Preparing for the 2025 Reporting Season: Proxy Season Reminders

With the 2025 proxy season upon us, this Alert highlights governance, disclosure, and engagement considerations for companies preparing for their 2025 annual meetings. [1] Many of the governance and disclosure matters discussed below remain consistent with prior rulemakings and disclosure requirements adopted by the U.S. Securities and Exchange Commission (SEC). However, in recent weeks, we have seen a significant shift in the discourse and approach regarding environmental, social, and governance matters, particularly related to diversity, equity, and inclusion (DEI) disclosures. These disclosures had become common in proxy statements and were seen as responsive to the expectations of proxy advisory firms and large institutional investors; however, as our 2025 Environmental and Social Developments alert discusses in greater detail, recent developments have changed how some of these stakeholders are approaching these matters. We highlight below several considerations relating to these developments but note that the approach on these issues by many other stakeholders remains in flux.

Governance and Disclosure Considerations

Board Composition

Board Diversity. Board diversity efforts continued to face headwinds in 2024 and thus far in 2025. On December 11, 2024, the U.S. Court of Appeals for the Fifth Circuit vacated the SEC’s order approving Nasdaq’s board diversity rules and, effective February 4, 2025, following the SEC’s approval, Nasdaq removed its board diversity rules from its listing standards. As a result, Nasdaq-listed companies are no longer required to disclose board diversity information. [2] In recent weeks, Institutional Shareholder Services (ISS) and Glass Lewis have updated (or in the case of Glass Lewis signaled an update to) their voting guidelines with regard to board diversity and related voting recommendations. In particular, on February 11, 2025, citing recent DEI developments in the U.S., ISS announced that it will no longer consider the gender, racial, or ethnic diversity of U.S. company directors when making vote recommendations with respect to the election or re-election of directors. ISS’s new policy approach is applicable for shareholder meeting reports published on or after February 25, 2025. On February 18, 2025, Glass Lewis sent an email to clients indicating that it was reviewing its board diversity and DEI-related shareholder proposal voting policies and would advise investors and companies of any modifications to its policies, guidelines, and/or research approach pertaining to U.S. companies on March 3, 2025. These developments follow the softening by some institutional investors, like BlackRock and Vanguard, on voting action specifically responsive to inadequate board diversity. For more information on proxy advisory and institutional investor board diversity policies, please see our 2025 Environmental and Social Developments alert.

Director Independence. Director independence disclosure has been a standard requirement under the proxy rules for over 20 years, however, a recent SEC enforcement action brought these issues to the forefront in 2024. As discussed in our Form 10-K Reminders alert, in September 2024, the SEC announced a settled action against a director who did not disclose to the board his close personal friendship with one of the company’s executive officers. Following the disclosure of such relationship, the company’s board determined that the director was not independent. When reviewing director independence including, for example, when a change to the board occurs and in connection with director nominations, companies must consider the director independence standards set forth by the stock exchange on which their securities are listed. Further, companies should consider all facts and circumstances that may impair a director’s independence from management and should consider Delaware law [3] and ISS and Glass Lewis standards for director independence, particularly if there are concerns with high levels of “against” or “withhold” votes.

Director Overboarding. Proxy advisory firms and investors continue to be concerned about the number of public company boards on which directors serve, often referred to as director overboarding. Both ISS and Glass Lewis have director overboarding policies, and many large investors have implemented their own voting policies. Companies should review their corporate governance guidelines against any overboarding policies of their significant shareholders. A sampling of some of these policies is set forth below but is limited to only those firms that have published updated voting guidelines for the 2025 proxy season. The numbers in the table below are the maximum number of boards on which the individual may serve (including the individual’s home board or the board for which the individual is a nominee).

