Corporate Governance

Shearman & Sterling LLP Governance Amid Crisis – How 2020 Changed the Boardroom | 9 In the past, shareholder proposals in these areas could be challenged as excludable from the proxy statement under SEC rules because the subject matter was focused on the day-to- day management of the company, which is outside the purview of the shareholders, or that the subject matter has been adequately addressed by the board. Given the events of 2020, it will be even harder than before to argue that these topics do not present significant policy issues that rise to the level of shareholder consideration, and for some of these issues, it may be harder still to argue that the subject matter has been substantially addressed by the board. Companies may also be reluctant to assert in writing that these issues are not worthy of board attention or are a work in progress. Companies should always consider whether they can make a credible argument for exclusion of a shareholder proposal, but more than in the past, this proxy season companies should seriously consider meaningful engagement with proponents before seeking the SEC's concurrence with exclusion of the proposal from the proxy statement. Companies should be prepared to negotiate with the proponent in an effort to narrow the scope where appropriate, change proposals from requests for specific action to agreed upon disclosures of policies in the proxy statement or identify whether incremental modifications in existing policies may result in withdrawal of the proposal. Letters to the SEC seeking support to exclude a proposal, although intended to be technical rule-based arguments for exclusion, can be read and misinterpreted as a company being, at best, tone-deaf, or at worst, not supportive or even against the broader societal forces seeking change. WHAT SHOULD BOARDS BE DOING NOW? Rising calls for stakeholder governance and ESG reporting and risk management would have been work enough for boards in 2020 without the additional challenges associated with the COVID-19 pandemic and the social justice movement. The events of 2020 have caused corporate boards to tackle immediate challenges of business continuity, operational impacts, liquidity concerns, possible business restructurings, employee health and safety, remote working and reopening risks, to name a few, but the longer-term impacts of these crises in the board room are only just being felt. The role of corporations in these events will be the subject of much consideration and interest, which can only lead to more questions and inevitably shareholder proposals. With this in mind and through the lens of 2020, boards should be actively evaluating their companies' successes and challenges during 2020. Companies should be renewing their defining sense of corporate culture and purpose and have a firm sense of what they are doing for each of their key stakeholders, particularly in the wake of the events of this year. Some practical steps include: managed companies had in place. The COVID-19 pandemic certainly tested these processes and the planning that was in place, and it also tested the skills and experience of the directors and top executives at many companies. There are many lessons to be learned from the COVID-19 pandemic as it relates How did your company respond to the crises that were faced in 2020? The two crises that companies faced in 2020, so far, were decidedly different. The COVID-19 pandemic, although unprecedented in its scope and impact, drew upon the systems and processes that most well- to board preparedness and its ability to manage in a crisis. The national reaction to the killing of George Floyd and the Black Lives Matter and social justice protests that ensued and continue today presented a new and different "crisis" for many companies. Continued on next page Crisis Management

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