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Intro/Outro: Welcome to the Corporate Director Podcast, where we discuss the experiences and ideas behind what's working in corporate board governance in our digital tech field world. Here you'll discover new insights from corporate leaders and governance researchers with compelling stories about corporate governance, strategy, board culture, risk management, digital transformation.
Intro/Outro: And more.
Meghan Day: Hello and welcome back to the Corporate Director Podcast, the Voice of Modern Governance. My name is Meghan Day, strategy leader at Diligent, and I'm joined today by Kira Chiarelli, senior researcher for the Diligent Institute. Kira, welcome back to the show.
Kira Ciccarelli : Thanks for having me. Happy to still be pinch hitting for Dottie before she gets back fromapac.
Meghan Day: I'm excited that we have another special guest with us on the show. Josh Black, editor in chief of Diligent Market Intelligence. Josh, welcome back to the show yourself.
Josh Black: Thank you. Glad to be here.
Meghan Day: Well, today's episode is really all about what boards need to have their pulse on as we head into yet another fast moving proxy season.
Meghan Day: I feel like proxy season never has an off switch anymore. Josh, you probably feel this too. It is like a year round thing now with activism, compensation, crazy regulations, all colliding in some pretty interesting ways. So Josh, we are really excited to have you back to talk a little bit through what you are seeing in the world of diligent market intelligence care, to give us a little bit of an update.
Josh Black: Yeah, no, it's been a very busy and exciting few weeks. We've had three conferences in three weeks, starting with our stewardship series, which gathers institutional investors, corporate advisors, and issuers to talk about the latest and greatest issues that. We think will be prominent during proxy season.
Josh Black: Compensation. Chief among them regulation is obviously changing the tenor of engagement between investors and issuers. We'll let you in on something not so secret. We launched our stewardship intelligence feed at the conference three weeks ago. So this is a structured data feed covering compensation, governance, and shareholder insights that allows asset managers to benchmark their voting policies against a global portfolio of companies and action those insights much, much faster than if they were relying on the traditional proxy voting advisors.
Meghan Day: Very cool. I want to talk a little bit Josh, too, about your shareholder activism annual review, which takes a deep dive into what actually happened last year and all things shareholder activism. My big takeaway is that volume may have cooled a little bit in some spots, but impact didn't.
Meghan Day: Boards saw record numbers of seats change hands, and activists appear to be deploying their influence in more targeted ways. What are some big headlines for you, for our listeners to keep in mind?
Josh Black: Yeah, I think that's right. I think there may be fewer and possibly more winnable proxy fights from the issuer perspective, but activism is still very painful.
Josh Black: So the CEO turnover, we had 49 CEOs depart US companies within a year of an activist campaign.
Josh Black: plead that the markets are running away from them. I think. Directors need to be cognizant that investors are looking for a long-term plan that is, fully vetted and has the right management and board composition to execute against it.
Josh Black: Even if the market is moving very fast, companies need to stay ahead of the curve. One of the things that is gonna be most impactful from the activist perspective, from the tail end of last year going into this proxy season is m and a. That's driving a lot of activist activity. Push for sale activism was up 29% year on year and has almost doubled since 2021.
Josh Black: Opposition to deals is also up sharply and is very. Very disruptive to a company strategy. So it's gonna be a very interesting proxy season, potentially a lot of activity, and we wait to see where it goes.
Kira Ciccarelli : One of the things that stuck out to me, and I think you started to allude to it a little bit, there is this idea that activism is shifting away from traditional all out proxy fights and more towards things like settlements, withhold campaigns and pressure around specific issues.
Kira Ciccarelli : You mentioned m and a. Asyou kind look ahead, how would you characterize the mood? Do you care to make any predictions?
Josh Black: Yeah, it's a really interesting time 'cause with the regulatory changes, particularly with the SEC kind of changing the definition of the 13 D rules, investors are giving less and lesser away to companies and, and this puts.
Josh Black: Boards at a bit of a disadvantage if they can't read the tea leaves. They don't understand how their largest investors feel about their strategy. And so that is forcing them to, I think, communicate very clearly, to be proactive in the issues that they want to raise with their investors. You know, even to bring up things that they think might be controversial before they're asked about.
Josh Black: I think activists are looking to portray disruption and operational or stock price challenges at companies as all connected to, the boardroom. And so there is an increased amount of rhetoric among activist investors about. Compensation and misalignment of incentives. You know, activists I think are trying to portray compensation as part of a larger problem, and so we're seeing a lot of activism.
Josh Black: Aimed at, operational management and structural changes kind of all coming together at the same time. And that lends itself to strategies that are not necessarily dependent on proxy season and director nominations. So there were withhold campaigns. There were PR campaigns, m and a, another one that can happen at any time of the year.
