Audit committee oversight, mergers and acquisitions, currency risk, cybersecurity, foreign currency risk and executive compensation are among the big topics likely to dominate annual shareholder meetings this spring, according to BDO USA.
In terms of audit committees, last year saw increased interest from the Securities and Exchange Commission in enhancing the transparency of governance practices through disclosure, BDO noted. The SEC issued a concept release that proposed a number of enhancements to the audit committee disclosures currently required for oversight of auditing firms. A majority of comments from the audit committee and auditor respondents to the proposal advocated for a voluntary approach to additional disclosures versus a mandate. While many companies already go beyond what is publicly required to be disclosed, BDO suggested boards should discuss what kind of additional information shareholders might wish to see and consider whether the company wants to make any voluntary disclosures in those areas.
Mergers and acquisitions are also likely to be a major topic of concern for shareholders at meetings this spring. Megadeals such as those between Dell and EMC, Dow and DuPont, Heinz and Kraft Foods, Pfizer and Allergan, and Charter Communications and Time Warner Cable made the news throughout the year. With continued low interest rates, reduced organic growth and volatile capital markets, businesses are likely to continue to pursue inorganic growth via acquisitions in 2016, BDO pointed out. Shareholders will want to know if management is seeking M&A opportunities and whether the potential targets are being properly vetted to avoid any surprises. The board should ensure companies are equipped with sound integration policies for assimilating target businesses into a corporate culture supported by strong governance, BDO suggested.
Cyber-security has been a growing concern in corporate America in recent years. As cyber-attacks and data breaches at major businesses have become commonplace in the news, investors are all too aware of the damage such events can have on a business’s brand and market value. They will want to know whether the company is being proactive in safeguarding security and putting in place cyber-breach response plans to mitigate the damage from successful attacks.
Foreign currency risk is also likely to be a hot topic of discussion, according to BDO. Apple, Kellogg and Avon are among the businesses that have recently reported on the adverse impact of foreign exchange swings on their bottom line. Shareholders will be interested to hear whether management has hedging strategies in place to protect against currency exposure.
Executive compensation is a perennial topic at shareholder meetings. The SEC has a proposal pending that will require U.S. public companies to disclose the relationship between executive compensation paid and the company’s financial performance. The proposal will require a new proxy table that shows (over a multi-year period) the compensation that was “actually paid” to the CEO and the average compensation “actually paid” to other named executive officers, compared to the company’s total shareholder return, or TSR, during that time. Another table will require a comparison of the business’s overall TSR relative to the TSR of its peer group. While an effective date for this new disclosure has not yet been determined, management should be monitoring TSR relative to its peers and be prepared to respond to any shareholder inquiries on that topic.