Shareholder Engagement in the Ordinary Course

Public companies use a combination of channels and strategies to engage with investors. SEC filings provide periodic updates on management’s view of the company’s business, industry and competitive landscape, financial results, and known trends affecting the business. Outside these filings, common forms of company-led investor engagement are generally of two types: engagement with management regarding financial results and business developments, and engagement that might include certain directors in addition to members of management on corporate governance and related topics.

Public companies typically schedule quarterly management earnings calls to supplement their SEC filing disclosures regarding financial results and business developments. Management also discusses strategy and results in industry-focused conferences and other investor presentations. As we discuss in Chapter 5, companies must take care to provide appropriate notice of and access to such presentations when necessary to comply with Regulation FD. Management frequently follows these broadly accessible earnings calls and investor presentations with separate, Regulation FD–compliant engagements with significant investors or investment analysts on a one-on-one basis.

Proxy Statements and Sustainability Reports

For matters outside financial results, business developments and strategy, the primary vehicle for public company disclosure has long been the annual proxy statement. As discussed in Chapter 7, an annual meeting proxy statement calls for disclosures regarding directors and nominees, corporate governance matters, and executive compensation.

Companies might also provide investor-focused disclosures on environmental and social topics in separate reports, often called sustainability reports or corporate responsibility reports. These disclosures may be formatted as stand-alone reports or interactive websites. Due to investor interest in sustainability topics, some companies include excerpts from, or references to, their sustainability reports in their proxy statements. Companies include this disclosure in proxy statements because it may be relevant to shareholders considering how to vote on annual director elections and related matters. In particular, this disclosure is of interest for voting decisions when it addresses the Board’s role in oversight of sustainability risks and opportunities.

Over recent years, the SEC has adopted rule changes requiring disclosure of material information about a company’s human capital management, cybersecurity risk management and climate change–related risks in the annual report on Form 10-K. The climate-related risk rules were challenged through litigation and their implementation was suspended by the SEC. In March 2025, the SEC voted to end its defense of the climate disclosure rules. Adoption of all these rules reflected a trend toward requiring key sustainability information in the annual report on Form 10-K, rather than in the proxy statement, that was more aligned with the “integrated reporting” approach to corporate reporting that has become more prevalent for companies in Europe. Absent this integrated reporting trend, Board oversight of various sustainability matters continues to be important to stockholders in annual director voting decisions and therefore companies may continue to provide this disclosure in proxy statements. Time will tell whether SEC rulemaking or corporate practices continue to shift toward an integrated reporting approach to Form 10-K or the pendulum swings back in the opposite direction.

Drafting a Sustainability Report

A company drafting a sustainability or corporate responsibility report for the first time will need to decide what topics to address. Topics can range from the environmental impact of the company’s operations to community relationships to pay equality.

To identify topics for disclosure in an investor-facing sustainability report, a company can start by working with its internal stakeholders and then refine and expand on that analysis with information obtained from other resources. Investor engagement meetings, discussed below, are a great opportunity for a company to get feedback on potential disclosure topics. Existing internal reporting to senior management and the Board can also help guide what metrics to include in a sustainability report. A company may also want to review any previous public statements and company policies to confirm that its approach and disclosures are consistent across channels.

There are also standard-setting bodies that provide frameworks for and guidance on sustainability reporting. Some of the prominent and widely used standards and frameworks are identified below.

