In the decade since Dodd-Frank put Say on Pay in place, we have watched proxy statements go from a regulatory compliance exercise to a strategic communications initiative. Companies increasingly see their proxy statement as a marketing document with a shelf-life well beyond the annual meeting. Rising investor expectations, along with the pressure of potential shareholder activism, only intensifies the focus on crafting a more strategically effective proxy document. Nowhere is this more evident than with the CD&A — the first section (and often the only section) most investors read to glean key information on company performance and insight into current and future corporate strategy. CD&As are now filled with elaborate tables and graphs, full-color graphics and branded elements, all aimed at drawing in audiences and conveying information in a clear and compelling manner.
So, a decade into this trend of increasing sophistication in the CD&A, what have we learned? What are the new areas of focus for making the CD&A more effective?
The New Best Practices for Improving the CD&A
As Toppan Merrill’s resident Proxy Advisory Expert, I have seen these changes first-hand, helping dozens of companies improve their CD&A every year. Here are four best practices Toppan Merrill has gleaned through our extensive experience helping companies improve their proxy documents. Whether your company has been continually enhancing and refining your CD&A and proxy document for years, or you’ve been using the same template for decades, these are simple ways you can make your CD&A work harder for your company and communicate more effectively with your investors:
1. Simple Navigation
The CD&A (like the proxy statement) is getting long. Most investors, whether institutional or retail, now use the CD&A as a reference document. They simply do not have time to read the entire narrative from start to finish; they want to jump right to the information they are interested in. Formatting for easy navigation is crucial — and that starts with the table of contents (TOC).
- Include a table of contents for the CD&A. More than 1 in 3 companies now include a separate table of contents (TOC) within the CD&A itself. This accomplishes two things: 1) allows for a shorter TOC for the overall proxy statement, and 2) helps investors quickly jump to the information they want within the CD&A.
- Hyperlink your TOC. Many companies are now going a step further by hyperlinking their TOCs. Investors increasingly view the CD&A on a digital device, so it’s natural to take advantage of this simple hyperlinking functionality to make navigation even easier, faster and more intuitive. Providing investors with a document where they can click to immediately jump to the requisite information they are searching for can make the CD&A more usable to investors and shareholders.
2. Design With a Purpose
If you looked back at proxy statements and CD&As from 10 years ago, they were pretty darn boring. They went from cover to cover with white space and black lines. Today, CD&As are treated as highly designed and branded marketing documents, filled with specific graphic elements and often in full color. This trend toward highly designed CD&As is a positive thing; it generally makes for a more compelling read. But it’s also important to make sure design isn’t for design’s sake — all graphical and design elements should serve a purpose and not distract from or conflict with the story your company is trying to tell.
- Graphics should flow together to tell a story. From a content perspective, that means tables and graphs that fit with the narrative text and flow naturally with the layout of the CD&A. Today’s CD&As contain many different financial tables that often include complicated footnotes. These tables need to visually work together and flow together to tell a story. Overall, the goal is to make sure that story is told as simply as possible. Don’t over-engineer your graphics.
- Design should reflect company culture. Companies are increasingly savvier about using their CD&A to convey and reinforce their culture and values to investors. Keep in mind that a flashy, full-color, graphics-packed CD&A may look objectively great, but not fit a company with a more conservative culture. Similarly, a spartan, humble design aesthetic will feel out of place for a company with an edgy, high-energy culture (and edgy narrative text in the CD&A).
3. One Voice, One Story
Putting together the proxy statement and CD&A requires wide-ranging inputs from across the organization. Investor relations, legal, finance and accounting, HR, corporate secretaries and corporate communications all typically collaborate to create the document. Beyond the logistical challenges of facilitating efficient collaboration, there’s the challenge of massaging all these inputs into a clear story with a consistent voice.
- The find-and-replace approach leads to a Frankenstein CD&A. Many companies take a find-and-replace approach to producing their CD&A each year — dusting off last year’s proxy statement, inserting this year’s financial data and corresponding content, and making ad hoc updates where needed. After a few years of this approach, you can easily end up with a bloated CD&A filled with disjointed information that doesn’t flow together to tell a consistent story.