New SEC Requirements Related to Insider Trading Policy Disclosures and Timing of Awards

Insider Trading Policy Disclosure. As discussed in our Form 10-K Reminders alert, companies are now required to include narrative disclosure as to whether they have adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of the company’s securities by directors, officers and employees, or the company itself. If not, they must explain why they have not done so. If so, they must file their insider trading policies and procedures as an exhibit to their Form 10-K. Note that this requirement not only applies to directors, officers, and employees, but also the company itself. Calendar-year companies are required to provide this narrative disclosure in their proxy statements for their 2025 annual meetings. [4] This narrative disclosure must be submitted in Inline XBRL. For more information on this disclosure requirement, please see our previous Alert and Known Trends post.

Timing of Grants of Certain Equity Awards Disclosure and Table. As discussed in our Form 10-K Reminders alert, companies are now required to discuss their policies and practices on the timing of option awards in relation to their disclosure of material nonpublic information (MNPI) including the information specified in Item 402(x)(1) of Regulation S-K (Reg. S-K). This narrative disclosure is required regardless of whether the company has granted any options (or option-like instruments) to its named executive officers that would trigger tabular disclosure under Item 402(x)(2) of Reg. S-K. The tabular disclosure is required if, during the last completed fiscal year, the company awarded options (or option-like instruments) to any named executive officer in the period beginning four business days before the filing of a Form 10-Q, Form 10-K, or the filing or furnishing of a Form 8-K that discloses MNPI (other than an Item 5.02(e) Form 8-K that discloses a material new option award grant) and ending one business day after the filing or furnishing of such report. Calendar-year companies are required to provide this disclosure in their proxy statements for their 2025 annual meetings. [5] This disclosure must be submitted in Inline XBRL. For more information on these new disclosure requirements, please see our previous Alert and Known Trends post.

Compensation Disclosure

Clawback Disclosure. As discussed in our Form 10-K Reminders alert, companies are now required to have a clawback policy that complies with applicable stock exchange listing standards. Where a company was required to prepare an accounting restatement that triggered a clawback under its clawback policy during the last fiscal year, or if there was an outstanding balance of excess incentive-based compensation from a prior restatement, the company will be required to provide disclosure under Item 402(w) of Reg. S-K, as well as adjust any amounts reflected in its summary compensation table disclosure for the fiscal year in which the amount recovered was reported as compensation. The disclosure required by Item 402(w) of Reg. S-K must be submitted in Inline XBRL. Companies that check both boxes on the Form 10-K to disclose that the filing reflects an error correction and that the error corrections are restatements that required a recovery analysis should provide Item 402(w) disclosure, even if the company conducts an analysis and determines that it does not have compensation subject to clawback. Regardless of whether companies have any required disclosures under Item 402(w), they should review and update (as needed) their proxy statement disclosure regarding their clawback policies to reflect accurately their existing clawback policy(ies).

Proxy advisory firms and many investors are focused on governance practices of public companies including executive clawback policies. For example, in its recently updated Executive Compensation Policies FAQs, ISS said that it will not consider clawback policies “robust” if the policy does not cover time-vesting equity awards. In our recently published 2024 Silicon Valley 150 Corporate Governance Report (2024 SV150 Report), we reviewed the clawback policies filed by companies within the Silicon Valley 150 (SV150). Of the 138 SV150 companies that filed their clawback policy, most adhered closely to the requirements in the applicable stock exchange listing standards. For example, nearly all of the policies covered solely Section 16 officers and provided for clawbacks only in the case of accounting restatements (91 percent and 92 percent, respectively). Only eight percent of the policies filed expanded the scope of triggers and included, for example, an error in non-financial statement performance metrics affecting incentive compensation, misconduct or detrimental conduct, or other actions that result in material harm to the company.