• The Global Reporting Initiative (GRI; https://globalreporting.org) is a nonprofit organization founded in 1997 that has established sustainability reporting standards. GRI’s standards focus on the environmental, social and economic impacts of a company, which may go beyond information that is material to investors. In 2021 and 2022, GRI published sector-specific standards for certain industries that are viewed as having an outsized negative impact on sustainability, including oil and gas, coal, agriculture, aquaculture and fishing.
• The International Sustainability Standards Board (ISSB; https://www.ifrs.org/groups/international-sustainability-standards-board/) is another sustainability standards–setting body. It was formed by the Trustees of the International Financial Reporting Standards (IFRS) Foundation in November 2021 to create a comprehensive global baseline of sustainability disclosures. In June 2023, the ISSB published its inaugural Sustainability Disclosure Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information (IFRS S1) and IFRS S2 Climate-related Disclosures (IFRS S2). The ISSB is also considering the publication of future standards. The ISSB Standards fully incorporate the Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations, which had been established by the Financial Stability Board to develop consistent climate-related financial risk disclosures. Because the TCFD Recommendations have been incorporated into the ISSB Standards, the TCFD has disbanded, and the IFRS Foundation has taken over its work.
• The Sustainability Accounting Standards Board (SASB) Standards, now also a part of the ISSB (SASB; https://sasb.ifrs.org/), were initially published in 2018 as a set of 77 industry standards on financially material sustainability topics and associated metrics. IFRS S1 requires companies to consider the SASB Standards as a source of guidance for identifying sustainability-related risks and opportunities and appropriate information to disclose in the absence of a specific IFRS Sustainability Disclosure Standard. IFRS S2 includes climate-related metrics derived from the SASB Standards as accompanying guidance.

These different standards and frameworks serve different purposes, and therefore may not be consistent. While the ISSB Standards and SASB Standards work together to elucidate disclosures that are considered material to investors and are suitable for traditional corporate reports like SEC filings, the GRI standards range more widely and encourage companies to disclose more information, whether or not it is material to the company and its investors. The GRI standards use the concept of “impact materiality” in identifying topics for disclosure, with a focus on measuring the impacts of businesses on a range of stakeholders beyond investors. This information may well not be material on the level of an individual company, but the impacts aggregated across companies on a society-wide basis have importance to many stakeholders, such as employees, customers and their communities.

One company’s sustainability report is likely to be distinctive from any other, including reports by other companies in the same industry. But by making the most of existing knowledge and internal reporting, along with insight from stakeholders and existing disclosure standards, no company need start from scratch.

Practical Tip: The SEC, Materiality and Sustainability Reports

In September 2021, the SEC issued a sample comment letter simultaneously with issuing comment letters to multiple companies with comments based on those in the published sample letter. The sample letter highlighted nine comments related to climate disclosures in both SEC filings and non-SEC filings, such as sustainability reports. Many of the comments addressed differences in disclosure between SEC filings and these other reports.

Many companies that responded to these SEC comments had multiple rounds of back and forth with the SEC to address the comments. The SEC staff’s general focus in these engagements was on whether the information requested to be disclosed was material to the company. Particularly with respect to information disclosed in sustainability reports but not addressed in SEC filings, many companies informed the SEC staff that this information may be of interest to some stakeholders because of those stakeholders’ interest in a company’s impact on the environment and communities, but is not material within the meaning of that term for SEC reporting purposes.

These climate-related comment letters were widely considered a preamble to the SEC’s climate-related disclosure rules that were finalized in 2024. Notably, the final version of the rules specifically reiterated that the use of the term “material” within the rules is consistent with the meaning of this term in other SEC disclosure rules. It refers to the importance of information to investment and voting decisions about a particular company, not to the importance of the information to climate-related issues outside of those decisions. As mentioned above, the climate disclosure rules were challenged through litigation and the SEC voted to end its defense of the rules in March 2025.

Investor Meetings on Governance and Sustainability Topics

Outside of disclosure through proxy statements and sustainability reports, companies may engage proactively with large shareholders on governance topics in the months after the company’s annual meeting of shareholders. These engagements may also cover other topics, such as sustainability or Board oversight of sustainability risks. This post–annual meeting timing allows companies to have interactive discussions with investors without having to file discussion-related material as proxy soliciting materials. (We address proxy solicitation and related filing requirements in Chapter 7.)

This engagement also helps a company prepare for its next proxy and annual meeting season. The company learns what governance and sustainability issues are important to shareholders, and can consider making governance changes or preparing additional disclosures to address these concerns and to avoid potential public activism by shareholders. Companies that have engaged on governance and sustainability topics with their large shareholders and have responded to raised concerns are also well-positioned to seek the support of these large shareholders in case of shareholder activism in the form of shareholder proposals or proxy fights.

