020 and consider implementing changes to address that feedback if necessary.
  • Many investors shared positive feedback that they were able to attend annual meetings without traveling, which contributed to greater shareholder attendance. Other shareholders expressed concern about the inability to see management and board members, as a large majority of virtual meetings in the 2020 proxy season were audio only. Some also expressed concerned about a lack of transparency surrounding the Q&A sessions, as shareholders were asked to type their questions into the virtual meeting portal, which was only visible to the company, and shareholders could not see other shareholders’ questions.
  • While a large majority of virtual meetings during the 2020 proxy season were in audio-only format, we expect that in 2021 an increasing number of companies will incorporate video components for their meetings, as video conferencing capabilities have been enhanced during the pandemic.
  • Given concerns raised by investors around these limitations, companies should consult virtual meeting service providers to understand how the platforms may be changing in 2021 and to express suggestions for additional features or enhancements that the company may want to include. With more time to plan, shareholders will be less forgiving and more insistent on opportunities to participate and on the transparency of the Q&A format. Relatedly, many investors continue to indicate a preference for hybrid meeting formats over virtual-only and companies should clearly disclose rationales for virtual-only formats, even during the continuing pandemic.

Consider SEC Staff Guidance

  • While state corporate law governs the ability to hold a virtual shareholder meeting, the federal securities laws and SEC rules govern proxy disclosure. The staff of the SEC’s Division of Corporate Finance and the Division of Investment Management (SEC Staff) in April issued helpful guidance for conducting shareholder meetings in light of COVID-19 concerns, addressing how companies should disclose changes to the date, time or location of a meeting, including a change from an in-person to a virtual meeting.
  • The guidance suggested companies disclose “clear directions as to the logistical details of the ‘virtual’ or ‘hybrid’ meeting, including how shareholders can remotely access, participate in and vote at such meeting,” and encouraged companies to provide proponents of shareholder proposals with the ability to present their proposals through alternative means, such as by phone.[23]
  • Given certain investor concerns about company disclosure on how to access virtual meetings, presentation of shareholder proposals and the transparency of Q&A sessions, it is possible the SEC Staff might issue further guidance on proxy disclosure requirements for those companies planning to hold virtual shareholder meetings in 2021.

Consider Proxy Advisory Firm Guidelines

  • At the beginning of 2020, Institutional Shareholder Services (ISS) did not have a policy on virtual shareholder meetings. In April 2020, ISS issued guidance supportive of virtual meetings during the COVID-19 pandemic and encouraged companies to commit to returning to in-person or hybrid meetings as soon as practicable.[24] Glass Lewis suspended through June 30, 2020, its policy of voting against director nominees who serve on the governance committee of a company that holds virtual meetings without sufficient disclosure about shareholder participation rights.
  • In its 2021 proxy voting policy guidelines, Glass Lewis removed the temporary exception to its policy on virtual shareholder meeting disclosure. Specifically, for companies choosing to hold their meeting in a virtual-only format, Glass Lewis expects robust disclosure in the company’s proxy statement addressing the ability of shareholders to participate in the meeting. This includes disclosure of shareholders’ ability to ask questions at the meeting; procedures, if any, for posting appropriate questions received during the meeting and the company’s answers on its public website; and logistical details for meeting access and technical support. When such disclosure is not provided, Glass Lewis will generally hold the governance committee chair responsible.[25]
  • For 2021, ISS has adopted a policy in its U.S. benchmark guidelines regarding the format of annual meetings. ISS will generally support management proposals allowing hybrid shareholder meetings as long as the intention, in the absence of health or safety concerns, is not to hold virtual-only meetings to the preclusion of in-person meetings. ISS encourages companies to disclose the circumstances under which virtual-only meetings would be held and to afford shareholders the rights and opportunities to participate electronically comparable to those they would have during an in-person meeting. For shareholder proposals, ISS will review case-by-case proposals concerning virtual-only meetings, considering the scope and rationale of the proposal and any concern with prior meeting practices.[26]

In 2021, given the uncertainties surrounding the pandemic, in addition to public safety guidelines and state orders, companies and boards should carefully monitor developments in state corporate law and SEC guidance and consider investor feedback and proxy advisory firms’ guidelines as they plan for the proxy season. Contingency planning and flexibility will be key, and maintaining shareholder relationships through effective engagement during the off-season will be more important than ever.

[1] PwC 2020 Annual Corporate Directors Survey (2020).

[2] PwC 2020 Annual Corporate Directors Survey (2020).

[3] Edelman Trust Barometer Special Report: Institutional Investors (2020).

[4] PwC 2020 Annual Corporate Directors Survey (2020).

[5] PwC Director-Shareholder Engagement: Getting it Right (2020).

[6] PwC 2020 Annual Corporate Directors Survey (2020).

[7] BlackRock 2020 Investment Stewardship Annual Report (2020).

[8] BlackRock 2020 Investment Stewardship Annual Report (2020).

[9] BlackRock 2020 Investment Stewardship Annual Report (2020).

[10] Vanguard 2020 Investment Stewardship Annual Report (2020).

[11] BlackRock 2020 Investment Stewardship Annual Report (2020).

[12] Morrow Sodali Institutional Investor Survey (2020).

[13] Morrow Sodali Institutional Investor Survey (2020).

[14] BlackRock 2020 Annual Letter to CEO (2020).

[15] State Street 2020 Annual Letter to Board Member (January 28, 2020).

[16] PwC Director-Shareholder Engagement: Getting it Right (2020).

[17] PwC Director-Shareholder Engagement: Getting it Right (2020).

[18] For additional details on the use of ESG metrics in incentive compensation, please see ESG Considerations for Incentive Compensation Programs in this memo.

[19] Broadridge, “Virtual Shareholder Meetings 2020 Mid-Year Facts and Figures” (2020).

[20] Senate Bill 8412.

[21] Paragraph (a) of Section 602 of the NYBCL, in its amended form, states: “Meetings of shareholders may be held at such place, within or without this state, as may be fixed by or under the by-laws, or if not so fixed, as determined by the board of directors. For the duration of the state disaster emergency declared by executive order two hundred two that began on March seventh, two thousand twenty, if, pursuant to this paragraph or the by-laws of the corporation, the board of directors is authorized to determine the place of a meeting of shareholders, the board of directors may, in its sole discretion, determine that the meeting be held solely by means of electronic communication, the platform/service of which shall be the place of the meeting for purpose of this article.”

[22] Executive Order N-40-20 (March 30, 2020).

[23] Staff Guidance for Conducting Shareholder Meetings in Light of COVID-19 Concerns (April 7, 2020), available here.

[24] Institutional Shareholder Services (ISS) Policy Guidance, “Impacts of the COVID-19 Pandemic” (April 2020).

[25] Glass Lewis, “2021 Proxy Voting Policy Guidelines” (2020).

[26] Institutional Shareholder Services (ISS), “2021 Benchmark Proxy Voting Policies” (2020).