Josh Black: So to your point. Very much a year-round phenomenon. Now, not a defined proxy season.
Meghan Day: One of the most striking data points in the report is how often exec pay now serves as an entry point for some of these broader activist demands. Josh, any commentary there on what you're seeing in the world of compensation?
Josh Black: Yeah, so compensation broadly is a fairly good news story for companies. The rates of say on pay opposition and failures is down to fairly low levels, but I think there's still a lot of scrutiny. I think going into this year we're gonna see a lot of scrutiny of, Percocets. We're gonna see a lot of scrutiny around equity issuances,
Josh Black: while the stock market did okay last year, and pay is obviously a backward looking indicator. It never helps to go into a say on pay vote if your stock price is down. So it's gonna be a, a challenging proxy fight is gonna be a challenging proxy season for some companies. The fact that activist investors are talking about compensation more freely targeting nomination committee members with withhold votes in some instances, certainly doesn't help matters.
Meghan Day: Well, along those same lines, I was just reading an article that, corporate jet usage is up among CEOs. So always a, another fun topic headed into, proxy season as well when we start to talk about those additional perks. And, but I do think in all seriousness this is a perfect bridge for our interview that we have today.
Meghan Day: We are joined by Caroline Montalbano, partner at Meridian Compensation Partners to talk about what boards and comp committees should expect from a potential new SEC. Executive compensation disclosure ruling and how to prepare now before those rules are finalized. So Josh, thank you for joining us today and, and setting the table.
Meghan Day: Let's give this interview with Carolina. Listen.
Meghan Day: Joining us on the Corporate Director Podcast today is Caroline Montalbano, partner at Meridian Compensation Partners, one of the most respected advisory firms working with boards and compensation committees on executive pay incentive design and governance. Caroline, welcome to the show. Thank you, Meghan.
Caroline Montalbano: I'm thrilled to be.
Meghan Day: Let's start off by having you give us a little bit more about your background. How did you find your way into the exec comp and governance space, and how do you spend your time now with boards and comp committees?
Caroline Montalbano: Yeah,I'm happy to share that. So my journey to executive compensation is perhaps a bit unique.
Caroline Montalbano: Iactually started my career in public accounting as a CPA, and then I transitioned to the corporate world where I held a variety of finance and HR leadership roles before joining Meridian in 2020. And now at Meridian, most of my work involves helping companies. Design incentive programs that align with long-term performance and importantly stand up to investor and regulatory scrutiny.
Caroline Montalbano: So as part of that, I also help boards think about howthey're going to communicate these decisions in the proxy statement. Most specifically, how they're gonna tell the paper performance story.
Meghan Day: So sitting at the intersection of board decision making, investor expectations, evolving, SEC rules, you are the perfect person to help us unpack what's coming next on executive compensation disclosure and what boards should be doing to stay ahead.
Meghan Day: So let's dive in there. There's been a, a lot of activity starts and stops shifting priorities at the SEC. Many expect that new proxy disclosure rules related to exec comp could be the most material item on the SEC's 2026 agenda from your vantage point. What do you expect those rules to focus on, and why do you see executive compensation disclosure as both a top SEC priority and one of the most consequential areas for boards and comp committees right now?
Caroline Montalbano: That's a great question and certainly something we're watching closely here because as you said, Meghan, we expect that one of the most significant items on the SEC's agenda right now is going to be this potential modernization of executive compensation disclosure rules, and something I find interest.
Caroline Montalbano: Much of the current framework actuallydates back to the major proxy disclosure overhaul that the SEC adopted in 2006. So we're kind of 20 years old now with these rules, and since then we've seen additional requirements that have been layered on like the CEO pay ratio. Like the pay versus performance disclosures, but the result is that really at this point, proxy disclosures have become extremely long.
Caroline Montalbano: Theycontain disclosures that frankly, investors and filers don't see a lot of value, including. So to kick off the review of the framework, actually last year, the SEC hosted a round table on executive compensation disclosure requirements, and they invited participation from public companies, investors, industry groups, advisors, and really sought their feedback on the overall utility and effectiveness of executive compensation disclosures.
Caroline Montalbano: And now, most recently, as we think about areas. That may be subject to change. The SEC has signaled thatthey're taking a broader look really at whether the existing framework is still achieving its core goal, which should be helping investors understand how and why boards make compensation decisions.
Caroline Montalbano: And weexpect really that this review could lead to some of the most meaningful changes to executive compensation disclosure in nearly two decades, which is incredibly exciting.
Meghan Day: Yeah, so let's talk about what that could actually mean in practice. How do you expect potential new rules to change the way companies structure their compensation, discussion and analysis, and tell that pay for performance story?
