In evaluating current and potential investments to drive portfolio value, active managers necessarily focus on risk, as well as on potential returns. For large, indexed investors required to own specific companies or indices, risk is often a major topic of their stewardship activities and engagement conversations with their portfolio companies.
The proxy statement is a critical vehicle through which companies can demonstrate and provide confidence to their investors that they have in place robust and comprehensive risk management programs and structures—and that these programs and structures are effectively overseen by the C-suite and the board. Prior to the financial crisis of 15 years ago, many risk disclosures consisted of brief, boilerplate, “check-the-box” narratives that did little to differentiate one company’s program from another’s.
As we constantly remind our clients, having in place best-in-class programs is obviously important. If, however, you don’t effectively tell your story, you may not receive the credit you deserve from investors and other critical audiences for these best practices—in this case, effective risk management programs.
Much has changed over the past 15 years, with companies implementing more rigorous and comprehensive programs, and enhancing their disclosures about these programs. What until recently was described in multi-page, dense narrative sections is now increasingly shown to investors through visual diagrams that depict the key elements of and participants in companies’ risk programs, and emphasize how these programs are structured and overseen.
Bank of America, in our opinion, does this very well by using a visual depiction of the roles of the full board and key committees that you can see on page 31 of its 2022 proxy statement (Figure 1). Narrative disclosure in the paragraph below the visual further connects these oversight responsibilities with the role of the board and its competencies as well as its oversight of ESG. This narrative paragraph starts with the sentence: “Our directors have relevant risk management oversight experience; see ‘Our director nominees’ on page 12.” It concludes with: “In addition, for information regarding how our Board and Board committees oversee ESG risks, see the discussion above under ‘Our Board actively oversees our focus on ESG’ on page 8.” We encourage readers to review that section on page 8, as well (Figure 2).
Bank of America’s comprehensive discussion of risk oversight is also reinforced in:
These pages are all good examples of effective visual storytelling in a proxy statement. To access the full proxy and review the pages listed above, visit bit.ly/3J8dDIN.