Shareholder Activism

Investors, including activist funds, pension funds, unions and institutional shareholders, may seek to engage with companies in a more public manner than ordinary-course investor meetings discussed above. This engagement comes in various forms, ranging from shareholder proposals for consideration at an annual meeting, discussed in Chapter 7, to “vote no” campaigns urging shareholders to vote against a director or management proposal. An investor’s most potent tool is to bring a proxy contest.

A proxy contest typically involves a challenge to existing management by a shareholder group seeking control of the company or by a third-party acquirer. The challenge may also be posed by a shareholder activist seeking to influence the direction of the company. Often, the challenger has obtained a significant ownership position in the company and seeks to either control the company through the election of a majority or a significant number of the directors or propose a merger or tender offer for shares. In the event the challenger solicits votes for its own director nominees, it must follow the universal proxy rules, which went into effect in 2022. These rules require both the company and the challenger to use universal proxy cards that include all director nominees presented for election at a shareholder meeting. This structure gives shareholders the ability to vote by proxy for any combination of management and shareholder nominees, similar to voting in person. Although a detailed discussion of takeover transactions and defenses is beyond the scope of this Handbook, we summarize corporate structural defenses in Chapter 11.

Shareholder activism has increased in recent years, and generally is targeted to affect share price, bring about governance changes or advance a social agenda. A wide variety of activists have emerged, including small and large players as well as those focused on single or multiple strategies, issues or sectors. The style and approach of activists varies, from contentious, aggressive and short-term to constructive, cooperative and longer-term.

Company size and industry no longer matter significantly in terms of companies that are targeted by shareholder activists. In the current climate, several characteristics can make a company vulnerable to activist interest, including:

• Excess cash/low debt (“return capital to shareholders”);
• Multiple business lines/owned real estate (“unlock value”);
• Management/Board composition (“entrenchment”/“lack of diversity”);
• Undervaluation/overvaluation (“sell the company”/“sell the stock”);
• Strategic actions/inaction (“vote against the deal”/“sell the company”); and
• Governance structure.

Activists engage with companies in many different ways:

• Sending private or public letters to the Board or to management;
• Filing a Schedule 13D, which may be ordinary course or provide specific messaging;
• Writing private or public white papers;
• Enlisting or engaging other shareholders;
• Threatening or initiating a proxy contest;
• Submitting shareholder proposals;
• Publicly calling for the exploration of “strategic alternatives,” an outright sale of the company, or governance or Board reforms;
• Challenging announced transactions; and
• Mounting “vote no” campaigns in director elections.

Practical Tip: Shareholder Engagement Best Practices

In the event your company is contacted by a shareholder activist, we suggest you consider the following in formulating your response plan.

Know Who Your Shareholders Are. Your investor relations team can proactively monitor any changes in positions of your company’s known shareholders. Investor calls and interactions with analysts are a good normal-course method for taking the pulse of the investment community. Also review and monitor Schedules 13D and 13G and Form 13F filings both proactively and after any engagement begins.

Response and Monitoring Depend on Activist Approach. Consider keeping your response team small to lower distraction within the company and the risk of leaks. Generally, a response team will include the CEO, CFO, general counsel, investor relations, the Board (usually the chair or lead independent director), financial advisors, outside counsel, and possibly an investor relations/public relations firm and a proxy solicitor.

Communication Is Critical. In the event of engagement, whether proactive or reactive, establish a dialogue so that each side understands what the other wants to accomplish. Open lines of communication with the CEO and rapport with the Board are critical.

Also, consider these tips about best practices for activist engagement:

Top Things TO Do:

• Be proactive/engage;
• Involve the Board early;
• Maintain tight communication – speak with one voice;
• Define your core messages (as in a political campaign, sound bites matter);
• Be prepared for escalation and be nimble;
• Emphasize Board independence and good corporate governance;
• Show a record of engagement; and
• Be vigilant about Regulation FD compliance.