Caroline Montalbano: So areas of simplification that we may anticipate could be number one, reducing the number of executive officers that would be included in compensation disclosures. Another area of simplification is just gonna be simplifying overall disclosure requirements, such as, again, the PBP table. I think our ultimate goal here and what at the end of the day boards will be focused on in this new disclosure regime will be disclosures that help investors.
Caroline Montalbano: Understand theirdecision making process and move away from sort of a compliance focused, detailed inventory of compensation elements.
Meghan Day: So even before new rules are finalized, there's still some things that board should be thinking about potentially, you know, whether that's around plan design, peer groups, if the SEC does propose this.
Meghan Day: So what should organizations be thinking about right now related to this?
Caroline Montalbano: This isa great time to really do a couple of things. One, this is a great time for organizations to review their current CD NA through the lens of clarity. So does it clearly connect strategy? Performance goals and pay outcomes.
Caroline Montalbano: Second, wewanna make sure that the documentation behind compensation decisions is strong, especially when we're touching upon those topics that you named Meghan, such as metric selection, goal setting, use of discretion. Peer group definition describing pay outcomes and certainly special awards. I think a good rule to keep in mind here is that if a compensation decision is hard to explain, it will probably be hard to disclose.
Caroline Montalbano: And then third, as always,a sort of a best practice against this backdrop is regularly evaluate your compensation plan design to ensure that it remains aligned with the organization's long-term strategy, and most importantly, that it can be clearly explained to investors.
Meghan Day: Makes sense. What are some other items on the SEC's agenda that you're watching and which types of companies will be most affected by those changes?
Caroline Montalbano: So for sure, executive compensation disclosure may be a headline item, but it is part of a broader reconsideration of how public company disclosures work. So one area that we're watching is the SEC's broader review of. Corporate disclosure requirements across regulation sk. What the commission has signaled is that they are interested in modernizing the overall disclosure framework, particularly given consideration to just what's accumulated over time.
Caroline Montalbano: So this could include things like simplifying our governance disclosures. Revisiting how companies describe risk factors and human capital management, and generally focusing on disclosures that are most useful to investors. Another area is the evolving framework for shareholder proposals, which can affect which proposals make it on to the proxy ballot.
Caroline Montalbano: Andthen as you mentioned, there are a few initiatives that affect specific groups of companies. So for example. The SEC has been looking at bringing officers and directors of foreign private issuers into the Section 16, an insider reporting framework. The consequence of this is that we would see an obligation to file form threes and form fours for our foreign private issuers, and they've not had to do that previously.
Caroline Montalbano: Then there are also ongoing efforts around capital formation. Things like updates toemerging growth, company accommodations and private market rules. Those will meaningfully affect companies that are considering going public.
Meghan Day: So stepping back and pulling this all together, what are, you know, your top two or three concrete actions you'd recommend comp committees take now to stay ahead of these SEC developments and investor scrutiny in general?
Caroline Montalbano: There's probably two that, that I would flag right off the bat. One is, and it's a key theme that we've discussed so far, really ensure that the companies pay for performance. Narrative is clear and defensible because we know that what investors and regulators are seeking is an understanding of how performance outcomes translate into compensation outcomes.
Caroline Montalbano: The second thing that I would recommend is against the backdrop of these potential changes, stay proactive in your shareholder engagement. Many companies aregonna learn the most about investor expectations, perhaps about where they're not meeting the mark or where their disclosures are unclear through direct conversations with their major shareholders.
Caroline Montalbano: So that's definitely something to keep up during this transition period.
Meghan Day: So putting your, your crystal ball in front of you, where do you see SEC and investor expectations heading next on exec comp and governance, beyond this current wave of rulemakings and withdrawals and. Maybe to add on that, what should boards be scenario planning for the next several years?
Caroline Montalbano: Ithink really the direction of travel here is going to be towards greater transparency and stronger alignment with long-term value creation. As we think about overall executive compensation, we know that investors expect boards to demonstrate that executive pay is tied to meaningful performance outcomes,
Caroline Montalbano: So really the steer here for boards is just to continue emphasizing clear disclosures, greater explanation of any board judgment in whatthey're putting forward to describe their pay for performance story.
Meghan Day: Caroline, very helpful, timely conversation, and I very much appreciate your practical guidance.
Meghan Day: For our listeners, before we wrap up, we have a couple of questions that we like to ask all of our guests. The first is, what do you think will be the biggest difference between boardrooms today and 10 years from now?
Caroline Montalbano: I think that one of the biggest differences we may see in boardrooms 10 years from now will be the amount of data directors have access to.
Caroline Montalbano: I think in my experience, sittingin boardrooms boards have heavily relied on information from management. Periodic benchmarking reports, but as we see these data tools become more sophisticated, I think the boards are gonna have much more direct access to market data, to benchmarking comparisons and performance analytics.
