Reaching Out To Investors Via The Proxy Statement
The Optimizer Interviews Dannette Smith, Secretary To The Board Of Unitedhealth Group, Incorporated, The Winner Of Corporate Secretary Magazine’s 2010 Award For Best Proxy Statement
Dannette, we really were impressed by the UnitedHealth Group proxy statement this year – and especially by the Compensation Disclosure and Analysis sections. Tell us something about the process here; how and when you got started on the drafting, the kind of team you assembled, and maybe give us a feel for the way things moved along.
We start on the proxy early and build in lots of time for review and revision of the drafts. Our annual meeting tends to be at the end of the annual meeting cycle. It usually occurs in late May or early June. That means we file the proxy towards the end of April. We officially kick off the proxy in November. At that time we have an initial working group meeting and we circulate a timeline that has key dates for when pieces of the proxy are due. The key internal team that prepares the proxy statement includes personnel from legal, human capital, finance, investor relations, communications and internal audit. The purpose of the meeting is to make sure everyone buys into the timeline and makes sufficient time on their calendar for the work that they need to accomplish.
The narrative cites a lot of principles and practices that certainly seem like best practices from an investor’s perspective. Were most of these in place, or were some of them adopted in the course of the drafting?
For 2010, the principles and practices were generally in place, although there may have been some refinements. We started the more robust proxy process that we use today in 2006 and have been receiving investor feedback on both disclosure and compensation practices since that time. Our compensation committee considered investor feedback and has made changes that were informed at least in part by that feedback.
Advance planning helps to ensure that the compensation committee materials address the points that you want to make in your CD&A.
What sort of involvement did the Comp-Committee and the other directors have? Were they involved early-on, or did you wait until you had a fairly complete first draft?
We involve them at numerous stages in the process. We discuss general approach with them at a meeting in the fall. We provide initial drafts of certain pieces of the proxy statement at a meeting in early February. Comments that they have at that point are reflected in a final draft that is sent to them in April. We have a meeting a week before we plan to file to review the draft proxy, so that we have time to respond to their comments.
What about the comp-consultants and their involvement?
Our compensation consultant is very involved in reviewing early drafts of the proxy statement. To get the most value, they should be involved in reviewing early drafts.
Perhaps the two most impressive elements from a reader’s perspective are the very consistent “conversational tone” and the “plain English” that make some very complicated subject matter so easy to read – and to understand… Did you have a special “plain English policeman”...or maybe a single person who focused on these aspects in particular? Do you have some special tips on making sure that these elements stand out?
Make sure that a person who is not a lawyer or a financial person reads the entire proxy. We use both senior investor relations and communications personnel from the company. They give us feedback as to how analysts and the media are likely to view the proxy statement. They also remove the legalese and rewrite as necessary.
Another very helpful feature was the way the charts and tables were laid out. Usually these are really off-putting in appearance, and mighty hard for anyone, much less an “ordinary reader” with only “ordinary patience” for complex stuff to understand. How did you arrive at the final layout? And do you have some special tips, or maybe some important dos and don’ts to offer here?
Have someone who isn’t a lawyer or a finance person read the draft tables to see if they can understand them. If not, make revisions as necessary. We use both a senior communications person and an investor relations person. After the proxy is filed and mailed we ask our investors for feedback. In the 2009 proxy statement, one of our large institutional investors specifically commented on how a couple of our tables were confusing. We took that feedback into account in 2010 and made changes to the tables. We also added some more headings to the CD&A to make it clearer.
During the second half of the year, we reach out to a number of our institutional investors. We ask for comments/reaction to the proxy statement – if there were items that they liked or items that they didn’t like. We also ask about hot topics for the next year. We use those conversations to start considering changes for the proxy statement for the next year and give a report about those conversations to our Nominating and Corporate Governance Committee at their fall meeting.
It’s just about time to start drafting again: Anything you plan to add this year, or maybe to do differently?
We are considering ways to make the proxy statement more understandable and usable for retail and individual investors. This involves the whole layout of the proxy statement. We are also looking at ways to address the say on pay vote. We haven’t decided whether to move the CD&A executive summary to be a supporting statement for the say on pay vote. We want to make sure that this information is readily available but minimize redundancy in the proxy statement.
We also look at other companies’ proxy statements for presentations that are better than ours. We review all of the finalists for best proxy statement named by Corporate Secretary magazine and we also monitor various blogs and newsletters and review companies cited as best practice examples.
Any closing thoughts or words of advice for CD&A drafters this year?
It is a mistake to view the proxy as a legal compliance document. It has to comply with applicable SEC rules, but that doesn’t mean it needs to be incomprehensible. It is important to view the entire proxy, and the CD&A, as a vehicle to communicate your company’s story. Use subheadings and tables to increase readability.
You should not assume that the readers of your proxy have an in-depth understanding of your company. Explain why and how you have good governance processes and procedures and why your directors are well-qualified to be on your board. Provide context as to how your compensation performance measures support achievement of your long-term strategic plan. If there are items of financial performance that are important to understand this point, summarize them in the proxy and refer people to the 10-K for more information as necessary.
The final points is that there is always room to improve.