- Do a “cold proof” for voice and story. Those in charge of putting together the CD&A are often too close to see the disconnects and inconsistencies in story and voice. It’s important to share drafts of your CD&A with others outside of the drafting process for a “cold proof.” Whether it is from individuals within the company that are not directly involved in the drafting process, or a third-party partner, getting a fresh set of eyes on the CD&A is the best way to ensure a consistent story and voice throughout the document.
4. Consistency, Consistency, Consistency
Companies are aiming to deliver proactive transparency with their proxy document — not just on financial performance, but on ESG, sustainability, corporate strategy and more. As I’ve mentioned, this leads to increased page counts in the overall proxy statement. And I think we can all admit that investor attention spans (like all of our attention spans) are growing shorter and shorter. It only takes a few redundancies or bits of repetitive content to lose your audience. Average word counts in proxy statements grew consistently for several years, but are now on the decline as companies take a closer look at “trimming the fat” to make their stories more concise and compelling. Once again, a “cold proof” by a proxy advisory expert or an internal party that is not directly a part of the CD&A drafting process is the best way to edit out redundancies. In addition to the “cold proof” review process, there are several ways to remove redundancy throughout the drafting process.
- Beware the “bloat” of ad hoc revisions. As I mentioned above, ad hoc revisions and additions to the CD&A can lead to a bloated document filled with disjointed and redundant information. Companies also frequently leave in disclosure information that was highly relevant one year, but no longer required in future documents. .
- Make design work for consistency. As a corollary to my best practice around design with a purpose, make sure you are utilizing design and graphical elements to enhance clarity and consistency. This means leveraging graphs and tables to convey complex information — and not unnecessarily repeating that information in narrative text. It means using smart layout and design elements to break up dense chunks of text to make the content more visually navigable. And it means using simple design decisions, like bullet-point copy, to make text more scannable and digestible wherever possible.
Keep an Eye on the Bigger Picture
The last thing I want to stress is that as you consider changes and improvements to your CD&A and proxy document these changes don’t happen in a vacuum. I have seen numerous times how seemingly simple changes can have a domino effect, leading to surprisingly big impacts down the line. For example, adding full-color graphics often requires a switch to a heavier paper stock to ensure graphic/color quality. Heavier stock may be more expensive and may substantially increase mailing costs. The added cost may be worth it in many cases, but you will want to consider these costs before you get too far down the production process and before you get the invoice for the increased mailing costs. On the flip side, I have seen countless instances where a thorough edit to remove redundancies and repetitive content from a CD&A can lead to a significant reduction in page count. This ends up driving cascading efficiencies including shortening the time to edit, review and approve the document, reducing printing costs and reducing mailing costs — all while giving the investor audience a clearer, more concise and more navigable document.
As we look back on the last 10 years and think about where the future of the proxy document and specifically the CD&A is headed, it’s no longer just about adding more to your CD&A. It’s about finding smart ways to add more value to your CD&A — making it more relevant and compelling for your investors and shareholders, and making it work harder for your business.
During this most recent proxy season, companies that engaged Toppan Merrill’s consultation experts realized thousands of dollars of savings while uncovering ways to upgrade their design and messaging to communicate a more effective story.
Karen Fisher, Proxy Advisory Expert at Toppan Merrill
With over 30 years in the field of investor relations and corporate governance, Karen has advised numerous private and public companies on their domestic and international investor relations and corporation communications strategies, as well as corporate governance and ESG programs. Karen has teamed up with Toppan Merrill, an internationally known financial services company, to provide a fresh perspective on troublesome proxy disclosure including ESG disclosure reports, as well as draft and/or review and edit the entire proxy document. She recently completed work on Macy’s 2019 proxy statement, as well as a full 2019 proxy rewrite for Bar Harbor Bankshares. 2020 projects included the Ball Corporation, RLJ Lodging, California Water Service, iStar and Safehold, as well as recurring advisory services for Bar Harbor Bankshares.