Top Things NOT to Do:

• Be defensive or engage in personal attacks;
• Create the perception that management dominates the company or that the Board is not fully engaged;
• Appear closed to ideas or refuse to interact with the activist;
• Rely on too broad a set of messages or respond to every attack from the activist shareholder;
• Undertake fundamental strategic or financial actions that are not critical during the fight;
• Change governance provisions or take other tactical actions that are viewed to disadvantage the activist shareholder;
• Attempt to placate the activist shareholder by implementing fundamental changes that are inconsistent with the long-term strategic, operational or financial objectives of the company; and
• Assume that a negative recommendation from proxy advisory firms is dispositive.

Engagement with Other Stakeholders

Engagement with stakeholders other than investors is not a primary focus of this Handbook, but we mention it here in light of investors’ growing interest in information regarding companies’ sustainability risks and impacts. Investors focused on a company’s long-term prospects and sustainability want to understand the ways in which the company engages with other stakeholders and how it addresses their concerns.

Stakeholder groups a company might engage with or consider the viewpoints of include:

• Customers;
• Employees;
• Suppliers, including various participants in the company’s supply chain;
• Local communities in which the company works; and
• Society at large.

Companies will have different approaches to engaging with these various stakeholders, and the relative importance of and level of effort involved in these engagements will vary. For many companies, engaging with and understanding the perspectives of different stakeholder groups are already important parts of the company’s culture and operations. For others, such engagement may be practiced in less formal or operationalized ways. In either case, there is a growing trend for public companies to inform investors – through their proxy statements or stand-alone sustainability or corporate responsibility reports – about how they engage with stakeholders and how they have considered the input received from stakeholders.

As discussed in Chapter 13, companies can be subject to securities law liability for materially misleading statements, even when those statements are not included in SEC filings. It is important to bring a critical eye to disclosures that are investor facing, such as sustainability or corporate responsibility reports, to ensure that statements about topics like stakeholder engagements are accurate and not misleading. As investors focus more attention on sustainability-related topics, companies should ensure that the disclosures are thoroughly vetted and based on repeatable and verifiable data-gathering processes, particularly when providing quantifiable metrics.

Practical Tip: Boards Have Significant Discretion Over Company Strategy on Political and Social Issues

In recent years, companies have increasingly spoken out publicly on political and social topics. Decisions to address these matters arise from a range of factors, including engagement with stakeholders. In the current politically charged environment, a company’s decision to speak or act, or refrain from doing so, on a certain issue may also alienate certain of its stakeholders.

A range of stakeholder interests and positions on a multitude of social and political issues can drive Boards of Directors and members of management to distraction. Companies are well-served by creating a principles-based framework for deciding whether and when to speak out on a social or political issue. That framework might include factors such as:

• Does the issue affect the company’s operations?
• Does the issue affect the company’s industry?
• What is the company’s footprint in the geographic area where the issue is taking place?
• Does the issue relate to the company’s stated strategy and corporate values?
• Which stakeholders are urging the company to act?
• Does the company have a political activities policy or code of ethics with which any statement or action would need to comply?
• Are there any applicable laws regarding political contributions, lobbying, ethics or other issues that would apply to contemplated statements or actions?

In 2023, the Delaware Court of Chancery addressed application of the business judgment rule, discussed in Chapter 2 and Chapter 13, to a Board’s decision to speak out on a controversial political issue. In Simeone v. The Walt Disney Company, the court confirmed that a Board has “significant discretion to guide corporate strategy – including on social and political issues.” In this case, a shareholder made a books and records demand seeking evidence that Disney officers and directors had breached their fiduciary duties by publicly opposing a bill in Florida to prohibit or restrict teachers from discussing sexual orientation and gender identity matters in public schools. In response to Disney’s public opposition to the bill, the Florida legislature voted to dissolve the special improvement district that had allowed Disney to self-govern the properties on which Walt Disney Resort was built, which was followed by a drop in Disney’s stock price. The Delaware Court of Chancery held in Simeone that making strategic decisions that address stakeholder interests, “such as the work-force that drives the company’s profits,” is within the Board’s business judgment as long as the decision is “‘rationally related’ to building long-term value.” The case is a reminder for Boards to treat strategic decisions regarding controversial social and political issues in line with their duties of care and loyalty in order to benefit from the protection of the business judgment rule.