Caroline Montalbano: Andso the. Expectation, I think would be that this will allow directors to make more informed comparisons and better strategic decisions. And interestingly, I think the other real benefit here is that it may actually free up time in the boardroom. So instead of spending meetings chasing data or asking for follow up analysis, boards can focus more their time on the strategic questions that really matter.
Meghan Day: Love that. What was the last thing you read, watched, or listened to that made you think about governance in a new light?
Caroline Montalbano: So this is actually an episode of the Corporate Director Podcast the recent one about board governance in the AI age. I find the influence a potential role of ai fascinating as a personal user, as a professional user.
Caroline Montalbano: And then now as we think about AI in the boardroom, I think one of the points that stuck with me was that directorsdon't necessarily need to be AI experts. But they do need a basic level of AI literacy to oversee strategy and oversee risk, and it just really reinforced the idea that AI is becoming a governance issue that touches strategy, it touches reporting, it touches risk management, but now it's starting to extend to directors in the boardroom.
Meghan Day: Lastly, Caroline, what is your current passion project?
Caroline Montalbano: Outside ofwork my passion project is honestly travel planning for my family. I love researching destinations. I love figuring out how to build trips around experiences that we can enjoy together, whether it's food, culture, history, hiking. Um, I love it all.
Caroline Montalbano: It brings us closer together as a family. It gives us some greatstories and it helps us to make some new friendships and some new connections along the way.
Meghan Day: I love that. Where are you headed to next?
Caroline Montalbano: So we actually just finished one of our big trips. We are friends with a family who live in Australia.
Caroline Montalbano: We met them in New Zealand, and so the two families traveled through New Zealand together. It was incredible.
Meghan Day: Oh, very cool. Well, Caroline, thank you so much again for joining us on the show.
Kira Ciccarelli : Thank you. My pleasure.
Kira Ciccarelli : Thanks for that great interview, Meghan. My head always spins whenever I listen to any of the interviews from Meridian Compensation Partners because the world of compensation is so complex, but huge props to Caroline for explaining it in such a clear way and talking about some of the trends that we might see moving forward.
Kira Ciccarelli : One thing that I wanted to comment on quickly was her answer to one of the questions that we askall of our guests at the end of the show about what Caroline thinks the biggest difference will be between boardrooms today and 10 years from now. This has been my favorite question to ask everybody for a long time, but I think one of the newer trends that we're starting to see in Caroline pointed it out was to comment on this idea that directors are going to have access to more and more data over time, and how they kind of rely on what they're getting from management.
Kira Ciccarelli : Sort of the expansion of the scope there is gonna allow directors to make more informed comparisons. It reminds me of some of the stats that we're getting out of the Director Confidence Index, which is our quarterly poll survey that we do with corporate board member. We ask some questions about how boards are overseeing enterprise risk.
Kira Ciccarelli : And the things thatthey're commenting on that they want more access to, they want more data, they want more updates for management, and they want better benchmarking data. And I think they are starting to think more about how they can use AI power tools and dashboards to sort of wrap their arms around all of that.
Kira Ciccarelli : Sodefinitely something that I think we're hearing across the board from directors these days.
Meghan Day: Yeah, really interesting too. It makes me even think about her comment through the lens of executive compensation. If you're a comp committee chair and you now have access to minute details of, not just your peer group, but like every company in the world, what they're doing for executive compensation, and that's being able to be boiled up to you in a really distinct and understandable way.
Meghan Day: And then married that with how investors are thinking about some of those particular issues or comp plans that are out there, you really don't have any excuse to now not have your story straight, if that makes sense. That so much of that narrative that Caroline talks about is going to become increasingly important if you start to sort of deviate from what the norm is, if you will.
Meghan Day: And so that's gonna be really interesting to see if there's some normalization that starts to, to really rear its head amongst exec comp and who those outliers are and how they might respond to investors. Probing a little bit deeper into the why.
Kira Ciccarelli : Yeah. I feel like this is the story of ai, right? Like and not just at the board level, and not just with exec comp.
Kira Ciccarelli : It's like the story of the other shoe dropping. Like you can do so much more and you can learn so much more and you have access to so much more. But then how does that change?
Meghan Day: Yeah,
Kira Ciccarelli : the expectation.
Meghan Day: Yeah. Great food for thought, as always. That wraps up another episode of the Corporate Director Podcast, the Voice of Modern Governance.
Meghan Day: A couple of special thank yous. First to our exec comp expert, Caroline Montalbanoo, podcast producers Kira Ciccarelli Steve Clayton and Laura Klein, our sponsors. KPMG, Wilson Sonsini and Meridian Compensation Partners, and most especially to Diligent. If you like our show, be sure to give us a rating on your podcast Player of Choice.
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Intro/Outro: Thank you so much for listening. Until next time.