Security Perquisites. Companies are increasingly revisiting executive security programs in light of recent global events. Before adopting or modifying executive security programs companies are encouraged to consider the potential disclosure and tax impact as well as reaction from investors. The SEC has taken the position that even if personal security expenses serve a business purpose, they may not rise to the level of being integrally and directly related to the performance of an executive’s duties and will likely need to be treated as perquisites. In its 2006 adopting release, the SEC lists “security provided at a personal residence or during personal travel” as items “requiring disclosure as perquisites or personal benefits under Item 402.” See Executive Compensation and Related Person Disclosure, SEC Rel. No. 33-8732A (Aug. 29, 2006) at 77. Whether disclosure of a particular security benefit constitutes a perquisite often requires a case-by-case assessment of whether the benefit has a personal aspect to the executives. If a particular security benefit is determined to be a perquisite and the aggregate incremental cost to the company, along with any other perquisites provided to the executive for the fiscal year are $10,000 or more, proxy disclosure is required, and in many cases identification and quantification of the specific perquisite and the associated cost.

From a U.S. tax perspective, personal security benefits are generally imputed as taxable income to an employee and treated as compensation unless a company establishes an “overall security program” and can show that there is a bona fide business-oriented security concern with respect to an employee. To establish an overall security program, companies may hire an outside security consultant to conduct an independent security study. Typically, this type of study is a prerequisite for the tax deductibility of expenses incurred by the company for providing security benefits. Institutional investors continue to remain focused on a company’s practices of providing “perks,” and often carefully examine company disclosures on this point.

Third Year of Pay Versus Performance Disclosure. For many companies, 2025 will be the third year of pay versus performance disclosure and as those companies prepare their disclosure, they should:

• Ensure that all five years are reflected in the table in this year’s proxy statement (or a total of three years for smaller reporting companies).
• Review carefully the three sets of Compliance and Disclosure Interpretations (CDIs) published by the SEC’s Division of Corporation Finance (Division) in February, September, and November 2023, which are available here. For a detailed discussion of the February 2023 and September 2023 CDIs, please see our Known Trends posts here and here.
• Remain aware of common compliance issues cited by Division staff in the CDIs and in recent comment letters. Such compliance issues include: i) mistakes in compensation actually paid calculations; ii) failure to include footnote disclosure regarding adjustments to calculate compensation actually paid; iii) failure to use GAAP net income as disclosed in the audited financials as the net income amount; iv) failure to disclose the relationship between a non-GAAP company-selected measure and audited financial statements; and v) use of the wrong peer group index for purposes of disclosing peer group total shareholder return.
• Work with their external advisors to calculate the information required to be reported in the pay versus performance table.

In our 2024 SV150 Report, we reviewed the pay versus performance disclosures made by the SV150 companies. Of the SV150 companies providing pay versus performance disclosure, a majority (57.7 percent) included a revenue-based measure, such as total GAAP or non-GAAP revenue, as their company-selected measure, while 27.6 percent used an earnings-based measure, such as non-GAAP operating income or adjusted EBITDA. In addition, most of the companies (61.2 percent) included three or four financial performance measures (including the company-selected measure) in their list. Other than the company-selected measure, earnings metrics (39.6 percent), stock price metrics (21.6 percent), and revenue metrics (19.4 percent) were the three most prevalent types of performance measures listed. For a detailed discussion of the pay versus performance rules, please see our previous Alert.

Performance-Based Awards. Proxy advisory firms are increasingly focused on performance-based equity compensation programs, emphasizing the need for “goal rigor” of performance metrics and corresponding disclosures. ISS recommends that proxy disclosure should include extensive disclosure, including i) identification of the performance metrics and the reason for the adoption or change of such performance metrics; ii) the target, minimum, and maximum payout levels; iii) the expected difficulty of attaining each payout level; iv) the actual quantified results achieved for each goal and the amount payable with respect to each goal; and v) an explanation if target performance is set at or below the prior year’s analogous goal or achieved result.

Officer Exculpation

As a reminder, in August 2022, the Delaware General Corporation Law (DGCL) was amended to permit corporations to exculpate their officers, subject to certain limitations. In order to implement officer exculpation, a corporation is required to include an officer exculpation provision in its certificate of incorporation. For public companies, this means soliciting shareholder approval for an amendment to the certificate of incorporation. Companies considering whether to include an officer exculpation proposal in the proxy statement should continue to be mindful of the procedural hurdles to amend their certificate of incorporation including, for example, obtaining the requisite shareholder approval (generally requiring a majority of the outstanding voting power of the company or higher if the company has super-majority vote provisions) and the need, generally speaking, to file a preliminary proxy statement (which, on the whole, accelerates the timeline for the overall preparation of the proxy statement). In addition, ISS and Glass Lewis have issued voting guidelines on this topic. Both proxy advisory firms review these proposals on a case-by-case basis, but Glass Lewis will “generally recommend against” the adoption absent a “compelling rationale.” ISS has supported many of these proposals while Glass Lewis has mostly recommended votes against these proposals.

Companies are continuing to adopt these charter amendments in increasing numbers. We reviewed proxy statements filed by SV150 companies for annual meetings held in the first year and in the second year after adoption of the DGCL amendments. We saw an increase from nine companies to 29 companies that voted on an officer exculpation amendment year-over-year, with a 90 percent passage rate in both years. In addition, according to data compiled by ISS, the number of Russell 3000 companies submitting this proposal to a vote increased by more than 40 percent from 2023 to 2024, and the overall passage rate was nearly 90 percent, consistent with our data from the SV150.

Proxy Advisory Firm Voting Guidelines

In late 2024 and early 2025, Glass Lewis and ISS released their updated U.S. voting policy guidelines effective for meetings held on or after January 1, 2025, and February 1, 2025, respectively. Glass Lewis’s updates covered several topics, including with respect to artificial intelligence (AI) risk oversight, AI-related shareholder proposals, board responsiveness to shareholder proposals, reincorporations, and executive compensation. ISS’s updates covered guidelines relating to short term poison pills, SPAC extensions, as well as updates to its management say-on-pay and executive pay evaluation. For a detailed discussion on Glass Lewis and ISS updates, please refer to our previous Alert. In addition, as discussed above, in recent weeks, ISS and Glass Lewis have also updated (or in the case of Glass Lewis signaled an update) policies with regard to board diversity and voting recommendations.

Staff Legal Bulletin No. 14M

On February 12, 2025, the SEC’s Division of Corporation Finance staff issued Staff Legal Bulletin No. 14M (SLB 14M) to provide informal guidance on shareholder proposal matters under Exchange Act Rule 14a-8. New SLB 14M rescinds SLB 14L, which was issued in 2021 to rescind three prior staff legal bulletins. The updated guidance provided in SLB 14M will likely result in companies having greater success than they have in recent years when seeking no-action relief to exclude proposals from their proxy materials. Given the timing of SLB 14M, companies with a pending no-action request may submit supplemental correspondence to further explain their basis for an exclusion or submit a new basis. Companies that did not previously submit a no-action request on a proposal but now believe, based on SLB 14M, that they may have a basis to exclude a proposal may submit a no-action request even if the submission would be made later than 80 days before the company files its definitive proxy statement. For more information on SLB 14M and timing implications, please see our previous Alert.

Shareholder Engagement

No discussion of annual meeting considerations would be complete without a reminder of the criticality of shareholder engagement. It is vital for public companies to engage—and engage regularly—with their shareholders. Sustained engagement helps companies communicate their strategy and understand shareholder perspectives. In so doing, a company can learn much about how it is perceived by shareholders; this can serve as an important early warning tool for impending shareholder activism. Note that in light of Division guidance relating to the impact of certain shareholder communications on Schedule 13G eligibility discussed further below, as well as the changing environment around DEI, some institutional investors have modified their shareholder engagement approach. Therefore, as with any investor meeting, it will be particularly helpful in the early part of proxy season for companies to get an agenda from the shareholder and ensure that they have reviewed the shareholder’s most recent voting guidelines and any supplements.

When thinking about shareholder engagement, a few concepts remain central:

• Understand your shareholder base and tailor your message. Companies should take the time to understand their shareholder base and the unique considerations of their investors. Keep in mind that the shareholder base at most companies changes over time; as a result, the priorities, objectives, and desires of shareholders will evolve. As such, companies’ understanding of shareholders’ interests is essential and the message that they deliver, and the way that they deliver it, will need to evolve as well. Companies should ensure that their shareholder engagement programs meet current investor expectations, including as to director and senior management participation, cadence of meetings, tailored agendas for effective dialogue, and clear articulation of value creation strategies.
• Clearly and continuously articulate your strategy for value creation. Shareholders are eager to understand how a company proposes to build value. That message must be easy to understand and reinforced regularly. For example, the rationale for the company’s asset portfolio, business mix, and capital return objectives should be thoughtfully communicated by management and well-understood by shareholders. In short: companies should never assume that their shareholders understand their strategy.
• Listen actively and be open to change. Companies that truly listen to their shareholders typically understand where they are falling short. Directors should consider implementing a process to regularly receive unvarnished shareholder feedback in board meetings, along with an understanding of how management intends to address shareholder concerns. When criticism is leveled against them (as it undoubtedly will be), they should avoid adopting a close-minded or defensive approach, as this can facilitate a narrative that directors are entrenched and out-of-touch. Instead, companies should welcome feedback from shareholders and treat it seriously and with respect, even if they ultimately conclude that they have to agree to disagree.
• Be open to opportunities to boost shareholder value. Companies should examine their business the way an activist does and look for opportunities to boost value. This involves periodically looking at the company and its assets and businesses, and then being proactive about communicating why that mix is the right one—and making changes if the mix is not right. Do not wait for an activist to provide “helpful suggestions” about this work. Put differently, if a company has one or more businesses that do not obviously fit together (or have very different margin profiles, capital requirements, etc.), it is a good bet that at least one activist has already noticed. As part of communicating your strategy, companies should explain to shareholders—clearly and simply—why their business mix is appropriate.
• Proactively review and, if appropriate, enhance governance practices. Governance is almost never the central feature of an activism campaign, but it is frequently used as a wedge issue by activists to paint a board of directors as entrenched and out of touch. As such, companies should regularly evaluate their governance practices and look for proactive measures—such as the adoption of majority voting in director elections, the elimination of supermajority vote provisions, and even, in appropriate circumstances, voluntary declassification of the board—that can be taken to show the board’s deliberate approach to governance. Shareholder engagement is a long game, and years of thoughtful evolution can reassure shareholders that the board prioritizes good governance and has sufficient internal will to make changes when they are warranted.

As a final matter, on February 11, 2025, the Division issued revised Question 103.11 and issued new Question 103.12, relating to the impact of certain shareholder communications on Schedule 13G eligibility. These CDIs provide a helpful reminder of the general limits of the use of Schedule 13G in connection with engagement by shareholders. For more information, please see our Known Trends post.

Compliance Reminders

Equity Plan Checkup. Companies should ensure that:

• There are sufficient shares in their equity plans for planned grants in 2025.
• Their equity plans are not expiring soon.
• All necessary equity plan shares have been registered on a Form S-8 registration statement and, for NYSE-listed companies, that appropriate filings have been made with the applicable stock exchange.
• All forms of award agreements have been filed.

Voting Standards. Companies should ensure that their proxy statement specifies the applicable voting standards, including the treatment of abstentions and broker non-votes, for each proposal presented to shareholders. This should involve a careful review of the company’s bylaws and applicable state law.

Exhibit Links. Companies should ensure that all exhibit links are functional prior to filing with EDGAR.

For more information on proxy season matters, please contact any member of the firm’s public company representation, employee benefits and compensation, environmental, social, and governance, or shareholder engagement and activism practices.

---

1 For updates relating to annual reports on Form 10-K (Form 10-K), please see our previous alert, Preparing for the 2025 Reporting Season: Form 10-K Reminders. (go back)

2 New York Stock Exchange does not have comparable listing standards or disclosure requirements. (go back)

3 For a discussion of some of the Delaware-specific director independence matters, please see our previous alert, Delaware Legislators and Governor Propose Landmark Legislation. (go back)

4 See Item 7(b) of Schedule 14A. (go back)

5 See Item 8 of Schedule 14A. (go back)